Proposed Amendments to Thailand’s Land and Building Tax Laws

The Thai legislature is currently considering a draft of a new Land and Building Tax Act (the Act) which would replace the current Building and Land Tax Act B.E. 2475 (BLTA) and the Local Development Tax B.E. 2508 (LDT). If passed in its current form, the Act will have a profound impact on the general public as it will increase the tax base and introduce a new method of calculating property tax.

Background & Context

Currently, property tax revenue constitutes less than 10% of the total budget of the Thai Revenue Department. Officials thus see the Act as an easy way of boosting the government's coffers, as the method of taxation will be based on the appraised value of land and buildings and the tax base will be expanded to cover property that is currently tax-exempt. In pursuing this additional revenue, the Act aims to collect taxes more effectively and fairly from everyone based on updated valuations of land and buildings. Thus, all residential units, even those in low-income areas, will be subject to taxation, although assistance to such communities is available under the Act. Furthermore, the Act also aims to simplify the methodology for calculating and collecting taxes on property and should be easier to understand for both taxpayers and tax collectors when compared to the two laws the Act will replace.

Summary of the Act

The Act is divided into nine sections: general regulations involving tax collection and taxpayer's duties, regulations on land and building surveys, regulations on tax base calculations and tax rates, tax-form submission procedures and tax payment, tax deductions and exemptions, treatment of overdue tax, penalties and surcharges, process for objections and appeals to appraisals, and punitive clauses for taxpayer violations.

Taxes under the Act will be assessed on the appraised value of property and be payable annually. The rates will be established by a Tax Rate Committee but subject to the following maximum rates: 0.05% for agricultural property; 0.1% for residential property and 0.5% for “general use” property (which would include commercial property). Property used for certain public activities or for religious or charitable purposes will be exempt from taxation. Finally, the Act contemplates that the value of certain fixtures located on the property may also be subject to tax, as prescribed by ministerial regulation.

Administration and enforcement of the Act will primarily take place at the local level. Each province will have discretion to increase the rate of tax established by the Tax Rate Committee as it sees fit but subject to the above caps. Taxpayers will be informed of their tax liability in January of each year and be required to pay taxes by the end of April within the province where the property is located (although the taxpayer may be permitted to pay in installments). Penalties for failing to pay tax can be severe and may amount to 2% of the total appraised value of the property.

Use and development of idle land is promoted under the Act by increasing the tax rate over time for land. At first, idle land or land-bank plots that are not used for any purpose will be subject to the rate prescribed for such province. However, if the plots are not used for any purpose thereafter, the tax rate will double every three years subject to a cap of 2.0%.

Appraisals will be updated under the Act as well, as some properties have not been appraised since 1981. It is unclear, however, how land and property will be valued where its utilization is mixed, such as partly residential and partly commercial or agricultural.

The Act will be subject to a four-year transition period. For the first two years following the Act’s publication in the Royal Gazette, the BLTA and LDT will remain in effect and no tax under the Act will be applied. Thereafter, both the BLTA and LDT will no longer be effective and the new tax rates established under the Act by the Tax Rate Committee will be enforced at 50% and 75% during years three and four, respectively. For example, if the Tax Rate Committee decides to use 0.1% as the tax rate for residential property, then the applicable rate for residential property will be only 0.05% and 0.075% in years three and four, respectively, with the 0.1% rate fully imposed in the fifth year and thereafter.