THE Cabinet has given the green light to a draft bill on windfall tax relating to tax collection from owners of properties worth more than Bt50 million that have benefited from transport projects.
The measure applies to those properties that have gained in value as a result of their proximity to government transport projects and, under the draft bill, will be subject to tax at a rate of no more than 5 per cent of the amount by which they have appreciated.
In response to the decision of the Cabinet yesterday, property developers said the tax amounts to double taxation and would increase the cost of developing residential projects. This would make it costlier for many people to buy a home, they said.
Pornchai Thiraveja, financial policy adviser of the Fiscal Policy Office and finance spokesman, said that it is fair to collect tax from those land owners whose land and condominiums for commercial purposes have gained in value because of government-led transport projects.
Under the draft bill, individuals or juristic persons who own land or condominiums worth more than Bt50 million sited near such projects are subject to pay the windfall tax. The bill stipulates that the affected properties are located within 5 kilometres of transport routes extending from high-speed trains, double-track railways and mass rapid transit (MRT) systems to ports, airports and motorways and other projects defined in the ministerial regulations.
The tax will be collected by the Department of Land and local administrative organisations in areas where the government transport projects are situated. This will be carried in one of two ways. The first method would see collection during the time of the development of a project, arising from the sale or transfer of land and condominiums located around such projects.
Alternatively, a one-time collection would be made once a project is completed. The tax collected will be sent as contributions to state revenue.
The honorary president of the Thai Condominium Association, Prasert Taedullayasatit, who is also chief executive officer of Pruksa Real Estate Plc, said that when the government introduces the windfall tax, it would mean double taxation applies and this increases the cost of developing residential projects. In turn, this means people will have to pay more to buy a home.
Currently, land developers have to pay a 2 per cent transfer fee when buying undeveloped land from the land owners, a 1 per cent mortgage fee, and a special business tax of 3.3 per cent, as well as corporate income tax. Home buyers have to pay a transfer fee of 2 per cent of the home’s value and a mortgage fee of 1 per cent.
Prasert said suggested that the government could collect additional tax that reflects the increased value of land arising from infrastructure improvements, so it did not need a windfall tax.
He said the Treasury Department of the Finance Ministry revised land appraisals every four years, and these revisions reflect how the land values have benefited from infrastructure projects. If the government wants more revenue from land development, it does not need new tax legislation but only has to revise land appraisals every year, he said. Normally, officially appraised land values are 5-20 per cent lower than market prices, depending on location. In some locations, the market price may be lower than the appraised value but in some locations it may be 100 per cent higher.
He also said the government should concentrate on the land and building tax, which is expected to come into force in the next few years.
If the tax takes effect, it will increase the cost for property developers with sites around the mass transit projects that are undergoing construction. The increased costs will be passed on to the home buyers. That means it will be become harder for ordinary people to buy a home and such an outcome conflicts with a government policy that encourages home ownership for Thais, Prasert said.
“We will propose that the National Legislative Assembly (NLA) look into these concerns and give thorough consideration to the matter when the legislation comes before the NLA,” he said.
At the same meeting, the Cabinet also approved a draft bill on the use of private trusts as a tool for the affluent to manage their wealth and prevent them from transferring assets overseas, Pornchai said.
The draft bill considers trusts as representing a legal relationship of assets involving three parties: the founders of the trusts, trustees and beneficiaries.
While the trust founders can be either trustees or beneficiaries, trustees will not be allowed to be beneficiaries. Beneficiaries can be either individuals or groups of people.
Based on the draft bill, trustees who manage assets, as set out in the trust objectives, for the gains of the beneficiaries must obtain approval to operate their business from the Securities and Exchange Commission, which will supervise them and issue them with licences.
Each trust must last no more than 100 years.
Trusts, under the draft bill, must aim to manage private assets and not raise capital from the public. The management of the trusts will come under the laws on trusts for transactions in capital markets.
Trusts will be a new option to manage private assets in the country more efficiently and enable people to pass their wealth on to their heirs.
In another measure endorsed by the Cabinet yesterday, it approved the Social Enterprises Act, which offers tax incentives for companies that conduct business the social enterprises concept. The legislation is aimed at encouraging growth in the number of such enterprises to 10,000 within 10 years of the Act taking effect. Meeting this target would result in the creation of than 19 million jobs, Kobsak Pootrakool, Minister of the Prime Minister's Office, said yesterday.