New property tax bill offers chance to narrow income gap

What level of wealth should make homeowners liable to the new tax structure? This is a question that members of the National Legislative Assembly (NLA) committee vetting a bill on the new land and building tax has been debating.

The bill, submitted by the Finance Ministry, proposed new tax rates applicable to any owner of a first home worth more than 50 million baht and provided tax exemption to those whose property’s value is 50 million baht or lower. It also proposed that the owners of a second home will be taxed no matter how much the value of their property is.

But most NLA panel members disagreed with the tax-exemption threshold. They believe the threshold should be lower because owners of a first home worth 50 million baht and lower should be considered rich enough to be taxed under the new structure.

The committee’s decision to lower the tax exemption threshold is promising. It better serves the bill’s intention to narrow income disparity in Thailand.

Currently, the bill is still being considered by this committee. After this, it will undergo further vetting in the NLA’s second and third readings.

The draft bill calls for tax to be levied on first homes, farmland, commercial land and buildings, and vacant land. It proposes the ceiling for each type of taxable property. A ceiling of 0.2% of the appraisal value is set for farmland, 0.5% for homes, 2% for commercial land and buildings and 5% for vacant land.

However, once the law comes into effect, the NLA will issue an organic law to set applicable rates, or effective rates, which will define actual tax rates which are lower than the proposed ceilings. For example, first homes and farmland worth more than 50 million baht but lower than 100 million may be levied tax at a rate of 0.05% of the appraisal price.

In fact, the Finance Ministry has pushed for this law for more than 20 years, aiming to collect more tax while narrowing income disparity. In its first proposal two decades ago, no tax exemption threshold was proposed for property owners.

In past decades, many governments turned down such proposals as the new tax risked upsetting taxpayers. The current military regime has tried to find a better solution to ease taxpayers’ opposition to the bill by recognising that home buyers are already liable to the ownership transaction tax. This was the reason why the ministry came up with the draft that called for tax to be only levied on “highvalue” first homes worth more than 50 million baht.

However, the government’s own statistics show that there are approximately 11,000 homes worth more than 50 million baht each, while the rest, 96.5% of homes, are worth less than 5 million baht each.

A study by Thammasat University economics lecturer Duangmanee Laovakul also points out that the concentration of land ownership in Thailand is high — 1% of the population owns 23.7% of the country’s total private land. That equals about 159,000 people, from a total of 15.9 million landowners, owning 22.52 million rai of land, from a total land area of 94.86 million rai.

Moreover, her study indicates that in 2013 members of political parties owned an accumulated area of 35,700 rai — about 30,000 rai belonging to politicians from the Pheu Thai and Democrat camps. That means each MP owns 71 rai of land on average, concentrating land ownership the most among this group of individuals.

A 2010 study of the Finance Ministry also re-emphasises this inequality. Its findings show that each of the 90% majority of Thais owns less than one rai of land while each of the rest of the minority owns more than 100 rai of land. Over 70% of private land was left unused as owners are market speculators keeping their land for sale whenever prices go up.

Sadly, while the minority owns the majority of land, the study points out that there are at least 9.6 million landless farmers accounting for 3.2 million households. Additionally, land owned by the top-50 largest landowners in Bangkok is 390,000 times higher than that owned by the 50 smallest landowners.

Last year, the NLA approved the new inheritance tax, introducing a 5% tax rate on inheritances worth above 100 million baht on direct descendants. It then increased the taxable amount from a previously proposed level of 50 million baht to 100 million baht. For them, owning assets worth less than 100 million baht is not rich enough to be taxed — the view which is much different from the perception of many of us.

This time, members of the NLA will run into a similar discussion when the bill is submitted for their vetting. Their decision on what level of being rich should make property owners liable to the new land and buildings tax will reflect their view on how wide they think income disparity in Thailand is.