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Thailand Property Tax: More Questions Than Answers

By on Sep 11, 2014 in Property News, Residential

One major reform the National Council for Peace and Order (NCPO) is keen on carrying out involves the house and land tax regime. By taxing holdings of real property, the government can raise more revenue while reducing the gap between rich and poor. In short, the rich, who have more property, will have to pay more taxes. In addition, reforms could reduce the financial burden on local administrative bodies.  Importantly, the new tax regime is based on the appraised value of a property instead of the annual rental revenue it earns or might have earned. Three rates have been proposed: 0.5% for commercial properties, 0.1% for residential properties and 0.05% for agricultural properties. Each individual owner is no longer exempt, as the tax base is much broader than in the earlier system.

The proposed bill wisely contains a mechanism to encourage more efficient use of properties. If any property is not used, the owner will face an additional one-time penalty every three years of up to 2% of appraised value. This is bad news for most landlords, as property tax will become more expensive.  The new tax regime is calculated on official appraisal values, which aims to eliminate corruption resulting from the broad discretion given to tax authorities under the current system.  Interestingly, the Finance Ministry has declared the tax system will from now on focus more on property and consumption bases, both of which are broader and clearer, instead of direct tax on earned income.

The new regime would severely hurt people who have many properties but not enough cash for tax settlement. They may be forced to sell some holdings. There is the possibility a glut of new property on the market would push prices down, giving the rich an opportunity to snap up some bargains. So the property tax could hurt the poor more than the rich.

The new system relies too much on the values used by the Treasury Department. No one questions these appraisal values, which are used only for calculating government fees and transfer taxes. In the future, the department’s methods and figures will come under much closer scrutiny. Will the appraised prices fairly reflect property values? The department adjusts appraisal values every four years, and it will be interesting to see how the government manages this administrative burden.

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