Good news for farmers and small-home owners: The Finance Ministry has toned down the property tax bill with a new plan that will make most of them exempt from paying the tax.
The tax bill is planned to be submitted for Cabinet approval this week, following the collection of opinions from concerned state agencies such as the Budget Bureau, Interior Ministry and National Economic and Social Development Board.
"Landlords are the target group of the property tax. We do not want the tax to affect farmers and low-income groups," said Lavaron Sangsnit, acting director of the legal division at the Fiscal Policy Office.
Graphic: Key points1. Tax ceilings (revised every four years)
- Farm land: 0.05% of land value
- Residential land: 0.1% of value of land and building
- Others: 0.5% of value. Mostly concerning land for commercial use and unused land. After 3 years of idleness, unused land is subjected to double tax rate (but not exceeding 2 per cent).
- 0.1 per cent for land and building used as residential area.
2. No tax collection in the first two years, as appraisal on remaining 30 million land plots is undergoing. It serves as adjustment period of taxpayers.
They are subjected to 25% of tax amount in third year, 50% in fourth year and 75% in the fifth. Full enforcement is in the sixth year, after enforcement.
3. On exemption clause, the Cabinet would decide on the specific criteria later.
4. Land Bank Fund would be set up later.
Source: The Nation
Policy makers have limited the bill's coverage by exempting more people from paying tax, resulting in a watered-down version of the original draft, he said.
The bill sets ceilings on tax on three types of land: farmland (0.05 per cent of land value); residential land (0.1 per cent); and others including commercial shophouses and unused land (0.5 per cent). After three years of idleness, unused land is subject to double the tax rate (not exceeding 2 per cent). The rates will be revised every four years by the land tax committee, chaired by the Finance permanent secretary.
Finance Minister Korn Chatikavanij plans to propose that ministers expand the exemption clause to include owners of small parcels of land — say 50 square wa or less — and owners of condominium units of no more than 30 or 50 square metres. This is expected to benefit urban low-income groups. Condominium units are currently estimated to number 107,000 in Bangkok - 74 per cent of them less than 50 square metres in size and 60 per cent of them between 30 and 50 square metres.
The impact on average residential owners would be minimal, raising taxes slightly, according to Lavaron. House owners currently pay virtually no Land and Building Tax or Land Development Tax - the two taxes to be replaced by the new property tax. Owners, however, would get better services from local governments under the plan, Lavaron said.
While tax burden on those who use land and buildings to do business, would be about the same, said Lavaron.
Land developers who accumulate land banks may need to change the way they do business, however.
"They just cannot stockpile vast land tracts for their property projects; they will need to do it wisely in order to avoid high tax costs," said Lavaron.
Property firms, however, are expected to pass their increased tax burden on to home buyers, leading to an expected rise in the price of new houses.
Landlords who previously bought large numbers of land plots, or received land through inheritance, are expected to face a sharp rise in taxes.
This led to Prime Minister Abhisit Vejjajiva's idea for a "Land Bank Fund," which would buy land from people who may not want to hold a large number of land plots. The government would redistribute the land plots to the poor.
Part of the property tax receipts would be used to finance the land bank scheme. The fund is expected to be under the supervision of Prime Minister's Office. The government would need to draft another law to implement it, said Lavaron.
The plan would give local governments more revenue to spend on local development projects, he said.
"The property tax is part of fiscal decentralisation, giving local governments freedom to spend their tax revenue," said Lavaron. Currently, local governments get a large portion of their funds from the central government, and do not much have freedom in how they spend it as they are required to implement certain policies directed by the central government.
According to the Fiscal Policy Office, combined local government revenue in 2008 was Bt376.74 billion, or 25 per cent of the central government's revenue.
Breaking down the total revenue, local government revenue derived from land and building tax, land development tax, signboard tax and others was only Bt35.2 billion.
Some officials expect the new tax will help to narrow the widening income gap between the rich and the poor in Thailand.
Finance Ministry spokesman Ekniti Nitithanprapas noted that the tax bill's main purpose is to improve land use. Replacing the two land-related laws, the new law will encourage better use of land, he said.
"The current conditions are unfair and encourage speculation. In the long term, if this law is effective, this may generate extra revenue for the government, but that is not our main purpose, at least in the near term," he said.
Some economists believe the property tax will lessen corruption, as people in local communities tend to pay more attention to what local governments do with their tax money, and do not perceive the funds used by the central government as being "their money".
