THURSDAY, March 28, 2024
nationthailand

'Widespread impact' if tax incentive for LTF withdrawn

'Widespread impact' if tax incentive for LTF withdrawn

The country's capital market, investors and asset-management firms will all feel the impact if the tax incentive for investment in long-term equity funds (LTFs) is not renewed in 2016, with domestic investors in particular having less sentiment for this

Teeranat Rujimethapass, managing director of Tisco Wealth Asset Management, said LTFs had successfully brought in new investors who were never interested in stocks.
“There are those who know that long-term investment in stocks can provide better returns, and they would continue to invest in long-term equity funds [without the tax incentive]. But it would be harder to expand the market to people who never invested in stocks with a long-term view, and there are a lot of them,” he said.
He said that if the government still wanted to promote the capital market and wanted the country to become a regional investment hub, it should take a long-term view, and getting rid of the tax incentive for LTFs would be a step in the wrong direction. 
He also explained that rich people in this country did not usually pay tax; those who do are mostly middle-class and white-collar people. That means the tax deduction on LTFs would mostly benefit the middle class, and without the incentive, people might have less incentive to save via such investments as part of their pension plans.
Yupawadee Tuchinda, executive vice president of Kasikorn Asset Management (KAsset), said that if the tax deduction is not renewed, growth of this type of fund group would cease and the LTF market would eventually disappear, as most people would begin to transfer their investment to other types of long-term funds.
Such a migration would, however, not occur all at once, she said.
She expects the size of the overall LTF market to expand from the current net asset value of around Bt245 billion to between Bt300 billion and Bt400 billion by the time of the deadline for the renewal of the tax deduction.
There are currently Bt3.77 trillion worth of mutual assets in the system, including 53 LTF funds, accounting for Bt245 billion as of September 5, or around 6.5 per cent of the entire mutual-fund market.
Yupawadee explained that brokers would lose part of their profits, especially asset-management businesses that have large LTF funds to manage.
At the same time, investors would lose part of their bonus from the tax deduction and the long-term income they gain from having their money in an LTF, as this means of investment has always paid out since it was introduced a decade ago.
She said those concerned should consider carefully whether to maintain the tax deduction, and pointed out that anybody could invest in an LTF, as there was no minimum level of investment.
Therdsak Thaveeteeratham, executive vice president for the research department at Asia Plus Securities, said the status of LTFs would be less appealing for investors wanting to invest in long-term funds, due to the lack of an incentive and worse came to the worst, people might turn to short-term investment, and that could lead to a less stable market with more fluctuation than the current one.
Korawut Leenabanchong, chief executive officer of Aberdeen Asset Management (Thailand), said that LTFs paid out every five years, which was when some investors tended to sell off their holdings.
However, around 50 per cent of them opt to reinvest in their LTF since they do not have to put any new capital into it, while around 30 per cent of LTF investors never sell their holding, and this habit provide contributed to the stability to the system.
Korawut said that if people did continue to invest through LTFs, there would be less of a burden on the state, as they could use the profits towards healthcare in their retirement instead of having to rely on financial support from the Social Security Office.
In his experience, billionaires do not usually invest in LTFs, he added.
Boonlert Jitmaneeroj, suggested that the cancellation of the tax incentive for LTFs should be done in steps, such as lowering the deduction from the current 15 per cent to 10 per cent, and then waiting for the market reaction before lowering it further if need be. This could prevent people from giving up on long-term funds entirely.
nationthailand