'Super' fund full of flaws
The Prayut Chan-o-cha cabinet recently approved the Super Savings Fund (SSF) as a new tax-saving fund to replace the Long-Term Equity Fund (LTF), for which the tax incentive is due to lapse at year-end.
However, it seems that the new fund is not really aimed at responding to either the low long-term savings rate in the country or controlling fluctuations in the capital market.
It is believed that the true objective of the new fund is to increase revenue in state coffers which are suffering from a high budget deficit.
The government said the objective of the new fund has been changed to promote long-term savings among the general population instead of supporting the capital market. That's why the SSF raised the ceiling for contributions entitled to a personal income tax deduction to 30% of annual accessible income, compared to 15% for the existing LTF.
The lock-up period for contributions to the SSF is also extended to 10 calendar years, longer than the LTF's seven years.
Superficially, it looks as if the new fund aims to encourage people to "save" or invest via the fund. But that's not so if the ceiling amount of the tax deduction is taken into account.
The tax-deductible amount under the SSF is capped at 200,000 baht a year, much lower than the LTF's 500,000 baht.
This lower cap will do little to encourage middle-income earners to invest through the fund, particularly when their money will be locked up for 10 years.
Without the support of middle-income earners, it will be difficult to achieve the ambitious goal of boosting long-term savings.
On the other hand, low-income earners who are struggling to make ends meet will likely ignore the fund.
It's paradoxical. While the government says it wants people to save more money, it keeps rolling out policies and measures that boost consumption and encourage people to spend more.
In fact, it's quite obvious that the idea behind the SSF is to increase tax revenue. The government reportedly loses some 14 billion baht a year in tax deductions via the LTF scheme. In addition, the LTF's tax deduction criteria create inequality. This is because higher-income people get more of those tax benefits.
But it must be admitted that the LTF is an effective tool to help taxpayers, especially those among the middle class who are upset with the country's unfair tax collection system, feel better.
Some studies suggest that middle-class taxpayers ranging from street vendors to company employees form the largest group of personal income taxpayers. They have been faced with stringent evaluation measures by the Revenue Department as the agency moves to expand its tax base. Yet, it's a well-known fact that in Thailand the system allows the super-rich and politicians to "legally" avoid paying all of their taxes.
While the government uses huge amounts of tax money to support low-income earners and higher-income people enjoy the greatest benefit from tax deductions, it's those in the middle-income class who bear the brunt of heavy tax payments. They are also the largest group that is being ignored by the government.
Technically, there are possibilities if the government wants to change and solve inequality stemming from the LTF criteria. But if they want to tackle inequality in the tax collection system and promote long-term savings, they should know the SSF will not bring them closer to the goal.
Bangkok Post editorial column
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