The Cabinet has approved a tax on share transactions

The cabinet imposed a financial transaction tax on individual stock investors, thereby removing a four-decade exemption.

According to Finance Minister Arkhom Termpittayapaisith, the decision on Tuesday intends to promote equity in the tax system between stock market securities dealers and persons who do not have contact with the Thai exchange.

The financial transaction tax on share sales by individual investors trading on the Thai Stock Exchange has been in place for almost 40 years, although the government has repeatedly waived it to stimulate market development.

The collection is mandated by Revenue Department laws, which demand the payment of a 0.1% special business tax on securities trades, as well as a 10% municipal tax, bringing the total financial transaction tax to 0.11% per share traded.

According to Mr. Arkhom, the cabinet has authorized the termination of the decades-long tax exemption in principle.

He stated that the precise rate of the charge must await approval from the Council of State. If the Council of State approves, the regulation will be returned to the cabinet for approval before being published in the Royal Gazette.

The tax goes into effect three months after it is published.

Securities trades by market makers, such as provident funds, the Government Pension Fund, or the Social Security Fund, would be free from taxation since they are large-scale entities that play an important role in ensuring the liquidity of the stock market, according to Mr. Arkhom.

“The financial transaction tax will be levied on securities trades beginning with the first baht of revenues available from stock sales,” he explained.

“It is projected that levying this tax at 0.11% will create 15-16 billion baht in income for the state’s coffers every year.”

According to a Finance Ministry source who requested anonymity, the levy will be charged at 0.055% (including municipal tax) in 2023, and will thereafter climb to 0.11% in successive years.

According to Adisak Phupiphathirungul, first vice-president of Thanachart Securities, the cabinet’s decision will be detrimental to brokers and the stock market since it will raise transaction costs.

Individual investors would face the biggest damage, particularly for small-cap companies, according to Mr. Adisak, because institutional investors do not focus on volume trading.

“It is expected that trading volume will fall in this category, and small-cap equities will lose investor appeal as transaction costs rise,” he told the Bangkok Post.

According to Mr. Adisak, the stock market’s total liquidity would be reduced, partially because purchasing and selling stocks would be more difficult, and investors would divert their emphasis to other places because investing in abroad markets is not difficult these days.

“The government estimates that collecting this tax would generate at least 10 billion baht in income, but I’m concerned the impact from losing trading on the stock exchange will be greater,” he added.

On the plus side, collecting taxes on share sales would encourage investors to keep shares for longer periods to avoid paying taxes.

If the government believes that increasing tax collection would improve the entire economy, such a program may be “worth it,” according to Mr. Adisak.

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