For the first time ever, Thailand is to collect a tax on inflated property prices pushed by transport infrastructure projects, known as the land windfall tax.
The Prayut Chan-o-cha government early this month gave the green light to the bill. The tax will charge both individual and corporate owners for commercial purposes and condominium projects worth more than 50 million baht every time their ownership is transferred from the time when construction of a transport infrastructure begins until the project is completed.
Initially, the bill on the land windfall tax caps the ceiling at 5% of the inflated price, but the applicable rate will be decided later. The government's transport infrastructure projects cover double-track rail, high-speed rail networks, the mass-transit system, expressways, special tollways, ports and airports. Those liable for the new tax must possess land within a radius of 5 kilometres of a station serving high-speed, double-track or electric trains, or the on- or off-ramp of an expressway. Those who own land plots within 5km of building-restricted zones such as airports or ports will also be required to pay the tax.
It's evident the country needs this tax as Thailand's tax base is quite small because the informal economy is so enormous. With a small tax base, tax revenues account for 17-18% of gross domestic product (GDP) and current taxpayers who comprise only a small group of people carry a heavy burden, with not many willing to make tax payments. The new levy could help create greater tax payment fairness as it will help close a gap in the tax collecting system, in particular by enlarging the tax base. Besides, those who benefit from state investment projects, or the windfall gains which derive from them, are obliged to make contributions to national development.
What the government needs to do now is to estimate additional revenue after the new law is in place, so it can make better plans regarding infrastructure development. And, if that is the case, it may not have to depend so much on loans for such projects. Revenue agencies will have to integrate their work with the central government and local administrative offices to ensure better planning.
To achieve the goal, revenues from the windfall tax should be divided into two portions. The first is for local administrative offices for use in infrastructure maintenance and for investing in further stages of the projects in their area of jurisdiction. The remaining revenue should go to the central government, so it can use it for new infrastructure projects in remote areas, to give those areas a chance to develop economically. This is to spread development, so it is not just concentrated in the capital and adjacent cities.
Under globalisation, there are curbs on the use of tax measures to reduce the economic gap. To tackle inequality, the state has to turn to tools like welfare and, in particular the proposed inheritance tax, which still has loopholes as wealthy people are able to transfer their assets overseas.
To close the loopholes, the government is working on a bill on using private trusts that can serve as a mechanism for the affluent to manage their wealth. The draft, which is undergoing a public hearing process to comply with Section 77 of the constitution, will allow financial institutions, securities companies or specific juristic persons to be trustees. In principle, the government must include every citizen in the tax system, meaning everyone is obliged to declare tax. Those with incomes lower than the required amount are exempt from payment. Those living below the poverty line will be eligible for state welfare.
The state can take better care of this group of people if it links the welfare and tax systems with a database which includes negative income tax. Such a measure will motivate people to join the tax system. Those with lower incomes that do not reach the taxable level will get assistance. But when their situation improves, with more income, then they are required make tax payments. Such clear information and a database will make it easier for the state to provide better welfare and manage its budget more efficiently.
Anusorn Tamajai is dean of the Economics Faculty, Rangsit University. This is the translated and adapted version of the article originally published on the website of Prachatai news agency.