It has quickly become the talk of the town after the Cabinet approved the principle of pushing forward the "Draft Act on Benefits from the Development of State Infrastructure Systems for Transportation, B.E. ..." also known as "Windfall Tax". Although the process still awaits consideration by the legislative assembly and it is unclear when it will be enforced, it has raised numerous questions among all related sectors, especially real estate investors. To clarify all doubts and answer every question, let's get to know "Windfall Tax" through the following 4 questions.

What is Windfall Tax?

          Windfall Tax is a tax levied on those who benefit from the development of state infrastructure. For example, the construction of high-speed rail increases land value, or investments in other infrastructure that enhance land value. However, the government has not yet been able to collect this revenue.

          In fact, this is not a new tax; it has been implemented in various countries for a long time, including the UK, France, Poland, Hong Kong, and the United States. The Fiscal Policy Office (FPO) has studied this and may decide to increase the windfall tax to fund the substantial investments needed for transportation infrastructure. The revenue collected from the windfall tax will be directed into the fund for developing state transportation infrastructure, managed by the Public Debt Management Office (PDMO), which will use it for other state transportation infrastructure development projects.

Which properties are subject to Windfall Tax?

          First, property developers owning unsold condominiums in areas surrounding state development projects, such as high-speed rail, dual-track rail, and mass transit systems, will be taxed. The tax area is within a 2.5-kilometer radius around stations, 5 kilometers from port boundaries, 2.5 kilometers around expressway entrances and exits, and 5 kilometers from airport construction prohibition zones. The tax will be collected upon the sale or transfer of land or condominiums, with the Land Department responsible for collection.

          Second, land or condominiums used for commercial purposes valued over 50 million baht will be taxed in the following year after the infrastructure is completed, with a one-time collection at an initial rate of 5% of the increased value, based on the property value increase after state investment projects. This tax will only be collected upon transfer of ownership.

Who is exempt from Windfall Tax?

          To avoid impacting a large number of citizens, the tax will be exempt for land used for residential purposes and agricultural land. Condominiums sold by property developers or unsold units after state development projects will also be exempt. The tax will be calculated on the increased value of the condominium, with only 20% of the actual increase collected after the completion of the state project, using the same assessed value as determined by the Land Department.

Why implement Windfall Tax?

          Currently, the government is investing in large-scale transportation infrastructure, which involves significant costs. Once the rail projects are completed, the surrounding land or property values will increase. Therefore, legislation is needed to allow the government to collect taxes from landowners or real estate operators who benefit from these increases, using the revenue from the windfall tax to further develop state transportation infrastructure.

          In the United States, windfall tax is collected by deducting the increased tax revenue from state development projects for investment in projects, known as Tax Increment Financing (TIF), for a period of 20-40 years depending on the project type. In the UK, an additional tax is collected over 30-40 years based on project type at a rate of 2% of the annual property tax, which is normally 48% of the annual value.

          However, this windfall tax proposal still has some unresolved issues and requires further study to ensure that the final impact does not fall on consumers who will have to buy homes at higher prices.