Indonesia Stock Exchange has been trying to encourage the growth of ETF (exchange-traded fund) market by giving incentives. An exchange-traded fund is a collection of securities – such as stocks – that tracks an underlying index. Examples of the indexes mentioned before are Dow Jones, S&P 500 and LQ45 which contains a list of issuer companies with stable, in demand and well-performing stocks. One of the ETF examples traded in the market is SDPR S&P 500 ETF (SPY) which trades a stock based on S&P 500 index, to put it simply. So, ETFS can contain many types of investments, including stocks, commodities, bonds, or a mixture of investment types. Currently, IDX has been trying to stimulate the growth of ETF market considering its liquidity in the secondary market is still on a low level. One of the incentives that IDX has proposed to implement is to remove the levy fee for the dealers.
IDX Development Director Hasan Fawzi said the purpose of this incentive is to increase ETF transactions in the secondary market because the ETF transaction liquidity is quite low right now. On Monday (29/7) Hasan said that the reason why the liquidity is quite low it is because investors calculate the purchase offer. According to Hasan, levy fee incentive will be tested for two years. Levy fee will be released after OJK published their agreement. BEI also said that their income from levy fee are still low, they recorded the ETF transaction activity are still under Rp 100.000.000,- per year. BEI also suggested to write-off the value-added tax for the transaction to Directorate General of Taxation (Direktorat Jenderal Pajak). Right now, the Ministry of Finance imposes a final tariff for stock exchange transactions for 0.01%. The reason why they imposes the tariff to 0.01% it is because ETR is a mutual funds in the form of Collective Investment Contracts classified as tax free investment products. And for that IDX asked for a confirmation from the Directorate General of Taxation for the current classification with hope the tax exemption can be valid as of September 1, 2019.
Incentive in the form of abolished levy-fee and tax on ETF products are predicted to be able to attract more companies to register as dealer participant. Hasan also hopes that the elimination of levy-fee and tax could boost interest in ETF products itself and cause ETF to be more liquid in the secondary market. According to IDX, up to this date, only 6 companies are registered as dealer participant, with only 30 ETF products traded within the market. It is hoped that with the incentives that IDX is going to initiate, there will be 10 companies in total to be registered as dealer participant. With the 10 companies’ capability combined, Hasan predicted that IDX’s target of 100 ETFs traded within the market could easily be achieved. The move should be welcomed as another step towards market expansion, creating further ease of access for firms and consumers alike.
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