The Association of Investment Management Companies (AIMC) has played down investor concerns about the 15% withholding tax placed on fixed-income funds, noting that the levy will be implemented on new fixed-income funds established from Aug 20.
Despite alarm among some investors, the tax will not immediately affect existing bond holders, said AIMC chairman Vasin Vanichvoranun.
Investors can continue to invest in fixed-income funds until bond maturity, as the tax will be imposed on new fixed-income funds set up from Aug 20 onward, Mr Vasin said.
Last year, the cabinet approved the tax tweak as a means to reduce inequality in taxation between direct investment in debt securities and investment in debt securities through mutual funds.
Individuals who invest in debt securities or make deposits in banks are subject to a 15% withholding tax rate on interest, profits or discount, while investment in mutual funds with an asset allocation in debt instruments was tax-exempt before the 15% withholding came into effect. Fixed-income funds' unit holders at the time were subject to only a 10% withholding tax on dividends.
Fixed-income funds established before the law's enforcement, as well as retirement mutual funds (RMFs), remain tax-exempt.
The Finance Ministry expects to fetch annual revenue of 1.6-2.5 billion baht from the 15% withholding tax, said Finance Minister Apisak Tantivorawong.
There are concerns that the tax will cause investors to shift from fixed-income securities to other funds such as property funds, REITs or equity funds with high dividends.
"Market mechanisms will work after the tax becomes effective," Mr Vasin said. "Bond issuers may offer higher returns on investment, while fund managers could offer other similar products akin to fixed-income funds.
"Investors could shift investment into other assets or even continue to invest in fixed-income funds."
He said the tax will cover direct investment in global bonds, but it will exempt investments made in foreign investment funds, feeder funds, fixed-income funds established before the effective date, RMFs, provident funds and RMFs investing in bonds of provident funds.
