Nopporn Charoenkitraj and Jirapas Amonpiticharoen, of Baker McKenzie, Thailand, discuss the impact of the new property tax which will be introduced in 2020.
After lengthy deliberation the Land and Building Tax Act (Act) will become effective in tax year 2020; it is the first land and building tax to be introduced in Thailand.
The Act is intended to replace the regressive and outdated property tax under the Household and Land Tax Act, B.E. 2475 (1932), and Local Land Development Tax Act, B.E. 2508 (1965), and decreases income disparity; improves and encourages land use; increases efficiency in tax collection; and increases public revenue.
Significant changes under the Act include:
In addition, the collecting agent will now be the local sub-district administrative organization (SAO) for each sub-district (tambon).
The official appraisal value, as appraised by the Treasury Department, is used as the tax base for land, buildings and condominium units under the Act. The appraisal value is used for the calculation of the registration transfer fee for the transfer or assignment of ownership or right over land or immovable properties under the Land Code; the Land Code further provides that the transfer fee calculation is determined from appraisal values as provided in the appraisal value schedule issued under the Property Appraisal for the State Benefits Act, B.E. 2562 (2019) (Property Appraisal Act).
The new appraisal values under the Property Appraisal Act have not been issued. Therefore, the previous appraisal values, which applied before the enactment of the Property Appraisal Act, will remain in use until the announcement of the appraisal value schedule under the Property Appraisal Act. The announcement is set to be issued within two years from the enactment of the Property Appraisal Act.
Under the Property Appraisal Act, the appraisal values must reflect the uses and types of properties and be in accordance with the appraisal and economic principles, particularly the market value of the property. It is therefore anticipated that new appraisal values under the Property Appraisal Act could be higher than the previous appraisal values, or even equivalent to the market value.
The taxable properties under the Act are sub-categorized into land, buildings, and condominium units. The terms are further defined below.
It is worth noting that the definition of the term “buildings” is different from the term “household” under the Household and Land Tax Act. For example, component parts that are permanently fixed to the building or properties that are under construction, which owners cannot use, are not considered buildings under the Act.
The new terminologies will solve past problems involving inconsistent interpretations by relevant authorities of what is a “property,” such as ATM booths, windmills, phone booths, telecommunication poles, or solar cells, all of which will no longer be considered as buildings which are subject to tax under the Act.
The Act specifically provides a list of properties that are exempt from land and building tax. Examples include:
It is worth considering the director of a company, as a person liable to pay tax, would be subject to pay tax on the company’s behalf if the company fails to pay tax.
Ceiling tax rates vary for four types of property—agricultural, residential, commercial and vacant—depending on how the property is used.
If the use of property changes in any tax year, the taxpayer must notify the SAO within 60 days from the date in which the change occurs. However, the applicable rate corresponding to the new use of property will be levied in the next tax year.
This is due to the nature of the land and building tax, whereby the tax is collected based on how the property is used or who owns the property on January 1 of any given year.
For example, let us say Mr. A lives in a house on land he owns, as shown in the house registration certificate on January 1. Later that year, he moves, and rents out the property for commercial purposes instead. Because the benchmark is January 1, Mr. A will still be subject to land and building tax at a residential rate, with the 50 billion baht ($1.6 billion) tax base exemption.
Following the implementation of the Act, both individual and corporate taxpayers which hold properties, whether used commercially or non-commercially, will be affected. Therefore, the government has provided short-term and long-term tax relaxations, benefits, and exemption for different scenarios as follows.
1. Low applicable tax rates (tax year 2020–21)
To minimize the burden for taxpayers these tax rates will apply for the tax years 2020 and 2021.
Starting in tax year 2022, applicable tax rates that do not exceed the ceiling rates will be issued by way of royal decree. However, the Act allows each SAO to tax at a higher rate than under royal decree via local legislation, but these still cannot exceed the ceiling rates. In a letter issued by the Act’s drafting committee to the secretariat of the Cabinet (Letter), the committee suggested that before the lower-rate period ends in 2021, a royal decree should be issued so that taxpayers are aware of their future liabilities.
2. Three-year tax relaxation for current property taxpayers
For tax years 2020–22 the Act provides a tax relaxation for property that has been subject to property tax (either house and land tax or local development tax). This tax relaxation is only applicable if the land and building tax liable for tax years 2020–22 is higher than the property tax liable for tax year 2019. This clause allows the current property taxpayers to pay property tax liable for tax year 2019 plus a portion of the additional tax which would be due owing to the land and building tax.
3. Full tax exemption for owners of agricultural properties
Individual owners of agricultural properties will not be subject to land and building tax for the tax years 2020–23.
1. Tax reduction for land and buildings used for certain purposes
The Act also provides a broad tax reduction clause (of up to 90% of tax) from computed tax for reasons such as economic necessity or social context. Separate royal decrees are expected to affect these reductions. Key assets with specific purposes qualify for the following reductions.
2. Tax base exemption for primary residential property
Under the Act, individuals holding residential land and buildings as shown in a house registration certificate (primary residential property) on January 1 in any given tax year will receive a tax base exemption, as follows:
Those who own multiple residential properties will only receive a tax base exemption for their primary residential properties.
We believe it is vital for individual and corporate property owners to understand how their properties will be affected once the tax collection starts in 2020.
In brief, key relief will be granted to agricultural property owners, for whom full tax exemption will be provided for the first three years of tax collection (2020–22). However, most corporate property owners will not enjoy as much benefit unless their businesses fall within the specific categories where up to 90% reduction is granted.
In addition, as the new tax base under the Land Appraisal Act will result in higher appraisal values, aiming to reflect the market value of the property, we foresee a significant change in terms of the property tax collection numbers in the coming years.
Nopporn Charoenkitraj is a Partner and Jirapas Amonpiticharoen is an Associate at Baker McKenzie, Thailand
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
