(This article was in IFR Asia magazine, a Thomson Reuters publication, on Oct 16)
By Prakash Chakravarti and Umesh Desai
HONG KONG – Thailand’s move last week to reintroduce withholding tax on government bond holdings comes as policymakers across the region take steps to restrain capital inflows after a sustained rally in Asian currencies. However, there are doubts if these measures will do enough to deter investors in search of yield, and market participants are calling for tax cuts – not hikes.
In what many analysts believe is likely to be an ineffective attempt to arrest an appreciation of the baht, Thailand’s Ministry of Finance last week announced the reintroduction of a 15 percent withholding tax on foreign investments in government debt.
The move appeared to in response to the baht’s 11 percent rise year to date – to its strongest level against the US dollar since the 1997 Asian financial crisis – due largely to supposedly speculative inflows.