Oh dear, now they want to tax our love

Oh dear, now they want to tax our love

Together with the widely criticised draft inheritance tax, the cabinet has submitted to the National Legislative Assembly another far less noticed draft law amending certain sections of the Revenue Code.

The rocket scientists who drafted the Revenue Code tell us that since the proposed inheritance tax (or death tax) can only be levied after someone dies, the government wants to close the loophole that some wealthy people might try to exploit by transferring all or part of their estate to loved ones when they are still alive.

Be that as it may, if parliament were to pass this draft amendment in its present form, it would affect the lives of everyone, including expats.

The effects of the proposed amendment are summarised as follows: 

TRANSFER OF LAND

If you are the legitimate son or daughter of parents who are transferring land or the right to possess real estate to you, and the assessed value exceeds 10 million baht, you would be taxed at personal income tax rates (but you could opt to pay a 5% flat tax rate).

The person who drafted this law must have assessed the value of his own home at 10 million baht and concluded that no one else should have a more expensive place, so let's tax anyone who receives such a gift. This Marxist "take from the rich to give to the poor" concept has been discarded even by Marx's brightest disciples such as Russia (in 2008) and China (in 2013).

There are also concerns about the meaning of "the right to possess real estate". The current wording of the draft law would include the right to stay with your parents. If you live with your parents in a big house, condo or apartment, and they transfer other real estate to you, some smart tax collectors might want to calculate your total assessable income for gift tax purposes by including the assessed value of the right to occupy such real estate.

If you are adopted, or a grandchild, niece or nephew or non-relative of the generous giver, you would be taxed at personal income tax rates on the entire value of the land and the right to possess real estate without the 10-million-baht deduction. The donor would have also to pay a withholding tax at 5% of the value exceeding 10 million baht. The latter is as an additional deterrent to giving real estate to people other than one's own bloodline children.

Tough luck for adopted children and orphans raised by grandparents, uncles, aunts or siblings. The message is clear: Love and kindness to people other than your bloodline children could be taxed. 

INCOME

Income exceeding 10 million baht in any tax year from your bloodline descendants or bloodline ascendants would be taxed at personal income tax rates (but you could opt to pay a 5% flat rate).

Should you live with your parents, if the total assessed amount of your accommodation (living space, meals, utilities), tuition, medical expenses and other gifts provided by your parents exceeds 10 million baht, the taxman wants you. At least, that's the interpretation drawn from the current wording.

Similarly, income from your spouse exceeding 10 million baht would be treated the same way unless you can prove that you paid such costs by your own means.

Most expats working in Thailand get only one work permit. Unless the expat's spouse can secure a second work permit, which is not easy, the dependent spouse could fall into this taxpayer category.

In an extreme example, say a man gives his wife an expensive watch, ring or car. Later, she becomes seriously ill, incurring a huge medical bill. The total amount of the gift, accommodation and medical bills could well exceed 10 million baht.

So while the spouse continues to pay the medical fees to save his loved one, the Revenue Department keeps counting the beans to tax them.

By the standards of any culture, religion or law, spouses are expected to love and take care of each other. It would be odd for the government to draw a line that if spouses spend money to take care of each other over a certain limit, such couples would be taxed.

It is also insane to tax the love of a spouse by claiming that someone might evade inheritance tax by giving gifts to his or her spouse before death, because the draft inheritance tax bill exempts inheritance received from a spouse from tax.

Income from a person other than a spouse, bloodline descendant or bloodline ascendant would be taxed at personal income tax rates. But if such income covers maintenance and support under moral obligations, or gifts received in a ceremony or on ceremonial occasions, you would enjoy a deduction of 10 million baht before being taxed and you could opt to pay a 5% flat rate on the exceeding amount.

In this scenario, you would be taxed at personal income tax rates without the 10-million-baht deduction if you live with your fiance, common-law spouse, civil partner, uncle, aunt, sibling, niece or nephew or receive assessable income from them.

The draft love tax needs to refrain from levying a gift tax on spouses and family (including extended family), accommodation, education and medical costs. The current draft law requires fresh consideration to prevent the erosion of Thai social values which encourage the bonds of family, love and kindness.


Prof Athueck Asvanund is a legal consultant. He can be reached at athueck@mac.com

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