The stock market is poised to incur an annual average loss of 60 billion baht if the tax deduction on long-term equity funds (LTFs) are not renewed or a replacement tax-deductible fund is not established, says Kasikorn Securities (KS).
Prakit Siriwattanaket Vice-president, Kasikorn Securities
The loss would dampen investment in the Stock Exchange of Thailand index, with severe damages if no new tax-deductible product is offered, said KS vice-president Prakit Siriwattanaket.
Earlier, Voravan Tarapoom, chairwoman of the executive board at BBL Asset Management, said ending the tax deduction for LTFs would hurt Thailand's stock market because 100 billion baht in Thai mutual funds are scheduled to be redeemed in 2020, and another 100 billion in 2021.
Investment flows from LTFs can help mitigate possible capital outflows from the Thai bourse once the bull run comes to the end, said Mrs Voravan.
The cabinet in late 2015 approved an extension of tax incentives for LTFs for three more years from 2016 to revive waning stock market sentiment and boost domestic savings.
Taxpayers are permitted to deduct contributions to LTFs and retirement mutual funds worth up to 500,000 baht each or no more than 15% of annual taxable income, whichever is lower.
To obtain the tax deduction, individuals must hold LTF units for at least seven calendar years and not be incapacitated or dead.
The Federation of Thai Capital Market Organizations (Fetco) is conducting a feasibility study to prepare an "exit strategy" to mitigate possible investment outflows if the Finance Ministry does not extend the tax deductions on LTFs next year.
There are three reasons behind Fetco's plan to terminate the tax-deductible LTFs, said Mr Prakit.
Increasing revenue for the government's coffers is the first reason as termination of the tax-break LTF will increase revenue by around 10 billion baht per year, said Mr Prakit.
Providing greater access on savings for middle-to-low income earners is seen as the second reason, he said.
The last reason is Fetco may want to propose new types of funds to replace LTFs with tax incentives that may be less generous than those offered by LTFs, said Mr Prakit.
The outstanding value of LTFs is around 380 billion baht, according to KS.
Of the amount, 140 billion baht will be redeemed next year. This amount is split between 60 billion worth of inflows from 2014 and 80 billion worth of inflows from before 2014.
The remaining 240 billion baht accounts for inflows during 2015-16, of which 150 billion will be redeemed in 2020-2021 and 90 billion will be redeemed in 2024-2025.
KS expects inflows into LTFs of at least 30 billion baht in the next two months.
