Levelling the landscape

       The Land and Property Tax Act is intended to make taxation fairer and increase land utilisation but the new regime will require further revision and greater clarity before becoming effective on Jan 1,2010.
       According to the Fiscal Policy Office (FPO), the current property tax system is flawed.
       For example, the building and land tax is calculated from annual rents which depends on contracts between tenants and landlords, who often register lower rents than they collect to avoid tax.
       The current building and land tax rate is also 12.5% of annual rent - or one-and-a-half-month's rent - which is too high and tempts landlords to avoid paying tax.
       For a building used by a landlord for his own commercial purpose or not for rent, the local authority estimates an annual charge.
       Meanwhile, the local development tax rate varies according to the value of the land, with higher-priced land being taxed at a lower rate. The tax is calculated from land prices in 1978-81, which are outdated and result in a low tax rate.
       Tax is also collected on very few land plots due to exemptions and deductions for land of between 50 square wah and five rai on which owners reside.
       "Land taxation under the new act will be fair for everyone. The act will increase the efficiency of land utilisation,"said Jaroonsri Chyehard, director of the Local Tax and Non-tax Policy Division at the Tax Policy Bureau of the FPO.
       The tax base will be the total value of land and buildings, including other property adjoining to that land or building,according to the FPO. The tax base will be cut by 1% a year, up to a maximum reduction of 10%, for property maintenance.
       Deductions and exemptions will also be given for damage to land and buildings from natural disasters such as floods.Tax exemptions will apply for land and buildings for residential and agricultural use, the value of which must not exceed a legal limit.
       The tax base for land without buildings will be calculated from the Treasury De-partment's land appraisals. For land and buildings, the tax base will be calculated from appraised land prices and appraised building prices.
       Three tax rates will be introduced: a general rate for land and buildings of not more than 0.5% of the tax base; a residential rate for non-commercial land and building of not more than 0.1%;and an agricultural rate of not more than 0.05%.
       Within these limits, local administrations have the authority to set the rate and to add new categories of rate.
       On abandoned land, the tax will be charged in the first three years at up to 0.5% of the tax base. But if that land remains unused, from the fourth year onwards the tax rate will double every three years to a maximum of 2% of the tax base.
       "This aims to prevent land stockpiling.It will be a measure to encourage landlords with many land plots to rent them out or sell. Land plot prices may become lower," said Ms Jaroonsri.
       She suggested landlords start surveying their own assets and consider how to use assets to generate worthwhile returns.
       "They [landlords] should seek ways to benefit from the empty plots on which they will pay higher tax than before.They might be used to hold fresh markets or whatever makes them worth the tax."
       Three groups who never paid or underpaid Land and Building Tax would be affected by the new act, she said. These are current taxpayers paying less than the rate they should; owners of land plots sized between 50 square wah and five rai, the minimum size for paying tax under the current act; and landlords who push the tax burden onto their tenants.
       Tax should be paid by April of each year. Taxpayers may pay by installments set by the ministry but if they fail to pay within the required period, they lose the right to pay by installments and must pay an additional 1% a month of the unpaid amount.
       But taxpayers have the right to appeal their rate to the local administration within 30 days.
       "There will be a grace period of two years to allow agencies involved to prepare for the new act," she said.
       The Lands Department will make a nationwide digital map to match land title deeds and land price appraisals being done by the Treasury Department.So far, the department has appraised only 6 million out of 31 million plots.
       At the same time, local administrations will survey lands and buildings in their areas, to establish each taxpayer's lands and buildings and calculate their tax liabilities.
       To reduce the burden on those who have never paid Building and Land Tax or Local Development Tax - most of whom are homeowners - the rate will be 50% of the normal rate in the first year,75% in the second year and the full amount from the third year.
       Taxpayers who currently pay Building and Land Tax and Local Development Tax will pay a higher rate after the new act comes into effect, the rate will be 75% of the tax in the first year,50% in the second year and the full amount from the third year onward.
       "We are concerned about duplications of taxable areas," said Somchao Tanthathoedtham, managing director of the listed developer NC Housing Plc.
       "For example, homeowners in a gated development normally pay a common area fee, part of which is used for facilities maintenance. Under the new tax act,they will also pay property tax to local administrative organisations that are not responsible for facilities in their village."
       Atip Bijanonda, president of the Thai Condominium Association, said there were likely to be some overlaps between the new tax system and other taxes,which might increase burdens on asset owners.
       "The transfer fee should be a fixed rate, not percentage-based," he said.
       He added that clarity is needed for tax deduction and tax payment systems,which should have a convenient payment system for taxpayers, especially those owning many plots of land countrywide.
       Appraisals of building values by local administrative official should be fair to everyone, he added.
       Supalakana Pinitpuvadol, a law professor at Chulalongkorn University, has expressed concern that some terms in the new act - such as "land","building"or "other property"- should be adequately defined for general understanding and clear legislative interpretation.
       For instance, regulations that help reduce the tax burden should be clear.Depreciation should be for buildings but not for land - which generally ap-preciates - and maintenance fees should be based on actual payments or an estimation.
       The FPO will revise tax structures and examine the duplication of other property taxes such as property transfer fees and special business tax, said Ms Jaroonsri.It will also consider the case of gated housing villages where homeowners are responsible for utilities.
       "The Land and Property Tax Act will improve the property ownership tax system, promote decentralising to local administrative organisations, reduce hoarding of land for speculation and generate more income for local administrative organisations."
       Last year, local administrations generated an income of 35.22 billion baht but received 193.67 billion baht from the government and a subsidy of 147.84 billion baht.
       "With the taxation system under the new act, local administrative organisations' revenue will increase to 90 billion baht from the current 20 billion baht they gain from property-related tax,"she added.
       Sopon Pornchokchai, president of the Thai Appraisal Foundation, said revenue would be collected directly for local development under the new act and could be used for utilities and education, which in turn would increase the value of property in that area.
       "The more tax a local authority can collect, the more development it will make," he said."It's like the more you give [pay tax], the more you get [higher property value]."
       Even a large landlord owning a property worth millions of baht is likely to benefit from higher land value if the taxes he pays fund local development.
       "There will be no chance of leakage or corruption by big politicians or government officials as tax collection and spending are within local areas and will not enter the central government's coffers," he said.