| ผู้เขียน | Wirot Poonsuwan |
|---|
Vacant land is in the crosshairs of the new Land and Building Tax Act, the tax collection under which is to start on January 1, 2020. The maximum rate applies is no laug hing matter at 3% per annum based on the appraised value fixed by the Treasury Department, pressing real estate companies typically building up their large expense-free land banks over the years in the long term to change tack to more short-term buying and developing as they go along to lessen the high tax cost they did not bargain for.
Buying land at your leisure no longer works
Thai millionaires are known to have a hobby of heading to the provinces on their weekends or holidays, not to trek, but to buy up thousands of rai of farmland in the entire village to add to their cache of property and keep it dormant for future generations of their children and grandchildren in the next 30-40 years. The grandchildren could then turn the vast expanse of land into industrial estates, housing projects, convention centers, mountain resorts and other development projects with a very low land cost.
Others would fly to the beach, ignoring the pleasure of the sea, sand and sun to explore long stretches of beach fronts, gobble them up in a quick buy and leave them there for years hoping to come across hotel developers who offer an attractive value for their investments.
Land procurement executives of real estate companies on the hunt for prospective purchases earn their living through the search activities.
Those easy days are gone. Before going on a spending spree, the land accumulators now need to calculate the yearly cost of the new property tax on the unproductive tracts. Mind you, the 3% ceiling is even higher than the 2% of the appraised value official transfer fee that the land office charges for registering a transfer of land ownership in general.
The property tax will be assessed and collected by the local sub-district organization and the fund will be its main source of income used to develop rural infrastructure and raise the standard of living of the villagers in the area, as an alternative to the budget allocation from the central government.
Initial low applicable rates did calm people down
The announced 0.3%-0.7% tax rates applicable to undeveloped land did provide complacency to many land collectors; only a few of them realized that these rates are temporary and applied to the first two years of the tax collection in 2020 and 2021. The five-step ladder of the rates appears in the table below.
| Appraised value of vacant land fixed by Treasury Department | Applicable tax rates for the first two years of tax collection ending in 2021 |
| (1) 1 baht – 50 million baht | 0.3% |
| (2) 50.1- 200 million baht | 0.4% |
| (3) 200.1-1,000 million baht | 0.5% |
| (4) 1,000.1-5,000 million baht | 0.6% |
| (5) 5,000.1 million baht and more | 0.7% |
Permanent applicable rates in 2022 must await royal decrees
No one knows what permanent tax rates for undeveloped land will be to apply in 2022 and beyond. One can merely predict from the vulnerable nature of this type of property that at best the rates will remain the same as the temporary rates, or if the protest noise is not too loud during the initial period, the rates could go up. One thing is for sure, the permanent rates will not be lower than the temporary counterparts.
Under the new law, the Ministry of Finance is empowered to issue royal decrees to determine permanent applicable property tax rates.
There is a ceiling of 1.2% that those permanent rates cannot exceed. This ceiling is not an absolute limit as the law will punish landowners who keep the vacant land undeveloped by imposing a punitive 0.3% on each applicable rate every three years. The added rate could keep growing past the 1.2% limit until it reaches the ultimate ceiling of 3%.
Roughly calculating, a land bank worth 5 billion baht (USD 152 million), if left unused over the years to touch the ceiling rate of 3%, could attract a tax burden as much as 150 million baht (USD 4.5 million) a year. An awful amount! The potential tax liability would disincentivize grandpa tycoon from holding on to his legacy land bank for his developer granddaughter.
Outlook for vacant land
The future of vacant land does not look promising when you consider the chief objective of the new law: to redistribute income from the rich to the poor and to redistribute land holdings from the wealthy to middleclass, with vacant land serving as the primary vehicle. From now on, undeveloped land will continue to be expensive to own and will be an important source of income for villages in the outback and for municipalities in districts all over the country.
It was the first time in Thai history to have a law that handles income distribution directly from assets of citizens and it will be the first time ever in Thailand that well-to-do landowners will shoulder the burden of funding rural development projects of the village. It is true that the present land development tax is meant to fulfil this purpose, but its negligible charge at a mere hundreds of baht a year has long been overlooked—most landowners have not realized that they are obligated to pay this old elusive tax.
