The new Land and Building Tax will replace the current House and Land Tax (12.5% of rental income) and Local Development Tax. The new tax will be enforced in 2019 and collection will begin on 1 Jan 2020.
It sets the ceiling tax rates based on four land use purposes, i) agriculture (0.15% of appraised value) (ii) residential (0.30%) (iii) other uses (1.2%) (iv) undeveloped land (1.2%). For vacant land, rates will be raised by 0.3% every three years but will not exceed 3.0%. Land for residential (main residence) and agricultural use worth up to Bt50m are exempted from the new tax.
The applicable rates will be lower for the first two years for all categories, i) agriculture (0.02%-0.10%) (ii) residential (0.02%-0.10%) (iii) other uses (0.30-0.70%) (iv) undeveloped land (0.30-0.70%). There are also provisional clauses to alleviate the taxpayers’ burden as they are required to pay 25% of the increased tax in year 1, 50% in year 2, 75% in year 3, and 100% in year 4.
The new Land and Building Tax gives exemptions to owners of first residences priced up to Bt50m. This means majority of home owners will not be subject to the tax as around 99% of homes in Thailand are priced less than Bt50m. For owners of second homes and so on, the applicable tax rates are quite low at 0.02% for homes priced up to Bt50m. Most developers in Thailand do not carry huge land bank. As for commercial property developers, most of them pass on taxes like these to their tenants. Most industrial estate developers carry large land bank and could be subject to increased tax payment in the future.
Implications to the sector
Minimal impact on residential property sector. The new Land and Building Tax gives exemptions to owners of first residences priced up to Bt50m. This means the majority of home owners will not be subject to the tax, as around 99% of homes in Thailand are priced less than Bt50m.
For owners of second homes onwards, the applicable tax rates are quite low at 0.02% for homes priced up to Bt50m. For example, owners of second homes priced at Bt10m will be subject to only Bt2,000 tax per annum. This is actually lower than the common fees they are currently paying for their estates.
Most developers in Thailand don’t carry huge land bank, so this new tax should not pose much of a problem to the sector. However, they would need to bear higher costs on property under construction and unsold finished goods inventory.
More negative impact on industrial property developers. Most industrial estate developers carry large land bank and could be subject to increased tax payment in the future.
Developers of ready-built factories and warehouses for rents should also see higher tax payment, especially on unoccupied areas. Note that the average occupancy rates for ready-built factories and warehouses are now c 70% and 80% respectively. Some developers may pass on the House and Land Tax to their tenants, but in unoccupied areas they will likely have to bear a higher tax.
Minimal impact on retail/office property developers. Most commercial property developers (retail/office) are currently passing on the House and Land Tax to their tenants. Any increase in tax should be borne mostly by tenants. However, developers may need to pay for the tax on vacant areas, which should be quite insignificant. Note that the vacancy rate in the retail and office sectors is currently less than 10%.
Some impact on hotel owners. Most hotel owners currently pay House and Land Tax, so they may subject to a higher tax rate based on the new Land and Building Tax.
(via DBS)