The cabinet of Thailand has approved the establishment of the Thai ESG Extra fund, providing tax-deductible investment opportunities aimed at fortifying the nation's stock market.

Under this new measure, investors who switch their holdings from long-term equity funds (LTF) to the Thai ESG Extra fund will be eligible for substantial tax deductions totaling up to 900,000 baht this year.

According to Finance Minister Pichai Chunhavajira, LTF holders can transfer their entire investments to the Thai ESG Extra fund and access personal income tax deductions of up to 500,000 baht.

The tax deduction structure allows 300,000 baht to be deducted in the current year with an additional 200,000 baht deductible in annual increments of 50,000 baht over the next four years.

For those not wishing to switch to the new fund, no action is required on their part regarding their existing investments.

However, investors who opt for the Thai ESG Extra fund can make additional investments up to 300,000 baht, but these must be finalized between May and June to qualify for the respective personal income tax deduction.

This investment limit for the Thai ESG Extra fund is independent from the existing Thai ESG fund, which similarly offers a tax-deductible investment of up to 300,000 baht.

Minister Pichai highlighted that the Stock Exchange of Thailand (SET) index has seen a steep decline, dropping from around 1,400-1,500 points six to seven months ago to under 1,200 points currently, attributing this downturn in part to investor concerns regarding short selling practices and high-frequency trading that detract from market competitiveness.

The bourse has implemented corrective measures in response to these challenges.

The SET index previously rebounded to 1,400 points following the introduction of the Vayupak Fund, yet recent policy changes in the United States affecting major trade partners such as Mexico, Canada, and China have precipitated further market declines.

The S&P 500 index has experienced losses exceeding 8%, which have adversely impacted Thai equities as well.

In the context of sustainable investing, Minister Pichai noted that ESG stocks are in alignment with prevailing market trends, observing concurrent growth in both the ESG and technology sectors.

The proposal for the Thai ESG Extra fund serves as a potential remedy for LTF holders, who collectively hold investments worth 180 billion baht.

Minister Pichai emphasized the promise of dividend yields and suggested that the transition to the Thai ESG fund could yield enhanced tax benefits.

Additionally, the Securities and Exchange Commission (SEC) and the SET are formulating measures to bolster regulatory compliance among large-cap companies within the SET100 and SET50 indices.

They are also preparing an emergency decree to empower the SEC to rapidly address illegal investment practices that could negatively impact investors, particularly retail investors.

This decree is expected to be submitted for cabinet approval shortly, intended to bolster investor confidence in the market.

As outlined by Pornanong Budsaratragoon, secretary-general of the SEC, LTF investors must choose between transitioning to the Thai ESG Extra fund or maintaining their current investment positions.

Meanwhile, Pornchai Thiraveja, director-general of the Fiscal Policy Office (FPO), projected that the new ESG Extra measure could result in approximately 50 billion baht in tax revenue losses over the five-year period, estimating that 135 billion baht of the 180 billion baht LTF investments may shift to the Thai ESG Extra fund.

Moreover, the FPO anticipates that the allowance for additional investments could attract another 30 billion baht in new investments.

Collectively, this could lead to 165 billion baht qualifying for tax deductions.

In the backdrop of these developments, SET president Asadej Kongsiri reported a 14% decline in market capitalization this year, equating to a loss of around 200 billion baht.