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Finance Minister Korn Chatikavanij said the new tax measure, which should be ready for Cabinet approval later this year, would overhaul the property tax collection system.

At present, household taxes are based on revenue generated by property, so unused land plots are not taxed, while local government taxes are based on 1971-72 prices, so the rate is very low.

The collection of local government taxes currently accounts for only 10 per cent of local administrative bodies' revenue, compared with 70-80 per cent in developed countries.

Korn said the additional revenue would go directly to local government bodies and not the central government, which now must provide a supplementary budget.

With the new property tax, owners of large tracts of unused land will be encouraged to lease their property to other parties for agricultural and other purposes.

This will help stimulate economic growth.

The Finance Ministry will set the maximum land tax for commercially used purposes at 0.5 per cent of the appraisal price, a ministry source said.

The ceiling land tax for residential and agriculture purposes will be set at 0.1 per cent and 0.05 per cent of the appraisal price, respectively.

"The real tax might be imposed at a lower rate than the maximum," the source said.

The new land tax is expected to be implemented over one to two years after the law wins approval from Parliament.

INHERITANCE TAX

Regarding the inheritance tax, it will take more time to prepare a proposal, as it is a more complicated issue, Korn said, noting that the role of inheritance taxes in other countries had also diminished in the recent past.

Meanwhile, the prices of locally branded cigarettes will go up Bt10 to Bt13 per pack to about Bt58, while foreign brands will cost Bt83 a pack.

Deputy Finance Minister Pruttichai Damrongrat said the executive decree raising the excise tax ceilings on cigarettes and fuels took effect yesterday.

As for cigarettes, the new tax rate is 85 per cent, up from 80 per cent, resulting in price rises of Bt10 to Bt13 for local cigarettes and Bt15 to Bt17 for foreign brands.

As for fuels, the tax hike is about Bt2 per litre, but the Oil Fund will step in to provide a Bt2.20-per-litre subsidy for one month.

"Altogether, tax hikes for alcoholic beverages, tobacco and fuel oil will generate a combined Bt70 billion to Bt80 billion in additional revenue per year," Pruttichai said.

Thailand Tobacco Monopoly marketing director Chuenjai Thongkam said the wholesale margin for cigarettes would also go up Bt1 a pack, as sales would likely plummet due to a sharp rise in retail prices.

Energy Minister Wannarat Charnnukul said retail oil prices would be increased gradually, presumably 60-70 satang per increase, after one month.

If oil prices are on an upward trend for an extended period, the ministry will reconsider whether the subsidy period should be extended.

"Eventually, this subsidy will go, or else we'd only be encouraging the public to consume fuel inefficiently, leading to higher oil imports," he said.

The Oil Fund now has Bt25 billion. By reducing its take on oil products for a month, its revenue will be Bt5.4 billion less.