The government's transformation of property tax is major news across the nation. Part of this tax reform is to implement the Land and Construction Tax bill to replace the ageing House and Land Tax Act, which has been in force for over 76 years. It is also the case that whenever the bill has been proposed in the past, the government fell and failed to accomplish the task.

In the midst of this financial crisis, the government needs to squeeze some tax from the rich, who are expected to be property-owners, to balance the deficit budget. If the government can make it happen, local administrative bodies will be able to rely on their own revenue sources, allowing the government to cut down its financial support.

It is also very logical to reform property tax. The current law has served for a long time - too long, as its ambiguity and uncertain interpretation create plenty of disputes between local authorities and taxpayers. The House and Land Tax is currently applied even to expressways and telephone booths, which seems to go too far and perhaps beyond the spirit of the law. So, the New Property Tax is again brought forward for government consideration and inheritance tax is in the pipeline.

Supporters of the New Property Tax believe that the current law has a narrow tax base, particularly restricted to commercial properties, and has yet to achieve its objectives in redistributing wealth from the rich to the poor. The new tax bill is intended to provide a more effective tool for the government to do this and to optimise land use. According to the bill proposed in 2007, some of the key features of the law will be:

- Individual owners are not exempt from the New Property Tax.

- Local authorities are empowered to collect the New Property Tax while the government will provide a checks and balances system.

- A two-year transition period will enable taxpayers to prepare themselves for the new system.

- Owners of land or constructions (both individual and corporate) and possessors who utilise public land or government constructions are subject to tax.

- The New Property Tax will be the source of revenue for local administrative bodies and municipalities.

- Exemptions are provided to certain properties - such as properties owned by public, crown properties, government properties used for non-profit business or properties used as premises by the United Nations and other international organisations.

- The tax base means the gross value of land and construction according to assessment value. The law allows 1% deduction with a ceiling of 10% for property maintenance.

- The tax rate is reduced to 0.5% of the assessment value for general properties, 0.1% for non-commercial properties and 0.05% for agricultural properties.

!Importantly, for non-utilised properties or green-field properties, owners will be subject to 0.5% of the assessment value for three years. Thereafter, if the non-utilisation continues, the owner will be subject to a 100% penalty every three years, but the penalty will not exceed 2% of the tax base.

With the tax rate reduction from 12.5% to 0.5%, the arrival of the New Property Tax is more than welcome to businessmen. In exchange for this, the government will enjoy a much broader tax base, applicable to all properties with limited exemptions.

But despite the appeal of this reform, the government must still consider the following issues that may arise from tax policy:

- The rich will be affected less than the poor. To be precise, they are unlikely to have a serious problem from the tax bill, and they should be able to get away from the penalty in many ways, such as plantation or farming.

- Farmers and low-income owners may not have enough cash in hand for paying the tax, even though the new system will be implemented at a low tax rate for agricultural businesses. As a result, some may be forced to sell part of their properties to settle tax bills.

The imposition of the new system will also depend on the official assessment value, which is now only used for government transfer fees. The assessment value will need to be based on criteria and methodology that are internationally acceptable and fair. Otherwise, it could create endless debates and sap willingness to adopt the new tax bill.

To ensure this objective as well as transparency, assessment should be done from the centre - by the Treasury Department or any special governmental authority - rather than by local administrative bodies or municipalities, which should limit corruption and loopholes.

Prepared by Thanasak Chanyapoon and Piphob Veraphong, who can be reached at admin@lawalliance.co.th or 026515490.

source : www.bangkokpost.com