In January of 2019, Thailand instituted a land and building tax. Two thirds of the thirty- three million property parcels had been appraised by mid-year, with the revenue intended to finance local (provincial) governments. Political pressures against the implementation of the tax, were intense in the several years prior to its final approval, and there were several delays. Additionally, there was never a viable plan for taxing land values alone. But the final scheme to tax land values at a higher rate than improvements was indeed a signal victory for a policy I have long advocated. I was a Peace Corps Volunteer in Northern Thailand from 1962 to 1964, and have returned in the past thirty years to visit and speak before Ministry and university audiences.
During my visits and speaking occasions, I had regularly pointed to the advantages of land value taxation, particularly with regard to how this taxation could address the growing wealth disparities among Thailand’s 65 million people, and, problems resulting from the extraordinary development sprawl consuming rice paddy land at an alarming pace. In a Bangkok presentation before the Asian Constitutional Law Forum in December of 2017, I demonstrated the extent of this haphazard speculation in Bangkok alone, by using land maps and diagrams of inefficient transportation patterns. Bangkok already had a reputation as one of the most inaccessible capitals in the world.
Now, only nine months after the land and building tax regime was instituted, there is demonstrable evidence of its beneficial impact. This is clear both in land market patterns and in development initiatives. Thailand’s leading English language paper, the Bangkok Post, on September 22, 2019, published an article with the following lead sentence:
Land prices in the Thai capital are forecast to plateau, or even drop this year. This would be the first time in more than ten years that Bangkok’s land prices have leveled off.
The article continues on the same page, to report (I have slightly edited the text):
[C]hanges can be blamed on the general economic slowdown and the Land and Buildings Tax that takes [continued] effect in early 2020. There is a lot of new land coming up for sale as owners gear up for the [further rise in the] tax next year.
CBRE [a Thailand consulting firm] noted that there is an increasing number of landowners with large tracts of land for sale. They say that owners, affected by the slowdown in the country’s economy, are offering up slices of Bangkok land and properties with “negotiable deals or flexible prices.”
Worried about the upcoming Land and Buildings Tax, some owners are trying to divest themselves of some of their property assets. Some landowners are also offering leasehold options to minimize new costs from the new tax.
The new Land and Buildings tax will tax vacant land at .3 – .7%, with a rise of .3% every three years. To put that into perspective, for a one-rai vacant plot on Phloenchit Road, Bangkok, the tax rate will be 2 million baht per year. (1 rai = 0.29 acres)
New appraisal prices for land take effect for four years starting from Jan 1, 2020. According to the Treasury Department, the revised appraisals will mean an average increase of 2.5% in Bangkok and 8.3% nationwide.
According to CBRE, with so many plots coming onto the market at more negotiable prices, land prices in Bangkok could drop by 5-10% from last year or at least remain flat, for the first time since 2009.
CBRE reports that the average increase in land prices across Thailand per year has been around 2-3%, and 5-6% for Bangkok. But that has accelerated in recent years with land prices in Bangkok rising more than 10% per year over the past couple of years.
[Another consulting firm] says that the ‘sellers’ market is now turning into a ‘buyers’ market around Bangkok.
“We’re still seeing a steady surge of buyers, both local and international, but the heat from the last couple of years has cooled, and that’s a good thing.”
This is a signal victory for proponents of land value taxation. It adds one more country to the list of places in the Eastern Hemisphere, where land value taxation is now employed. These countries include Australia, Hong Kong, Singapore, and Taiwan. South Korea, which has a strong Georgist network, may soon follow in implementing a land value taxation policy.
Good news for Thailand! The lower land prices that LVT will generate will bring about MORE JOBS for Thailand, as there are many creative people (around the world!) who have great ideas for a start-up business, but currently cannot afford the TOO HIGH land prices on the under-taxed land where they live. You can’t start a business in thin air – even airplane flying lessons! You need a place to store the planes, have an office, etc. More jobs in Thailand will also raise wages, as the larger number of businesses will compete for the most talented workers. 🙂