Collection of Investment Income Taxes on Bond Funds

Abstract

     On 14th February 2019, the National Legislative Assembly has passed the Act Amending the Revenue Code (No. ..) B.E. …. (Collection of Bond Fund Investment Income Tax) in order to enact it as law. On 22nd May 2019, the Act Amending the Revenue Code (No. 52) B.E. 2019 was published in the Government Gazette which will come into force on 20 August 2019. The substance of the Act is to broaden the definition of “company or registered partnership” to include the registered mutual fund regardless of it being established under the law regarding securities and exchanges, other laws, or foreign law. This has resulted into the mutual funds under both Thai and foreign law turning into a tax entity. Thus, when taxable income under Article 40 (4) (Kor) arises, these funds will have to pay corporate income tax at the rate of 15% of revenue before deducting expense, in order to achieve horizontal equity in the tax burden of those who invested directly in bonds and those who invested through bond funds.
     Nevertheless, as the research on foreign laws suggests, numerous countries opt to tax bond fund income at the individual level instead of at the fund level, notwithstanding method of investment, regarding mutual funds as only pass-through entity, by grouping income from bond funds with other taxable income or using separate special assessment.
     Although the collection of corporate income tax for taxable income under Article 40 (4) (Kor) from which mutual funds have received would contribute to horizontal equity in taxation between those who invest in bonds through mutual funds and those who directly invest in bonds, the fact that the Ministry of Finance has a policy to tax mutual fund only of its investment in bonds, with a plan to enact subsequent laws to exempt corporate income tax for mutual funds’ investment in stocks, real estate, or non-bond instruments, would bring about several issues to further consider, e.g., fairness in taxation between bond funds and other types of mutual funds, risk of investing through mutual funds, returns for investors as well as impacts on secondary market.