New property tax ceiling gives rich too much room

Steered through Cabinet last week by Deputy Prime Minister Somkid Jatusripitak, who is responsible for economic affairs, the land and buildings tax bill will levy rates of up to 5 per cent on undeveloped plots and 2 per cent annually on land and buildings used for commercial and farming purposes.
In this respect the new law is progressive, promising to deliver more public revenue from taxation applied in a more fair and equitable fashion than the current, obsolete regime.
But a startling feature of the new law is the generous provision on tax exemption for first-time house buyers. No tax need be paid on the purchase of properties valued up to Bt50 million, which is where the  “prosperity line” has been set.
Under the previous property tax bill that line was set at houses worth just a few million baht.
Now, incredibly, owners of a house and land worth Bt50 million won’t need to pay a penny in property tax into government coffers for national development.
In addition, since the law decrees that second-time house buyers get no tax exemption, the gap between rich and poor could widen: A person with one house worth Bt50 million would pay nothing whereas someone with, say, two Bt5-million houses would be subject to tax. Why should a person with property worth Bt10 million be taxed while someone with property worth Bt50 million is exempt?
One question being asked by authorities in a bid to gain public support for the new bill is, “Would you like to see a fairer tax regime that places more burden on the rich?”
The Agency for Real Estate Affairs, an independent consultancy firm, reports that Thailand has just 1,351 homes worth Bt50 million or more, of which 572 units are detached houses and 764 are condominiums. They represent only 0.007 per cent of the total 4.7 million registered units.
Imagine that the tax exemption ceiling were dropped from Bt50 million to, for example, Bt10 million, and you get a sense of the amount of tax revenue we lose under the proposed system.
Meanwhile though it seems the government will be able to collect more tax on undeveloped land, that picture could be deceptive too.
The maximum rate to be imposed on undeveloped land is 5 per cent for the first three years, then double that from year 4-6. Meanwhile farmland is subject to a maximum rate of 0.2 per cent.
If the ceiling for tax exemption on houses is too high, we might see owners of undeveloped land exploit a loophole by placing houses on the land to reap the benefit of the 0.5 per cent maximum tax rate against 5 per cent or more.
The bill will now be sent to the National Legislative Assembly for its consideration. Hopefully, its members will do the right thing and drop the ceiling for tax exemption.
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