Rich get richer, poor get the picture

Rich get richer, poor get the picture

The new land and building tax, which takes effect this year, enables local administration organisations to collect property taxes for local development. (Photo by Patipat Janthong)
The new land and building tax, which takes effect this year, enables local administration organisations to collect property taxes for local development. (Photo by Patipat Janthong)

This year the new land and building tax law takes effect with the new tax regime hardly affecting ordinary people who do not own second homes. It rather effects super rich people who have owned land in amounts so vast that they would have to spend a good part of their life if they wanted to walk around every plot of their land.

Under the new property tax, local administration organisations are in charge of collecting taxes in their localities and spending the tax money on local development.

The government hopes that the new property tax will reduce income disparity, given that Thailand has been ranked for many years as one of the world's most unequal countries.

Under the new tax regime, landlords and homeowners will be taxed based on appraised values, rather than the income they generate. It is a product of a proposal initiated and pushed by the Finance Ministry over the past few decades. It is the country's first major tax introduction since the adoption of Value Added Tax in 1992.

The new property tax replaces the house and land tax and the local development tax. The two old tax regimes were seen as having loopholes which paved the way for unfair and non-transparent tax assessments.

However, the now-dissolved National Legislative Assembly (NLA), appointed by the now-defunct National Council for Peace and Order, which passed the new property tax law, watered down the rates recommended by the Finance Ministry and instead set more lenient applicable rates for the new tax regime that will mainly affect the rich (many of whom have served in parliament).

In effect, this law will make the rich pay less than what they should do if the ministry's proposed rates were adopted. For example, the NLA increased the appraisal value ceiling set on residential land and buildings, defined as principal homes, eligible for tax exemption to 50 million baht from the proposed ceiling of 20 million baht.

That means 99.96% of principal homeowners will enjoy such tax exemption because there are only about 10,000 people who own homes with an appraised value of more than 50 million baht. However, the tax burden will fall on those who own second and subsequent homes.

Additionally, the law also applies other tax rates lower than those proposed by the ministry. It also provides exemption for farmland over the first three years and enables owners of land for other uses to gradually phase in the increase each year. This means during the initial phase of the application of this law there will not be a big difference in the amount of tax revenue collected.

Tax rates levied on land and buildings used for commercial and industrial purposes are close to the previous rates stipulated by the old house and land tax. For vacant land, a tax rate of 0.3% is applied and will increase by 0.3% every three years up to a cap of 3%.

For the first year, the actual payment for the new land and building taxes has been delayed to August 2020 from April because relevant organic laws have not been completed yet. From next year onwards, landlords and homeowners will start paying tax bills every April.

In the long term, revenue collected from the land and building tax will likely increase in accordance with economic conditions given that property appraisal values are normally adjusted every year. According to an assessment by the Fiscal Policy Office which drafted this law, the state will earn a collective revenue of about 40 billion baht during the first two years of the application of the law.

The drafters of the law also expected that the new tax regime would prompt taxpayers to scrutinise spending by their local administration organisations, which collect and use the taxes.

This new tax regime in this way promotes participation of local people in the development of their localities. It is good for the promotion of democracy. It is also vital for the development of a stable economy which is less vulnerable to fluctuations in the global economy.

Given that this new tax regime will force some, especially the rich, to pay more taxes, local administration organisations must ensure that their spending of revenue collected from the new property tax is efficient and transparent.

Taxpayers need to be convinced that their money will be spent efficiently and transparently. If they feel that their taxes would be part of the state's wasteful spending, they would try to evade taxes.

Wichit Chantanusornsiri is a senior economics reporter, Bangkok Post.

Wichit Chantanusornsiri

Senior economics reporter

Wichit Chantanusornsiri is a senior economics reporter, Bangkok Post.

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