The general election in February 2019 will not improve the outlook, whatever political parties become government. Neither will subsequent changes of government likely alter their policy on vacant land. The prohibitive property tax on non-productivity is here to stay and can get more costly to those landholders who defy.
The restful year of 2019 when the tax collection under the new law has yet to start, it is anticipated that substantial chunks of vacant land will be offloaded to the market.
Commercial land is fine
Land used for commerce will not be much impacted. The small to medium enterprises are well taken care of. The new tax of 0.3% on the appraised value not exceeding 50 million baht—the SME range—could be higher or lower, as a matter of speaking, than the current land and development tax of 12.5% on the yearly rent income these taxpayers are paying, depending on how high or low their appraised value is and on the levels of rent they are charging.
A shop house with an appraised value of 15 million baht renting out at 20,000 baht per month or 240,000 baht per year is subject to the present land and development tax of 30,000 baht vis-à-vis 45,000 baht of the new property tax, a rise of 15,000 baht, a considerable amount, but still far less than the vacant land.
In comparison, if the shop house is appraised at 7 million baht and the monthly rent income is 20,000 baht per month and 240,000 per year, the old land and development tax will be 30,000 baht, and the new property tax 21,000 baht, a cut of 9,000 baht.
Clearly, besides the grass roots, the new law is also in favor of the middleclass, who own a moderately priced property.
Commercial rates and vacant rates are the same but…
At the first glance, the applicable tax rates for the first two years starting 2020 for commercial land and undeveloped land are the same and the two types of property also share the 1.2% ceiling.
| Appraised value of commercial land fixed by Treasury Department | Applicable tax rates for the first two years of tax collection ending in 2021 |
| (1) 1 baht – 50 million baht | 0.3% |
| (2) 50.1- 200 million baht | 0.4% |
| (3) 200.1-1,000 million baht | 0.5% |
| (4) 1,000.1-5,000 million baht | 0.6% |
| (5) 5,000.1 million baht and more | 0.7% |
What greatly differs between the two types of property is that for commercial land the applicable rates are fixed—no add-ups. The 1.2% limit is also absolute.
Residential and agricultural land: friendly rates
Unless you are a billionaire owning a super-luxury house or condo, or you are a company engaging in contract farming, the temporary first-two year rates are very lenient and in some cases do not apply to you at all.
There is a long litany of generous tax exemptions and concessions made available for you. For example, a home worth not exceeding 50 million baht (USD 1.5 million) is completely tax free (foreigners would be wondering what kind of middleclass our country has for a home valued at USD 1.5 million!). Agricultural land is exempted from tax during the first three years of tax collection.
New law is not yet law
With all the fanfare and excitement comes the confusion. Most locals and expatriates would think the law has been enacted but is in some kind of a wait period to become effective. The exact effective date of the law is also widely misunderstood.
The truth is the law remains as a draft bill, which was passed by the National Legislative Assembly on November 16, last month. According to the Constitution, the Prime Minister is required to go through a silent period of 25 days before he signs the bill and presents it to His Majesty the King for a royal countersignature. After His Majesty countersigns within 90 days, the palace will return the royally executed bill to the Prime Minister and it is to be announced in the Royal Gazette, completing the law enactment process constitutionally. The executed bill will take effects of law, officially on the effective date of the new law, one day after the publication in the Royal Gazette.
That 25-day silent period has passed, other steps of the legislation process are being followed and the bill is expected to become law and its effective date to occur any time now in the last two weeks of December 2018 until early next year in 2019.
However, the new law states specifically that the actual tax collection will not start until January 1, 2020, purportedly to allow the vacant land hoarders to dispose of their stock before the tax liability kicks in. Thus the effective date of the law and the tax collection start date are two different dates and should now be clarified.
Wirot Poonsuwan is Senior Counsel and Head of Special Projects at Bangkok law firm Blumenthal Richter & Sumet and can be contacted at [email protected].
