THE PROPOSED NEW PROPERTY TAX

       We're going to interrupt our series on family law issues because we've received a number of emails asking us to explain about the proposed real estate tax law, formally known as Land and Building Tax Act BE (the Draft Act) pending before Parliament. The Draft Act was prepared by the Ministry of Finance and has been approved by the Council of State.
       On Aug 25 this year Korn Chatikavanij, the Minister of Finance, presented the Draft Act to the cabinet. It will probably be brought before Parliament and voted upon this year, though there is, as yet, no date set for a vote. If approved, the Draft Act will be effective in January 2010. The tax rates mentioned below would be phased in over a five-year period.
       The tax rate in the Draft Act for residential property on which there is no commercial activity will be 0.1% of the appraised price. The appraised price, incidentally, always includes a value for improvements such as houses or buildings on land. The existing tax scheme is in practice largely ignored. The changes in the Draft Act will, therefore, place an additional cost upon owning residential property.
       The Draft Act contains a new tax of 0.5% of the appraised value for undeveloped land held for future commercial purposes or otherwise, doubling every three years, and increasing to as high as 2.0% if the land is not used over a period of years. This will be phased in. Unlike the taxes now on the books, mentioned below, it is anticipated that the new tax, starting at 0.5%, will be enforced, and may encourage holders of large blocks of land to subdivide and sell off.

       The real estate taxes that exist now are inconsistent and do not provide the Thai government with what it considers to be adequate revenue. There are two important bases of taxation at present.
       First, there is the Act on House and Land Tax, BE 2475 (AD 1932). This law taxes rental income or assessed rental income on property at 12.5%. Property in which the owner resides is exempt from this, however, and revenues under it overlap with the income tax law. Also, compliance is mainly voluntary and doesn't happen much.
       Second, there is the Municipality Tax Act, BE 2508 (AD 1965), which applies taxes based on the Appraisal Price Law, BE 2521-2524. The Appraisal Price Law, however, sets values too low to allow for what the government considers adequate revenues. The Municipality Tax Act therefore encourages what is referred to by some in the government of speculative holding of large blocks of land.
       So the Draft Act was proposed in place of existing legislation and the above existing acts will be repealed by its effect.
       The yearly ceiling or maximum rates multiplied by the appraised value that will be phased in over five years under the Draft Act will be as follows:
       0.5% of land and buildings used for commercial purposes.
       0.1% of land and buildings used for residential purposes.
       0.05% of land used for agricultural purposes.
       As mentioned above, for undeveloped land the Draft Act contains an additional ceiling rate of 0.5% of the appraised value, but this rate will double every three years as long as the property is not used until it reaches 2.0% of the appraised value.
       As also discussed above, the yearly tax on residential property will, under the Draft Act, eventually be 0.1% of the assessed price. This may work a hardship on the poor. There is presently talk that there may be a royal decree exempting poor people and their properties from the tax.