An inheritance tax bill on Thursday passed its first reading in the National Legislative Assembly (NLA) as debate raged over whether it would help address social inequality, as intended, or trigger asset flight.
The bill seeks to impose a 10% levy on bequests which exceed 50 million baht.
Somchai: Wants to explore other options
The NLA voted 160-16 to accept the legislation in principle. A 25-member committee has been set up to scrutinise the bill within 90 days.
It also voted 172-8 to accept a bill to amend the Revenue Code to exempt personal income tax from inheritance assets.
Finance Minister Sommai Phasee told the NLA members that revenue from the inheritance tax would be used to develop the country and to raise living standards for the underprivileged.
Taxable assets include residences, land, vehicles, bonds, equities and deposits in financial institutions.
Non-registrable assets, such as jewellery, amulets and luxury watches, are excluded.
The tax would apply to anyone receiving assets worth more than 50 million baht.
Mr Sommai said the inheritance tax would help raise the country's tax revenue to 22% of gross domestic product (GDP), compared with 18% of GDP at present.
He said several countries impose a 20-40% rate on inherited assets.
The tax collection from inheritance would contribute to income distribution, preventing assets from clustering among particular groups of people, he said.
Arguing the bill before the NLA, assembly member Kosol Petchsuwan said preventative measures must be put in place to curtail tax dodging.
Without regulations, the tax could instead benefit other countries as wealthy Thais transfer their money overseas.
Lawmakers must also consider ways to prevent unfair treatment of middle-class people and the owners of small- and medium-sized enterprises.
Sommai: Tax would cut inequality
Measures must ensure they do not end up paying duplicate taxes, Mr Kosol said.
NLA member Somchai Sawangkarn said all views on the bill must be taken into account.
He said academics from several universities have pointed out that the inheritance tax is problematic and cannot directly tackle social inequality.
Other levies, such as a property taxes, should also be pushed ahead to reduce social disparities, he said.
He said he preferred progressive tax rates, unlike the proposed flat 10% inheritance rate, to be fairer to lower-income earners.
Responding to these concerns, Mr Sommai said the levy on bequests of more than 50 million baht is relatively steep.
He said the government would already be targeting high-income people and not middle-income ones.
Jet Siratharanon, an NLA member, cast doubt over whether the inheritance tax is the best way to reach the Finance Ministry's goal of narrowing social inequality.
There are other options that avoid additional taxation, including setting up gross estates or foundations from inheritance assets.
Assembly member Pradit Wannarat said a survey showed 12 out of 25 countries collecting inheritance tax had stopped doing so because it was not cost-effective.
NLA member Issara Wongkusolkij said there must be clear safeguards to ensure the tax revenues are being used to reduce poverty.
Inheritance tax revenue should not be included in the budget system, but rather a set of criteria should be established for how the tax can be used in development.
Finance Ministry Chief of Inspector-General Satit Rungkasiri responded to concerns the inheritance recipients may be unable to pay the tax.
He said laws allow them to pay in installments over five years with no interest in the first two years.