The Securities and Exchange Commission (SEC) is conducting a public hearing on revising regulations to set up mutual funds for provident funds that invest in fixed-income securities, with the aim of reducing tax evasion and promote savings.
In August 2018, the cabinet approved a tax tweak to impose a 15% withholding tax on gains from mutual funds investing in fixed-income securities.
The new rule is expected to take effect in the middle of this year.
Individuals who invest in debt securities or put deposits in banks are subject to a 15% withholding tax rate on interest, profits or discounts, while investment in mutual funds with asset allocation in debt instruments is exempt from the tax before the 15% withholding tax comes into effect.
Fixed-income funds established before the law's enforcement, as well as retirement mutual funds (RMFs), will remain tax-exempt.
The regulation will incur a tax burden for provident funds that invest in fixed-income securities through mutual funds, while provident funds investing directly in debt instruments will remain tax-exempt, the SEC said.
In a bid for investment compatibility, the Finance Ministry is mulling exempting the withholding tax and corporate income tax for mutual funds whose unit holders are solely provident funds.
The SEC also plans to revise regulations on setting up mutual funds.
Mutual fund unit holders must be part of provident funds, and the minimum number of unit holders is 35.
Mutual funds must also not be identified as long-term equity funds (LTFs), exchange-traded funds (ETFs) or RMFs, while securities or assets can be used to pay for purchasing investment units instead of cash.
The public hearing ends on Feb 22, and results are expected to be announced by May, according to the SEC.
