New Property Tax

Land and inheritance tax bill needs to be thoroughly thought out and explained if it is to succeed in the House.

Prime Minister Abhisit Vejjajiva recently made a pledge to push forward the controversial land and inheritance tax legislation for passage in the House. The plan is bold indeed. Previous governments had planned to move ahead with the land and inheritance tax bill but they never managed to make it materialise.

There were expectations that the bill might have been enacted during the tenure of former prime minister General Surayud Chulanont because the interim, military-installed government would have been able to pass the law with ease due to the absence of the House, but it was not to be.

Now that the government has announced it will go ahead with this sensitive law, the move has generally been welcomed. But critics have cautioned whether the timing is right, given the current economic sluggishness. Besides, the issue could spill over to test the stability of the Abhisit government, which is already vulnerable, even without the announcement of the bill.

The land and inheritance tax is designed to help reduce social inequity, especially in Thailand where the rich are major land-ownersThe land and inheritance tax is designed to help reduce social inequity, especially in Thailand where the rich are major land-owners. Abhisit said the land bill will help create a more level playing field in society. It will also have the effect of providing unused, vacant land to people of lesser means who want to use it. Abhisit said that the land and inheritance tax will be a part of the government’s overall land reform plan.

Finance Minister Korn Chatikavanij is determined to go ahead with the plan because it will add tax revenue to the tune of around Bt70 billion, which should help offset the shortfall in tax revenue collection.

Preecha Suwannathat, a legal expert, said Thailand’s tax structure sees indirect tax payments accounting for 80 per cent of revenue, compared to direct tax payments accounting for 20 per cent. Land and inheritance tax will be part of the direct tax payments. If the government manages to lay down clear and fair regulations on land and inheritance taxes, it should help facilitate tax collection because the administration will know exactly who the taxpayers are.

Land and inheritance tax is levied in several countries including France and the UK. Advocates of the plan believe it will help correct the structure of the Thai land tax, which currently forces small land-owners to pay higher taxes in comparison to big land-owners. Local municipality offices will certainly welcome the plan because they will be able to earn more revenue as a result of the legislation.

However, the plan has been treated with scepticism in some quarters. Critics doubt whether the government will be able to enact the bill within its term because of its highly sensitive nature. First of all, the Treasury Department said that it will take around two years to appraise land prices nationwide before enacting the bill.

But the red tape involved would not be a big problem compared to other issues that Abhisit has to face.

National Economic and Social Advisory Council deputy chairman Worapol Sokatiyanurak, and Kirida Phaopichit, the World Bank economist in Thailand, have suggested the government should collect land and inheritance tax after the economy recovers. Otherwise, the additional property tax collection might hurt business operators who are already suffering due to the sluggish economy.

In addition, Abhisit and Korn are likely to face strong opposition from those who stand to lose benefits from the introduction of the tax, especially the wealthy, who might try to obstruct the bill.

In fact, Abhisit won’t have to look far for opposition because a number of politicians, many from the Democrat Party itself, are land-owners or earn money from speculating on land prices. Opposition from within the government is thus expected.

[relatedposts]Thus, although the bill is a good concept, the government will have to carefully draft it before submitting it to Parliament for its passage into law. The government will at the same time have to try to make land-owners understand the merits of land and inheritance tax in the long run. Assoc Prof Surichai Wankaew, director of Chulalongkorn University’s Social Research Institute, said the government should create understanding about the vast income gaps in society in order to ease opposition to the bill from certain groups.

By rushing the bill forward to the House, the government is likely to invite more controversy at a time when the country’s political turbulence has not yet settled. The opposition’s spokesmen interestingly came out to support the passage of the bill, but questioned whether the government would be able to execute it. Abhisit himself said over the weekend that he was aware that details such as certain waivers and exceptions have to be worked out.

The land and inheritance tax is a good concept but its passage requires timely and thorough consideration. The government might have done better than to blurt out the concept without a clear plan.

If Abhisit really meant it when he said the government is determined to quickly push the bill through the House, his team will have to do a lot more than just announce the plan to the press. All the hard work has to be done during what will be a very short honeymoon period for the administration.