The Thai government is imposing an inheritance tax as a means to reduce the economic inequalities in the country. Opponents believe that an inheritance tax will destroy incentives for savings and investment. In addition, they state that the assets have already been taxed once and death should not be a taxable event.
What is the new inheritance law?
The Inheritance Tax proposal would place a 10% tax on the value of an estate of over 50 million baht. The estate will be calculated on properties that have records such as real estate, vehicles, stocks, bonds, and bank deposits. Property without official records such as art, jewelry, and antiques are not taxable because they can easily be transfer and difficult to locate.
Inheritors of the property can pay the tax in installments of two to three years. In order to prevent tax evasion, the revenue department has proposed a 5% gift tax against families who have assets and wealth are worth 10 million baht or more.
The bill is currently with the Cabinet for consideration. After approval by the Cabinet, the bill will be sent to the National Legislative Assembly for a vote and enactment. It is expected to become law in about six months.
What is the economic effect of the passage of the inheritance tax?
While 10% is relatively small compared with other nations which have an estate tax or an inheritance tax, it is expected that many people who may be taxed will search for ways to place their assets out of the reach of the government. This may be in the form of converting their registered assets into non-registered assets like jewelry, art, and antiques.
An inheritance tax could also lead to capital outflows out of Thailand as the wealthy send their finances abroad. This will lead to reduced capital for investment in Thailand. Without private capital in banks, there will be less funds available for business loans. In addition, the wealthy may attempt to invest their funds and grow a business overseas without repatriating their funds. Thailand is still a developing country and requires investment income.
The inheritance tax is meant to reduce wealth inequality in Thailand while also boosting revenue with limited impact on low income earners. The increased revenue will be used for government programs to fund the needs of the country. However most people will usually not willing give up their assets.
It will still be seen how much funds will be raised through the inheritance tax. A negative effect of money flowing outside the country will reduce private investment in the country which may cost more than any income raised.