It is generally recognized that property tax or land and buildings tax is a main source of government revenues that are used to fund community services, such as education, public health, and social welfare. The property tax is also an important tool in promoting land management, stabilizing property price, and supporting fiscal decentralization.
 Many thanks to Miss Paradee Agachon, Director of Property Valuation Standard Division and Mr. Akekalak Chalermcheep, Director of Research and Development of Property Valuation Standard Subdivision, Treasury Department, for their kind advice
Concept of Property Tax
The concept of land and building tax has been explained by Henry George (1979), a world-renowned economist, that the increase in land value is not caused by any landowners’ actions. Rather, it is a consequence of the surrounding and the development of public utilities and services. The state provides services, such as road, electricity, and water. As the result, the land value rises. Therefore, the landowners should accordingly reward the state with related taxes.
For ASEAN countries, such as Thailand, the Philippines, Indonesia and Laos, property tax revenues account for 0.1% – 0.5% of gross domestic product (GDP), a very small proportion compared to developed countries, such as France and the United Kingdom, where property tax revenue accounts for approximately 4% of gross domestic product. Figure 1 depicts the ratio of property tax revenue to GDP among ASEAN countries and developed countries in 2019. It can be seen that the property tax revenue in comparison with the gross domestic product of developed countries is approximately 7 – 8 times higher than in ASEAN countries, except for Singapore. It is noted that the information on property taxation and valuation in this article is limited to only some ASEAN countries, namely, Cambodia, Philippines, Vietnam and Thailand.
Between countries, property taxes vary in nature and characteristics according to each country’s respective legislation. Property taxes in Cambodia include real estate tax and unused land tax, whereas the property taxes in Vietnam are called non-agricultural land use tax and agricultural land use tax. Meanwhile, property taxes in the Philippines are real estate tax and unused land tax. In Thailand, it is the land and building tax. Table 1 provides the property tax comparison in various ASEAN countries.
The vast majority of property tax collection in ASEAN countries is based on valuation of land and building for all types of uses, such as commercial, industry, and agricultural properties. However, there are some countries that collect only land tax (tax only on land). For example, Vietnam collects the land tax excluding buildings located on the land plots. The land taxation encourages investment and real estate development because no tax is levied on buildings. If the land tax rate is higher, the land use will be more efficient, while reducing land speculation. In terms of tax management, the land tax reduces administrative and tax costs. In Cambodia, on the other hand, the tax base is the real estate price. This includes land and building located in the capital city of Phnom Penh and other provincial urban areas. The tax base of the unused land tax includes land with buildings that are in derelict state. In addition to land and building, the Philippines has established an additional tax base to cover other benefit and return associated with non-permanent buildings, such as machines and movable buildings. Table 2 compares different tax bases in different ASEAN countries.
There are two main valuation systems related to property taxes in ASEAN countries: area-based valuation and value-based valuation. The area-based valuation system considers the area of the land plot or building or the combination of both. The main benefit of this system is the ease of tax determination and collection because it considers only the total area of the building or land plot. The problem with this system is its unfairness as it does not consider the specific factors, such as location, public utility and service, that cause differences in the property values. This is usually done in countries where there is not sufficient information available in the real estate market. Vietnam’s agricultural land use tax is an example of area-based valuation system. However, Vietnam is amending its property tax law to use market value as the tax base.
The value-based valuation system is widely used in countries where the real estate information is available. The system is found mainly in both developed countries and some developing countries. It considers the value of land and building as the tax base in accordance with the property tax guidelines. Under this method, any lands and buildings that have a higher value will have to pay higher tax. In Cambodia, real estate tax is assessed at only 80% of the estimated property value. However, the value is usually much lower than the market price. The property taxes are calculated separately for land and building in the Philippines. The assessed land value will be reduced to only 20% – 50% of the estimated property value depending on the type of land use such as residence, agriculture, and commerce. The building values are assessed on the progressive tax rate, based on the value and type of land use. For example, if the assessed value of a building is between 300,000 – 500,000 (PHP) and it is for residential purpose, only 20% of the assessed value will be applied for the property tax.
Regarding the cycle of property revaluation, each country determines the time period for the revaluation differently. In the Philippines, the law requires local authorities to reassess the property every three years, but in practice around 60% of local authorities have not updated their prices for a long time due to political and administrative reasons. In some countries, the reassessment of value is the central government’s responsibility. For instance the property valuation in Thailand is undertaken by the Treasury Department. In Cambodia it is operated by the Real Estate Valuation Committee under the Ministry of Economy and Finance, while the assessment for unused land tax is carried out by the Unused Land Valuation Committee. In Vietnam, the Provincial People’s Committee establishes a table of land prices every 5 years. Table 3 shows a comparison of the property valuation system of ASEAN countries.
Special Thanks to Asian Development Bank
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The Treasury Department