Financial transaction tax is poorly timed, industry group warns

Fetco chairman Kobsak Pootrakool made the comment on Tuesday after the Cabinet approved a Finance Ministry proposal to levy a financial transaction tax on trades on the Stock Exchange of Thailand (SET).

Calls to tax SET traders have been made for decades, but governments have downplayed them and cited the need to support market development.

The Cabinet’s move, which stipulates that SET investors have to pay a tax equivalent to 0.1% of share sales, will come into effect 90 days after the draft royal decree issued under the revenue code is announced – likely, sometime in the second quarter of next year.

However, during the first year, the tax will be only 0.055% of share sales.

In a Facebook post, Kobsak said Fetco had submitted an open letter to Finance Minister Arkhom Termpittayapaisith on May 5 arguing against the move.

He said that volatility in stock, bond, gold, currency and cryptocurrency markets since last year was discouraging investors and that this volatility would likely remain for some time.

Kobsak also argued that the possibility of a global economic crisis should be considered and that some countries are already experiencing economic distress.

The SET’s liquidity has dropped sharply, he added.

"I would like to confirm that it is not [the right] time to impose a financial transaction tax for stock trades," he wrote.

Fetco's open letter argued that a financial transaction tax for stock trades would severely damage the market by discouraging investment.

The letter cited studies from other countries that said such taxes resulted in delaying retirement by two to three years as investors waited to reach their retirement threshold.

Fetco said the new tax would raise costs for market makers, typically large brokers, on issuing or developing new products, which would weaken the competitiveness of the SET.

"Stock markets in developed countries prefer taxation exemptions because they reduce impacts on savings and encourage wider public investment and innovative development," Fetco said.

Fetco said the tax would significantly dampen investment decisions, especially at a time when volatility was affecting capital markets globally due to the pandemic, the war in Ukraine and rising interest rates.

The cost of raising capital will rise when market liquidity decreases, causing listed companies to slow or reduce their investments in business expansion, resulting in lower profits, reduced productivity and lower gross domestic product.

"Corporate tax will also decrease accordingly because these companies will have less money to pay," Fetco said, adding: "The downside will be especially severe for smaller companies with very limited funding options."

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