Somchai Sujjapongse, the director-general of the Fiscal Policy Office, offered a smile. "I can remember discussions about the land and building tax going back to when I first entered the civil service in 1990," he mused.

Nearly two decades later, the tax might finally become law. Prime Minister Abhisit Vejjajiva earlier this month gave his support in principle to the idea of collecting taxes on properties.

It has been the civil service that has been the prime proponent of the tax, how it should be calculated and collected and its overall concept.

Dr Somchai, whose agency was responsible for writing the draft tax law, played down arguments that the current economic downturn makes it a poor time to impose a new tax.

"Actually, the draft does not say that the tax should be collected immediately after it is passed by Parliament," he said. "Instead, it calls for implementation two years after the law is approved. In the interim, it is up to the state to develop a tax plan, complete valuations on a plot-by-plot basis and educate the public."

Even after the initial two year delay, the tax would still be phased in gradually, with the first year calling for tax rates of 50% of what is set under the law, rising to 75% of official rates in the second year and full implementation in the third year.

"Essentially, it will be at least five years from the date that the law is approved before the tax is fully implemented," Dr Somchai said.

He noted that the fundamental concept of the tax had changed over the past two decades.

Initially, authorities hoped to use the tax as a development tool, with tax rates to be set based on the level of development split among three zones, from heavily developed to least developed.

Later, the tax concept shifted to fixed benchmark rates, with land and buildings used for commercial purposes assessed an annual tax of up to 0.5% of the valuation price, residential housing taxed at up to 0.1% and agricultural property assessed at a rate of up to 0.05%.

Exceptions under the law are limited to only a few cases, including royal properties and properties valued under a set benchmark.

A committee overseeing the land and building draft and chaired by the finance permanent secretary will be responsible for setting "preferred" rates for each category. Local administrations, who are ultimately responsible for setting tax rates, may follow the national preferred rates or set their own rates, so long as they are under the benchmark rates fixed under the law.

The draft law will allow for building owners to file appeals against assessments, say in cases where an owner feels the official valuation is higher than the actual property value.

Dr Somchai stressed that the new tax was not aimed at raising additional funds for the government or covering shortfalls in revenue.

"In any case, please remember that any tax revenues will belong to local administrations, not the central government," he said. "But the fact that local administrations will enjoy more funds does mean less of a financial burden for the central government."

Dr Somchai said the FPO estimates that if the land and building tax were collected at the full benchmark rate, it would generate total revenues of around 90 billion baht per year.

He added that an indirect benefit of the tax was its expected impact on local democracy and the accountability of the public sector to their constituents.

"As everyone will now be liable for tax, certainly there will be greater pressure from the public on local administration officials to know where their funds are being spent," Dr Somchai said.

For Narong Phetprasert, an economist with Chulalongkorn University, the imposition of a land and building tax would help address existing imbalances within the country's society and economy.

"Personally, I support the tax for two reasons. First, with the increase in state benefits to the public comes the need to seek additional state revenues," he said. "Second, this tax can be viewed as helping social equality and stability. A peaceful society, with minimum imbalances, is what allows the wealthy to stay. From an economics perspective, the wealthy do not stand on their own, but depend on many others within society in creating their wealth."

Dr Narong said he did not believe that a land tax or even an inheritance tax would deter investment.

"On the contrary, investment should increase if social stability increases. The thought that tax leads to a decline in investment is not really correct - if so, Sweden or Germany, two countries with very high tax rates, would have seen investment decline long ago," he said.

Direk Patmasiriwat, an economist with Thammasat University, agreed that the imposition of a land tax was fair and just.

"The fact is that property owners benefit directly from public services, whether it be public utilities, police or national security and other services that supplement the value of property," he said.

"To ask that some wealth be returned to the state is not unreasonable. In some developed countries, these taxes are common, with the US collecting as high as 2% per year on asset values."

Even property developers acknowledge that a land tax would not necessarily hurt the market.

Kanok Dechavas, managing director of Home Place Co and an advisor to the Thai Real Estate Association, said a land tax could even help the property market. "Under the law, undeveloped land is assessed a rate of 0.5% for the first three years, with the rate increasing every three years up to 2%," he said.

"This will help encourage landowners to develop their land and increase supply in the market, limiting speculation."

Mr Kanok said it would be a surprise if the law was ultimately passed.

"I never expected to see this draft become law, considering that for more than 20 years, the idea has never gone anywhere. Landowners simply do not agree with the concept," he said.

source : www.bangkokpost.com