The Royal Thai Government remains committed to implementing a proposed asset tax that will affect property owners across the country said Finance Minister, Korn Chatikavanij, at the Foreign Correspondents’ Club of Thailand, Wednesday.

The proposed bill has been approved by the cabinet and is currently being vetted by the Thai Attorney General, but is unlikely to be submitted for parliamentary approval until the next session, he revealed. Only then will the exact details of the proposed bill be made public.

The tax has raised concerns amongst foreign and domestic property owners that the bill will erode Thailand’s investment potential. Acknowledging that the tax will certainly face opposition, Korn remains adamant that it is necessary as part of wider tax reforms to distribute the tax burden more equally across the country.

Arguing the need to rebalance the “very unfair distribution” of tax that is currently based on income, not wealth, Korn explained that the Bank of Thailand’s proposed minimum property value would exclude 90% of property owners in Thailand, but in doing so, only 10% of tax revenues.

The proposed bill will enforce incremental increases on land and buildings ranging from 0.5 to 2% with the tax expected to act as leverage on property owners with unused plots to release more land onto the market, fuelling further investment and economic growth.

The government aims to collect at least THB20 billion a year, the same as the land development and land and building taxes, the two existing laws that would be replaced by the new property tax.

Approximately 90% of tax revenues are currently derived from taxes on employment, effectively penalising the poorer rural and urban labour force that the country relies on for its continued economic growth and who have been at the centre of Thailand’s ongoing political power struggles since 2006.

Though the current ruling Democrat party faces possible dissolution in the coming months for receiving an illegal donation and mis-use of funds, Korn expressed confidence that support for the tax would transcend any potential changes in government.

Thailand Property market

Although the Thai real estate industry has continued growing significantly since 2008, we have not seen a real estate bubble environment manifesting. The industry seems to have learned its lessons during the 1997 financial crisis and has successfully implemented the following safeguards: The banking industry has become much more cautious providing project financing and mortgage loans.

The completion of the Suvarnabhumi-Bangkok International Airport has spurred growth in commercial property markets in eastern Bangkok as well as in the beach resort of Pattaya. Thailand has become even more accessible by air with a wide range if International carriers using Bangkok as a hub. In recent years, there has also been a surge in budge carriers, offering very competitive prices to both local and international destinations.

Compared to 1997 Real estate companies are able to respond much more quickly to changes

Thailand’s property market was able to rebound from past crises and there is every reason to believe it will be able to absorb the blow of recent political tensions. The taxation situation has actually improved the conditions for purchasing property in Thailand, and if property prices do dip slightly as a result of the current situation it may actually be a good time to buy as there is a very real possibility Thailand property will regain its golden outlook soon. As a result, the financial condition of most major housing developers in Thailand is much more robust than in the past. The development of the local bond markets and increasing domestic savings has the made the industry much less dependent on foreign funds, a significant difference from 1997.

Investors earn income from rentals. If the economy turns bad, rental rates and occupancy rate in Thailand may fall, forcing many investors to become sellers. When speculators and investors become sellers, extra supply is thrown into the market. Demand and supply pressure are exerting negative sentiments on the Thai real estate market in 2008-2009. However, some developers view the situation as an opportunity.