The many dilemmas in levying the inheritance tax

If the inheritance is before the death of the asset owner, the inheritors will be subject to a 5-per-cent tax on assets valued above Bt10 million. 

The assets, which must be registered, include houses, land, cars, bonds, deposits and securities.

Recipients of such assets who are not heirs will be subject to a tax rate based on their personal income-tax base.

Finance Minister Sommai Phasee is committed to pushing the Inheritance Tax Bill at the Cabinet meeting next Tuesday for consideration, after failing to do so this week because of the absence of Prime Minister General Prayut Chan-o-cha. 

Though most Thais agree on the inheritance tax, they are still divided on the rate proposed by the Finance Ministry. 

One side believes the tax rate is too high and will discourage people saving for the future or for their heirs. Also, the tax would be redundant and might have negative impacts on small and medium-sized enterprises in the future. 

As revealed in a paper released by Thailand Future Foundation last weekend, inheritance forms a part of the capital of SME businesses. If a high tax is imposed on that, the SMEs will be among the taxpayers most affected, because the inheritance tax would add to the burden of other outflows like corporate income tax (20 per cent), dividend tax (10 per cent) and tax on interest (15 per cent). 

 Taking an example, the report states that out of SMEs’ earnings of Bt100, they will have only Bt74 left after taxes, including inheritance tax at the 10-per-cent rate. This is lower than the Bt85 in Singapore, where there is no inheritance tax, corporate taxes are lower than in Thailand and dividends are tax-free. 

 On the other hand, some said the maximum rate of 10 per cent on inheritance was low compared with some countries like Japan (50 per cent) and France (45 per cent). 

But there will be a good side effect from the inheritance tax, as they believe that some money will be moved into foundations and the insurance business because of tax shields for the rich. Hence there will be income redistribution.

 Some argue that the maximum tax rate should be lower than 10 per cent and the minimum asset value to be taxed should be more than B50 million. 

However, both sides are of the view that collection of inheritance tax will not amount to much, probably a few billion baht. However, this would be better than nothing.

Some suggested that the tax should be earmarked for a specific purpose such as education. Otherwise, most of the tax collected will eventually return to the hands of the rich. 

To what extent the Prayut government will dare to push the inheritance tax bill, which has never been done by previous governments, will have to be seen. What if the voice of the elite gets louder?

Also to be seen is whether the ceiling of a 10-per-cent tax rate should be lowered or the floor amount to be subject to tax – Bt50-million assets – should be raised.