Revocation of withholding tax waiver to affect bond market development

BANGKOK, Oct 12 -- The Finance Ministry’s plan to seek Cabinet approval for a review of the proposed exemption of the 15 per cent withholding tax on interest returns and profits earned by foreign investors from debt instrument sales will impact trading on the fixed income market since investors will have higher financial costs, according to Thai Bond Market Association president Niwat Kanjanaphoomin.

He said the measure to revoke the tax waiver will help slow Thailand's foreign capital inflow, which could therefore ease the strengthening of the baht.

However, the impact would not be as severe as the 30 per cent reserve requirement, which was effected on Dec 18, 2006.

Mr Niwat believed the government would adopt the measure only temporarily because if it were taken permanently, the market would be affected in the long run.

“I admit the measure may have an impact on the fixed income market development in the long run. Still, I believe it will affect the newly-issued debt instruments only and be adopted temporarily. More importantly, the government must be clear on this matter, otherwise the policy to encourage investment in the fixed income market will be affected.”

Mr Niwat conceded foreign investors had invested more in government bonds. In the first nine months of this year, they had purchased bonds worth Bt210 billon.

In that period, it was not clearly determined that foreign investors had speculated on the baht through the fixed income market because there was both short- and long-term trading of debt instruments. (MCOT online news)

-- TNA 2010-10-12

Take cover. Thai Bond market is about to clash then.

However, the impact would not be as severe as the 30 per cent reserve requirement, which was effected on Dec 18, 2006.

that a withholding tax of 15% (actual loss) is less severe than a 30% reserve requirement (blocked money for a certain period, no interest) is an interesting claim.