The Finance Ministry has agreed in principle to extend tax incentives for investment in long-term equity funds (LTFs), which were scheduled to expire at the end of 2016, with a requirement of a longer investment period and potentially cutting the tax privileges.
An investor receives advice at this year's SET in the City fair. The Finance Ministry is likely to recommend extending the LTF scheme with cuts in tax allowances. Somchai Poomlard
The current five-year holding period for LTF investment is likely to be extended to 10 years in the new version, said Kritsada Jinavijarana, director-general of the Fiscal Policy Office.
The Finance Ministry's latest move clarifies potential changes in investment tax incentives, designed to encourage taxpayers to save for their future and to stabilise stock market investment. LTF investment is fairly popular among taxpayers, with asset size rising by almost 30 times from 2004 to more than 200 billion baht today.
Institutional investors' turnover ratio on the Thai bourse has risen to 9-10% from 5-6% when LTFs were launched, and LTFs have helped the exchange to guard against sell-offs by some types of investors.
Taxpayers can deduct contributions of up to 15% of their taxable income or 500,000 baht, whichever is lower, for investment in LTFs. However, money invested in LTFs must be held for at least five calendar years.
The ministry earlier said it planned to scrap the LTF scheme after it expired, as high-income earners enjoyed most of the benefits. Moreover, some LTF investors hold the units for slightly more than three calendar years, buying units at year-end and redeeming them early in the fifth year, which is not considered long-term investment.
However, the Federation of Thai Capital Market Organizations argues 700,000 people invest in LTFs, mostly middle-income earners.
Mr Kritsada said two options were being weighed — cutting the ceiling tax deduction of 500,000 baht for LTF investment or cutting the overall deduction to 800,000 baht a year.
Some taxpayers are eligible to deduct up to 1.2 million baht of taxable income if they use all tax incentives. The tax allowance for mortgage interest is capped at 100,000 baht a year, life insurance premiums at 300,000 baht each per year and retirement mutual funds at 500,000 baht annually.