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Inheritance tax: An age-old dilemma for lawmakers

What will happen if the inheritance tax is revived in ways that mean Thais won't return to "happiness"?

Several years ago, one of my cousins was approached by the owner of an orchard to buy some 10 rai of her orchard plantation in Nonthaburi. The reason for selling the land was because she didn't have enough money to pay a transfer fee - 2 per cent of the official value of the plot inherited from her parents. The land value was Bt10 million, so she had to pay a Bt200,000 transfer fee. She decided to sell it, otherwise she would have had to either sell other assets to pay for the fee in a bid to keep her ancestor's land - or sell part of it. Part of her land connecting to the road is narrow, so no potential buyer would be happy with a strip-shaped block.

The inheritance tax - which is imposed on assets that a person inherits - was raised in discussion and reportedly agreed to by the ruling junta led by General Prayuth Chan-ocha. Previous governments have considered this but failed to push such a measure through.

In fact, an inheritance tax was imposed from 1933 to 1942 but scrapped after facing rising opposition by the rich. Inheritance tax is a levy paid by the person who inherits an estate (money or property) or a tax levied on an heir's inherited portion of an estate. At that time, both kinds of tax were applied and the top rate was up to 20 per cent of the estate official valuation price.

Let's think about this tax. The owner of the land would have to pay as much as Bt2 million in inheritance tax if the levy previously imposed by the government was still in effect, excluding the transfer fee.

Since 2006, there have been efforts to push an inheritance tax bill, but they've never been successful.

When the tax is proposed, "fairness" for society and the country's "wealth" disparity is always raised as a pretext.

Many brisk arguments are touched off between "supporters" and "opponent" of this sort of tax.

On the opposition side, it's claimed the tax would affect small- and medium-sized enterprises (SMEs) because they could be forced to dispose of assets that are part of their core production to pay the tax. It would also discourage savings and reduce investments. This would impact on the country's economic growth, employment, and badly affect the SMEs' decision-making in investments. Some operators might decide not to choose the better return-on-investment assets because they want to evade the inheritance tax. Last, the inheritance tax was seen as "double taxing" annual income tax.

However, some suggestions have been raised to ensure the inheritance tax can help redistribute wealth in society fairly and appropriately, and that it is efficient and practical.

Some say the government should impose either an "estate" or "inheritance" tax to avoid duplication. But the latter seems to be more fair, based on the principle you should pay on what you earn.

But should there be an exemption - a tax waiver on an amount of net inheritance so that the levy on the heirs is not too much of a burden? For example, if the net inheritance value is less than Bt5 million, it should not be taxed. An exemption should include heirs who are children and elderly people to help reduce their burden.

There should be a top rate applied with a progressive rate basis.

Statistics show that 20 per cent of wealthy people hold over 60 per cent of the nation's total assets - and few people would be adversely affected by the collection of inheritance tax.

The question then is: At what level should an exemption for inheritance tax be set in a bid to balance "income distribution" on a fair and equal basis and ensure that it does not create too much of a burden on those who are not so wealthy.


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