The HLT is one of the few taxes that enable the local municipalities, rather than the national revenue authorities, to collect taxes. Pursuant to the HLT, the local authorities in Thailand have the right to collect this tax from certain structure property owners. In general, the HLT is imposed on structures and land if the owner of such structures and land receives, or should receive, rental income from these.
The current HLT rate is 12.5% of the annual "rental value." The annual "rental value" is defined as the “sum for which the property might reasonably be expected to let from year to year. When there is a lease, the rent is the basis of the annual value (…)”. The basis of the taxation is the annual rental value of the foregoing year. The most important exemption from the HLT is available where the “houses or other structures (are) inhabited by the owners thereof (…). But note well and again, if your property is subject to assessable rental income for even one day, then the HLT is payable in an amount of 12.5% of the total rental value for the entire year.
The owner of property subject to HLT is required within thirty days after having received notice from the relevant authorities, or within the time frame outlined in the same notification, to submit the form “Por. Ror. Dor. 2”. This form constitutes the declaration of the annual rental value of the property for the foregoing year. The relevant municipality will then use this information to confirm or determine the annual rental value of the property and, therefore, the amount of tax to be paid. If the municipal authorities do not agree with the rental value figures submitted or if no figures are submitted, they are empowered to assess and assign the value themselves.
By not submitting the above-mentioned form, the right to appeal the decision (i.e. “assessment”) of the relevant municipal authorities is waived. Further, a fine not exceeding Thai Baht 200 will be applicable. Providing false and wrongful information or making a false statement for the purpose of evading the proper calculation of the annual value could also result in punishment with imprisonment not exceeding six months or a fine not exceeding Thai Baht 500 or both.
Unfortunately, the occasion for the municipal authorities to assess the HLT also sometimes provides an opportunity to “discuss and negotiate” the payable amount. This and other inefficiencies relating to the HLT (and the local development tax which is applicable where the HLT is not i.e. to land without structures) has inspired the government to consider drafting a more modern and comprehensive property tax that would change the basis of the taxation of property with structures from the assessed rental value of the immovable property to the assessed value of the property itself. In such case, the municipal authorities would no longer be empowered to determine the tax payable themselves. The assessment of the value of the property would be performed by the already existing Valuation Committee under and in accordance with the Land Code. The same valuation method is actually already in use as the basis for calculating the fees and also the personal income tax payable at the land department upon transfer of immovable property in accordance with Section 49bis of the Revenue Code. This method is based on valuating using actual market value pursuant to Section 103 et seq. of the Land Code, as opposed to rental value. However, like the HLT, it is expected that any such new property tax act would also exempt property if it is inhabited by the owner.
Such a comprehensive and modernized property tax that would “replace” the current property taxes including the HLT has been discussed and anticipated for quite some time now. And in fact, as recently as late 2010 the Cabinet approved a draft of the new tax, but for various reasons the Ministry of Finance tabled the draft. However, the new government has announced that it will take it up again. Thus, in the near future it appears that the HLT will remain in place but it may not be with us indefinitely.
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