Are there property taxes in Thailand? If so, why isn't everybody paying them?
Property taxes are taxes one pays to the government periodically just because one owns property.
The property taxes that exist now are inconsistent and do not provide the government with what it considers to be adequate revenue. There are two important bases of property taxation at present. First, there is the Act on House and Land Tax, BE 2475 (1932). This law taxes rental income or assessed rental income on property at 12.5%. If the tax is not paid there is a penalty of:
- 2.5% of the unpaid tax for the first month in which the tax is unpaid;
- 5% for the second month;
- 7.5% for the third month; and
- 10% for the fourth month in which the tax is unpaid.
After four months, if this tax isn't paid, the authorities have the right to seize and sell the property.
Property in which the owner resides is exempt from rental tax.
There are problems with the rental tax. Revenues under it overlap with the income tax law. Also, in practice, compliance is mainly voluntary and doesn't happen much.
The second existing property tax is the Municipality Tax Act, BE 2508 (1965), which applies taxes based on the Appraisal Price Law, BE 2521(1978) to 2524 (1981). The Appraisal Price Law, however, sets values too low to allow for what the government considers adequate revenues. The Municipality Tax Act therefore encourages what is referred to by some as speculative holding of large blocks of land.
Recently there was a comprehensive bill proposed in parliament for property taxes. It was the draft Act of Land and Construction Tax, BE 2554 (2011). This draft has been rejected, but in September, 2012, the government's Fiscal Policy Office asked that parliament consider a revised version (the Revised Draft).
The tax rates in the Revised Draft are:
- Land used for agricultural purposes: 1% of appraised value;
- land and building used for residential purposes: 0.1% of appraised value;
- land used for proposes other than those above: 2% of appraised value;
- undeveloped, unused land: 0.4% of appraised value for the first year of possession by the owner, 0.5% for the second and third year of possession, doubling every three years and increasing to a maximum of 2.0% of the appraised value.
Failure to pay these taxes would, under the Revised Draft, lead to penalties and even forfeiture of the property.
If the Revised Draft is passed, the idea is that it would replace the existing taxes mentioned above. Previous drafts have provided for a phase-in period of the new law over a period of several years.
One of the biggest objections to earlier versions of the Revised Draft has been by landowners. Proponents of taxing unused land say it encourages the land to be used by those who need it and discourages land speculation. Landowners say it may lead to the breakup of estates that have been in existence for generations.
There has been another objection to earlier versions of the Revised Draft _ that taxing land will hurt the poor, who can't afford to pay more taxes. Earlier drafts have, therefore, made exemptions for small plots.
Whether the Revised Draft eventually passes is a major policy issue for the future of Thailand's legal system and economy.
So stay tuned.
James Finch of Chavalit Finch and Partners (finch@chavalitfinchlaw.com)
and Nilobon Tangprasit of Siam City Law Offices Ltd (nilobon@siamcitylaw.com).
Researchers: Arnon Rungthanakarn and Sitra Horsinchai.
For more information visit www.chavalitfinchlaw.com.
Questions? Contact us at the email addresses above.