Thai land tax law a step in right direction

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Thai land tax law a step in right direction 
Bangkok Post: 24 Jul 2009
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BANGKOK POST EDITORIAL A step in the right direction

Last week the government of Abhisit Vejjajiva announced that the draft of the long-overdue progressive property tax is at present going through the process of public hearings in various provinces, and it is expected that the law will become effective early next year.

Somchai Sujjapongse, director-general of the Fiscal Policy Office, Ministry of Finance, says the new land tax law will benefit the local people since the monies collected would go directly to the tambon administration organisations (TAOs), enabling them to develop and serve their localities better.

Given the fact that 90% of the Thai population own less than one rai of land, while the other 10% own more than 100 rai, this new property tax is more than welcome as it would redress the root cause of inequity and injustice in this country. It is simply outrageous that when there are more than 500,000 landless families in need of land to till, 75% of the land owned by the richest 10% remain idle.

It is hoped the new property tax law, which will punish idle, speculative land, will gradually force big landlords to let go of the land, or at least try to make it more economically productive. Whether that will happen or not _ since the rich can play around legal loopholes and pay corrupt officials to turn the other way _ the income from the new tax law will most likely make the TAOs stronger and consequently strengthen political decentralisation. At present, about 90% of the TAOs' budget comes from the central government. Not only is this not enough to meet the needs, many local leaders often complain that their hands are tied by the central rules and regulations which leave them little room to start new initiatives.

Trying to win local support, the Fiscal Policy Office chief said that when the new property tax law becomes reality, the TAOs will not only have more money to spend, but that the tax would provide the major portion of the budget. The bigger pie, he added, would also make the locals more active politically to prevent corruption.

Although the financial gains are promising, the property tax will still be unable to solve land rights problems on the ground. To start with, there is no guarantee at all that if and when big landlords finally let go of their idle land, the landless will benefit from it.

More importantly, this law only tackles the problem of unregulated private ownership, ignoring the fact that the country's biggest landlords are state agencies.

According to research by the National Human Rights Commission, the majority of land use and land rights conflicts involve the Forestry Department and villagers whose farmlands overlap national forest boundaries. Of some 700 land conflicts in 2005, only 7% of them involved conflicts with land speculators.

There is another problematic legal dimension. Although the new law would allow a two-year grace period for private land owners to adjust, they will inevitably ask why they are being punished for keeping idle land while state agencies remain exempt.

Combined with the little immediate advantages for the landless, it is clear that the property tax law is only just the first of the many more steps needed to redress inequitable land ownership.

That said, the Abhisit administration still must be given credit for showing the political will to push for the law despite strong resistance from both within and without the coalition government. When the scales are so badly tilted, any effort to balance them, even just a little, is a most welcome move.

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FPO: Developers will be taxed on unsold properties

Homes and condominiums that have been completed but not yet sold will be liable for the new land and buildings tax, said a senior official.

There was no reason to exempt unsold homes or condos from the new tax, although developers may be allowed to pay taxes based on residential rates rather than the higher commercial rate, said Somchai Sujjapongse, director-general of the Fiscal Policy Office.

The new tax law, which is expected to be submitted to the cabinet next month, exempts only temples, Crown property and low-income residences from taxes.

A national committee chaired by the permanent secretary for Finance will be responsible for setting maximum tax rates under the law.

Commercial properties are expected to be taxed at no more than 0.5% per year based on the value of the land and buildings on the plot, with residential properties taxed at 0.1% and agricultural land at 0.05%.

Local administrations will be responsible for setting the tax rates that are paid by landowners.

Tax rates for undeveloped properties will be increased over time to encourage more efficient land use. According to the draft law, annual rates for undeveloped land will be set at no more than 0.5% for the first three years. If land is left undeveloped, tax rates may be doubled every three years up to a maximum rate of 2% per year.

If the law passes the cabinet and Parliament this year, a two-year grace period means the first tax will actually imposed in 2012, said Dr Somchai.

Tax rates will be set at 50% of the actual tax rate in the first year of implementation, rising to 75% in the second year with the full rate enforced in the third year.

The Finance Ministry said 90% of Thais are landless or have property holdings of less than one rai, in contrast to 10% of the public who hold more than 100 rai per person.

Revenues generated from the tax will go to local administrations - the ministry estimates that 8.77 billion baht in revenues can be collected each year if using a residential rate of 0.02%, an agricultural rate of 0.01% and a commercial rate of 0.1%.

Revenues would jump to about 90 billion baht per year if tax rates are set at the legal maximum.

Sakon Varanyuwatana, an economist with Thammasat University, said he supported the new tax law as it would not only provide local government with funds to support community development, but it would also act as a disincentive to land and property speculation.