The recent decision by Prime Minister Prayut Chan-o-cha to put the brakes on a controversial new tax on land and buildings has given not only great relief to many property owners but also a break for policymakers to rethink the bill and allay the public's fears, say developers.
Atip Bijanonda, president of the Housing Business Association, sees it as imperative for the bill to be delayed for a while to make it clearer and review some issues.
The planned tax has stoked fears among homeowners and landlords, particularly middle-income earners, that their tax burden would be too high. The public outcry prompted the prime minister last month to shelve the bill for further study, citing the economic slowdown and possible effects on low-income earners.
Finance Minister Sommai Phasee says the draft bill is expected to take four months to complete and he will continue to push for it to receive cabinet approval under the present government's tenure.
The land and buildings tax was listed as one of the government's priorities, as it seeks to narrow economic disparity, improve land use and raise revenue streams to help fund hefty investment in infrastructure projects.
Based on the Finance Ministry's latest proposals, homeowners would be charged 0.1% of the appraised value of their property. Land for agricultural and commercial use would be taxed at 0.05% and 0.2%, respectively.
Houses with an appraised value of up to 2 million baht would receive a 75% tax allowance, translating into a 250-baht tax payment for every 1 million.
Residences with an appraised value of 2-4 million baht would receive a 50% tax allowance, with homeowners liable to pay 500 baht for every 1 million on amounts exceeding 2 million but no more than 4 million.
For houses with an appraised value of more than 4 million baht, owners must pay 1,000 baht for every 1 million of appraised value for amounts exceeding 4 million.
Land for agricultural use with appraised value of less than 1.5 million baht would be exempt from tax, while landlords of vacant land would be punished with a tax rate increase every three years, not exceeding the ceiling rate.
Mr Atip suggests the government should not charge tax on common property in housing estates and condo projects that is defined by the Land Development Act of 2000 as an area or asset used for public services or facilities such as a road, park or playground.
For condo projects, common property comprises the other parts of the building apart from the residential unit such as corridors and fire escapes. It includes the land plot where the building is situated and land and/or other assets used for public services, according to the Condominium Act of 2008.
"Common areas should not be taxed, not even at a lower rate than other property types," Mr Atip says.
Every house or condo unit in a project managed by a housing estate or condo juristic person is legally obliged to pay a common area management fee each month. Part of this fee is used to maintain and repair common property.
Well-maintained common property will eventually raise the value of that project. When the land and buildings tax act is enacted, a residential unit in a well-maintained project may need to pay a higher tax rate than a unit in a poorly maintained site nearby due to its higher property value.
"In a condo or housing project, the common property value is tied in with the unit value. When a unit gets taxed, common property is also taxed implicitly," Mr Atip says.
It is also easy to categorise individual and common property in a project, as the title deeds of the common area are endorsed as a public utility that cannot be bought, sold or mortgaged.
However, facilities that generate revenue from visitors, such as a clubhouse or swimming pool, or rental space for commercial use should not be tax-exempt.
More than 60% of Bangkok residents live in either a housing estate or a condo project.
"The land and buildings tax will go to local administration. Part of this tax will be used to maintain and repair public facilities such as roads, but not those in housing or condo projects," Mr Atip says.
He says costs of maintaining common areas are paid by unit owners, not out of the local administration's budget, so such areas should be exempt from taxation.
Prasert Taedullayasatit, president of the Thai Condominium Association, says taxation of common areas in a housing or condo project, which would increase common area management fees, might discourage unit owners from paying management fees.
"Payment of common area management fees is a problem in some projects, as some unit owners are reluctant to pay. If the fee increases from the land and buildings tax, the number of these people will rise," he says.
Mr Prasert suggests the tax ceiling be lower to avoid such resistance. The tax base, which will depend on the appraised price, will grow higher as the price appraisal is changed every four years in a rising rate by 10-15% per time.
Samma Kitsin, director-general of the Real Estate Information Center, suggests the government start with lower tax rates in the first three years and gradually raise them in steps so that people can adjust to the tax payments.
In the first period, tax may be exempted for a unit valued at not more than 2.5 million baht, charged at 0.05% for a value of 2.5 to 5 million baht and 0.1% for a value of more than 5 million baht, he says.
"The effective date should be in 2017 so that people will have time to prepare," Mr Samma says.
If the tax becomes law, Mr Atip suggests an adjustment of transfer and mortgage fees, now at 2% and 1% of the appraised property price, respectively.
"Transfer and mortgage fees should be fixed or have a maximum rate such as 2% or not more than 5,000 baht. They should not be varied by appraised price, as both fees are local maintenance taxes that would duplicate the land and buildings tax," he says.
Mr Atip suggests land plots in a developer's housing inventory, being developed for a housing project or for future development be tax-exempt for a certain period.
Developers' land plots must have a land subdivision permit or a construction permit to qualify for a tax waiver. To prevent a loophole, he says, the waiver period should be no longer than five years for a plot sized larger than 100 rai and three years for smaller plots.
Mr Atip says the government should allow the Thai Chamber of Commerce to discuss details of the taxation, as the hotel, industrial estate and retail sectors have different characteristics.
Kittipol Pramoj Na Ayudhya, executive director of the Thai Real Estate Association, says hotels would face different bills if the new tax takes effect. Hotels now pay house and land tax at a rate of 12.5% of rents per year. If the land and buildings tax becomes law, hotels may pay less tax.
"Taxation under the land and buildings tax will depend on location. If a hotel is located in a prime location such as the central business district where appraised property prices are high, tax will be higher than in other locations," Mr Kittipol says.
Suwannee Wattanavekin, an executive vice-president of Kiatnakin Bank, says Thai Bankers' Association members have discussed the effect of the land and buildings tax on banks' assets, particularly non-performing assets (NPAs).
"NPAs should be waived for the land and buildings tax, possibly for a certain period, as they are assets from bad debts that have caused a loss to banks," she says. "Banks want to sell them as soon as possible. We don't want to keep them."
Kiatnakin Bank has NPAs worth 6 billion baht, with land accounting for more than 60%.