Land and buildings tax cap questioned

A decision has yet to be made on a 50-million-baht land and buildings tax exemption for first homes, as the National Legislative Assembly is yet to complete its second reading of the proposal and some lawmakers have questioned whether the threshold is too high.

The NLA’s committee, led by Deputy Finance Minister Wisudhi Srisuphan, will reconsider lawmakers’ opinions, including the 50-million-baht tax exemption, said Pornchai Thiraveja, a financial policy adviser to the Fiscal Policy Office (FPO).

He declined, however, to say whether the Finance Ministry had agreed with concerns raised by some lawmakers, adding that it would depend on the NLA committee.

The Finance Ministry is concerned that lowering the tax exemption amount for first homes will reignite opposition to the new property tax, Mr Pornchai said.

Prime Minister Prayut Chan-o-cha decided to hit the brakes on the land and buildings tax bill in 2015 after a strong public outcry. But the Finance Ministry has once again pushed the new property tax after the details were tweaked to allay homeowners’ jitters, after which the plan received cabinet approval in March.

Mr Pornchai said a study in 2013 had found that there were only 11,000 houses valued at more than 50 million baht.

The 50-million-baht mark is based on the country’s most expensive land price of 1 million baht per square metre multiplied by the maximum size of land that can be waived under the house and land tax and the local development tax: 50 square metres.

Land for commercial and industrial use will be the biggest sources of revenue, as these landlords will be taxed without any possible exemptions.

The draft bill calls for the tax to be levied on first-home owners and farmland appraised at more than 50 million baht. A tax rate of 0.05% will be applied to first homes and agricultural land worth between 50 million and 100 million baht, and a 0.1% rate for homes above 100 million.

People owning second homes will be taxed in a range of 0.03-0.1% of the appraisal price, depending on the value of the property.

The tax on vacant land will rise by 0.5 percentage points every three years, up to a cap of 5%, while land for commercial and industrial use will be levied at 0.3-1.5%.

The land and buildings tax, which will replace t he outdated house and land tax and the local development tax, is aimed at narrowing income disparity, expanding the national taxpayer base, increasing tax income for local administrations and improving land use.

The Finance Ministry estimates that the land and buildings tax will generate 64 billion baht a year for local administrations, up from 28 billion from the house and land tax and the local development tax.

The new property tax is scheduled to come into force next year.

Issara Boonyoung, honorary president of the Housing Business Association, reiterated that there are a limited number of residential units valued at 50 million baht or more, so some local administrations might collect a marginal or even no revenue from the first-home tax.

“If residential value steps down to 10 million baht, it will enable the government to collect more income from [the land and buildings tax], as there are 3,000 housing units priced at 10 million or more being launched each year,” Mr Issara said.

He said there are many issues the government should clarify before the new tax comes into force.

One key issue is the definition of a developer’s housing stock.

“If the housing stock is defined as commercial use, the tax rate will be triple that of tax on residential use,” Mr Issara said. “In the case of agricultural land or a residential unit which is rented out, will the tax be calculated for agricultural, residential or commercial purposes?”