The Stock Exchange of Thailand has warned that the Finance Ministry’s plan to reintroduce a 0.1% tax on stock sales could significantly affect the stock market’s liquidity and slow economic recovery.
The exchange said the 0.1% levy was set in 1991 and was commensurate with average brokerage fees of around 0.5% at the time.
However, as the brokerage industry has become more competitive, the average commission rate has dropped significantly and currently stands at just 0.08%.
If the government imposes a sales tax of 0.1% on top of the local tax of 0.01%, the commission fee to tax ratio will be 0.7:1 times, which will more than double the cost of transactions, will discourage investment and therefore lead to a decrease in market liquidity. overtime.
When liquidity contracts, the corporate sector’s cost of capital will also rise, making it more expensive for companies to raise funds in the capital market, the exchange explained.
As the Thai economy has yet to fully recover to pre-Covid levels, these listed companies may consider slowing down or reducing their investments to offset rising costs which could lead to lower employment and lower productivity. GDP growth, SET said.
Service providers of products such as exchange-traded funds, derivative warrants and single stock futures such as asset management companies may also face double tax costs, as these instruments of investment involve trading stocks on the stock exchange.
The tax will limit the development of innovations that can benefit investors and improve the competitiveness of the Thai capital market. The Ministry of Finance should therefore grant an exemption to market makers, mutual funds, pension funds and provident funds, in order to promote savings and the development of innovative investments. instruments, the exchange said.
The ministry should also inform the public and businesses of the tax collection plan in advance to give them time to prepare and adjust their investments to mitigate the risks of rising costs and volatility. triggered by inflation, rate hikes and the prolonged pandemic and geopolitical warfare.