Thailand: Foreign investors deterred by financial transaction tax

Enforcement of the financial transaction tax could give foreign investors a reason to exit the Thai stock exchange and focus on other bourses, according to investment analysts.

The tax on securities trades, which comes into effect next year, could drive foreign traders away as the levy lowers the liquidity of the Thai market, they said.

“The Thai stock market has an advantage over other markets in the region in terms of high liquidity. This appeal, however, is diminishing as a result of the planned tax,” leading investor Niwet Hemwachirawarakorn told a forum hosted by the Federation of Thai Capital Market Organizations (Fetco) yesterday.

The tax will add trading costs to investors and reduce their interest in trading on the market, he said.

If more traders leave the market, companies will feel less inclined to join, as the market size will certainly shrink, said Mr Niwet.

At least 50% of investment in the Thai stock market comes from foreign investors, and inexpensive fees is the market’s major selling point for this group, he said.

According to the Revenue Department, the tax will add 0.22% in costs for stock investors. If levied at 0.11%, the tax would generate 15-16 billion baht in revenue per year for the state coffers.

Paiboon Nalinthrangkurn, chairman of the Investment Analysts Association, said higher trading costs will incentivise foreign investors to turn to other stock markets, such as Singapore’s bourse, which does not charge a share sale tax nor a dividend tax to investors.

“The share sale tax will add 5.5 basis points to the current 3-basis-point fee. That is a 200% increase,” he said.

“Singapore is no doubt our key competitor, as it is a developed market and a financial hub for funds in Southeast Asia.”

Unlike other stock markets, Thailand has double taxation on equities. Last year the collection of dividend tax reportedly amounted to 60 billion baht.

Instead of the levy imposition, the Thai stock market needs better support from the government, said the analysts, particularly for foreign investors to take part in the technology and innovation sectors.

“Collecting the share sale tax will make the market’s liquidity recede back 10 years,” said Mr Paiboon.