Stock investors who have been following the news recently are likely to have seen news about the imposition of a financial transaction tax on securities trading from 2022 by the Ministry of Finance and the Stock Exchange of Thailand, after being exempted for over 30 years. Although the current government has not yet implemented this policy, stock investors still need to understand this type of tax to prepare for the future. What is this type of tax? What do you need to understand? We will summarize it in this article.

Understanding “Financial Transaction Tax”

Financial Transaction Tax (FTT) is a specific business tax that arises from the sale of securities or shares on the stock exchange. Thailand used to collect this tax before suspending collection in 1992. However, before delving into the conditions and policies of the financial transaction tax, investors should understand its origin and past collection details.

Origin of Financial Transaction Tax

The FTT originated from the Ministry of Finance’s attempt to reduce income inequality and increase fairness in tax collection. In addition to the income tax that you are familiar with, the collection of FTT aims to leverage the strength of the Stock Exchange of Thailand for national development.

• Originally, Thailand collected FTT, or sales taxes, from income generated by the sale of securities on the Stock Exchange of Thailand.
• In 1982, the sales tax was exempted for the sale of securities on the Stock Exchange of Thailand.
• In 1992, the tax system changed from sales tax to special business tax, or specific business tax, which had to be paid at a rate of 0.1%, combined with a local tax of 10% of the specific business tax, resulting in a total tax of 0.11%.
• However, the specific business tax has been exempted from the sale of securities on the Stock Exchange since 1992, approximately 32 years ago.

Currently, the Stock Exchange of Thailand has grown significantly, prompting the previous government to reconsider collecting FTT, aiming for implementation in April 2023. However, this has not yet been officially enforced. The latest article from the Stock Exchange of Thailand (SET) by the Secretary-General of the Thai Investors Association confirmed that the current government has not yet imposed an FTT.

How Will FTT Be Calculated?

If an FTT is implemented, it will be calculated based on the actual transaction value from the sale of stocks, starting from the first unit. The tax consists of a specific business tax at a rate of 0.1%, combined with a local tax of 10% of the specific business tax, resulting in a total tax rate of 0.11%.

For example, if you sell stocks worth 100,000 baht, you will have to pay a total FTT of 100,000 x 0.11% = 110 baht. In the first year that the law comes into effect, the seller of shares will receive a 50% tax discount. For instance, if you sell shares worth 1,000,000 baht, the first year will be taxed at a rate of 0.055%, which is 550 baht or “500 baht per million”. [Should be 550 million, no?] In subsequent years, the tax will be collected at a rate of 0.11%, which is 1,100 baht or “1,100 baht per million”.

There are also other fees for selling shares that the seller must pay each time they sell shares, such as broker fees, a 0.005% stock exchange fee, a 0.001% settlement and delivery fee, a 0.001% regulatory fee, and a 7% VAT on top of all the above fees. Therefore, the seller will have to pay a tax on the sale of shares of approximately 0.195% in the first year (due to the tax discount) and 0.22% in the following years, significantly increasing the cost of selling shares per transaction.

How to Pay Tax on the Sale of Shares

So, how do you pay tax on the sale of shares? Do you have to collect the trading documents yourself and pay the tax? Fortunately, the policy specifies that each broker can immediately withhold the stock sales tax from investors and pay the tax on behalf of the stock seller, without the seller having to file the tax form.

Is the Cost of 0.22% per Transaction Too High? How Do Other Countries Collect FTT?

When comparing the increased cost with other stock exchanges that are similar and competitors of Thailand, you will find that each country has different tax collections:

• Singapore collects stocks sale tax at a rate of 0.20% only for transactions that transfer or sell securities on paper manually. If sold electronically, no tax is collected.
• Malaysia collects stock trading tax at a rate of 1.29% for both buying and selling transactions.
• Hong Kong collects stock trading tax at a rate of 0.38% for both buying and selling transactions.
  
  

It is evident that the stock sales tax rate in Thailand is still lower than in both Malaysia and Hong Kong, making it competitive. However, to maintain this competitiveness, we should compare it with Singapore, which is considered the world’s third-largest financial center after New York and London. Singapore has a lower collection rate than Thailand and only taxes manual transactions, benefiting investors and providing a significant incentive for investment.

Who Has to Pay and Who is Exempt from Stock Sales Tax?

Everyone who sells stocks in the stock market must pay the financial transaction tax. However, there are exceptions for some groups who are not required to pay this tax. These groups include:

1. Market Makers registered with the Stock Exchange of Thailand, who do not pay financial transaction tax when selling securities they are market makers for. This group creates “liquidity in the market,” facilitating trading.
2. The Social Security Office
3. Provident Funds
4. The Government Pension Fund (GPF)
5. Aid Fund under the Private School Act
6. Retirement Mutual Fund
7. National Savings Fund (GSF)
8. Mutual funds established under the Securities and Exchange
   Act to sell investment units to the Social Security Office or funds listed in No. 3 – 7 above.

Why Did Thailand Choose to Collect Tax from Sales Transactions, Not Capital Gains?

Another hot issue for investors is the question, “Why did they choose to collect tax from sales transactions, not capital gains?” If the Ministry of Finance wants to reduce inequality for the benefit of the people, it should not collect Financial Transaction Tax (FTT) from sales transactions but instead collect Capital Gains Tax. Not all investors will receive profits from sales; if there is a loss, it will result in investors bearing even higher fees and taxes.

The Ministry of Finance has analyzed the collection of specific business tax from the sale of securities to assess its impact on investment and trading value in the stock market. It concluded that creating a system to collect, calculate, and analyze profits from stock sales would be very expensive. Therefore, it has chosen to collect tax from sales transactions to simplify analysis.

Conclusion

However, the collection of financial transaction tax has not been officially enforced at present. There are still many issues and concerns related to it, such as the tax collection rate, the method of tax collection, and the tax collection system.

Additionally, the possible impact on the liquidity of the stock market after tax collection needs to be considered. Relevant government agencies, such as the Ministry of Finance and the Stock Exchange of Thailand, must continue to study these factors to develop a quality tax collection system that truly addresses the issue of reducing inequality.

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