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New land and buildings tax in Thailand compared to other regions in Asia

Some businesses in Thailand have been grumbling about how they will suffer once a new land and buildings tax takes effect in 2017, but the fact is that taxes on property in Thailand would still be among the lowest in the region.

The government of Prime Minister Prayut Chan-o-cha last month approved the long scrutinised bill to tax land and buildings in hopes of reducing disparity, encouraging utilisation of undeveloped land, and possibly adding some money to government coffers.

The new law would impose taxes on primary residences and land appraised at 50 million baht or more in value. To the relief of the middle class, that eliminates more than 99% of all the houses in Thailand. Houses or farmland with an appraisal price above 50 million will be subject to progressive rates of tax, with second homes taxed at higher rates. The rates would be between 0.03% and 0.30%. The taxes would be applicable to foreigners if any happen to own condominiums worth 50 million baht or more.

For commercial property, the bill sets a ceiling rate of 2% of appraised value for land use. The ceiling rate of 2% for commercial use is already a low rate compared to other countries in the region.

In an effort to increase the availability of land for farmers, there is a ceiling rate for vacant or undeveloped land to 5% in order to promote efficient land utilisation.

For land with multiple usages, for instance, a two-storey shop house with a business on the ground level and a dwelling on the upper floor, both residential and commercial tax rates will be used.

The Finance Ministry has estimated that the land and building tax could bring in 64 billion baht in revenue, 60 billion of which would come from commercial buildings. Owners and developers of commercial property in particular will now have to take the new tax factors into consideration when planning their strategy.

Still, the taxes in Thailand are among the cheapest in the region except for Indonesia where taxes are levied only on the sale of property.

For income-generating properties, it is still not completely clear whether the existing "rental tax" (12.5% of annual rental value and collected by local authorities) will remain or be replaced by the new tax. The new tax regime is based on the property value with much lower rates, and administered by the central government.

The businesses that would be affected would be mainly ones with high asset value. Tax on property for commercial use is levied from the first baht they invest with no exemption, unlike residential properties, where anything valued below 50 million baht is exempt. Since the new tax system will replace the existing house, land and development taxes, its effects will vary.

Vertical developments such as condominiums might not be affected directly in terms of tax liability but could see a decline in demand.

The merits of different approaches to property tax in Asia can be debated endlessly. Some people see the system in Thailand, even with very modest rates, as a perpetual burden on the title holder, whereas taxes in other countries are based on rental income or on transaction value once a sale takes place. What follows is a brief rundown of other tax regimes:

Singapore: Taxes are levied on the annual value of all immovable property at a flat rate of 10% for non-residential use. Residential properties are taxed on a progressive basis. For non-owner occupied residential properties, rates of 10-20% for apply on values from S$30,000 to S$90,000. For owner-occupied properties, rates of 4-16% apply on amounts exceeding S$55,000. Vacant land for housing development intended for owner-occupation can be taxed at the residential owner-occupier tax rates for a maximum of two years while development is under way. All other vacant land will be taxed at 10% during the development period

Vietnam: Land users pay an annual non-agriculture land use tax at 0.03% to 0.15% of the land price. The tax base is the land area used based on the prescribed price per square metre.

Indonesia: A progressive tax rate is imposed on the sale value of the property, ranging from 0.01% for properties worth up to 200 million rupiah to 0.3% for properties over 10 billion rupiah.

Malaysia: Land tax or "quit rent" is levied yearly on all landed properties at one to two sen (0.01 to 0.02 ringgit) per square foot. The liability is generally estimated to be less than 100 ringgit per year. The assessment tax is a local tax based on the annual rental value of the property, as assessed by local authorities. It is generally levied at a flat rate of 6% for residential properties.

China: The current focus is on development and sales of property, without taxing home ownership or the market value of homes. Investors tend to purchase multiple houses and hold them off the market in hopes of further appreciation, which has fuelled price rises in major cities. Therefore, these real estate taxes levied on individual owners who have more than one property tend to cool down the market. For owner-occupied properties in Shanghai, the real estate tax rate is from 0.4% to 0.6% of 70% of the original value of the property. Non-residents earning rental income are liable for business tax at 3%. Taxable income is computed by deducting business tax, operating, administrative and financial expenses from gross income.

India: There is no comprehensive system of property taxation in India. Practices differ among states and even among municipalities within states. For leased properties, tax is levied on the annual rental value. In Delhi, property taxes range from 6% to 10%.

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