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Under-declaring the value of properties is a recognized form of tax shelter scheme practiced not only in Thailand but in other countries as well. The process is simple and does not require much elaboration. In an effort to lessen any tax liability, the value of the property as declared by both the buyer and the seller will not accurately correspond to the actual value of the land involved. For several reasons, Thai law has forbidden this practice as a form of tax evasion and has set corresponding penal sanctions against violators.
Most often than not, every potential buyer will be confronted with an assortment of values on a specific property, each determined by a different authority based on a variety of factors. To most buyers, this may appear as unnecessary hair-splitting but legal and tax authorities argue towards finer points that justify these distinctions. As such, there is a need for every buyer to recognize and understand these valuations for their own benefit and instruction.
The first kind of valuation is known as the Assessed Value which is pegged according to calculations made by the Thai Land Office. This is usually lower than the value that most people attribute to the property since policy considerations favour a much lower amount. Considerations dealing with the structure and the improvements found with it play a major role in determining such amount. Another kind of valuation is what is known as the Registered Value. This is the value of the property as reflected in the documents transferring title to the property as the price paid in the transaction. This value is usually lower than the real value of the property since it will serve as the basis for the imposition of any tax on the transaction. In real property practice, the term Assessed value and Registered Value are used interchangeably. A third kind of valuation is the Market Value of the property which is the actual value the buyer pays for the property. Its amount reflects the true value of the property as determined by actual market considerations.
Under-valuation comes in when there exists a variance in the Registered Value as compared to the Market value paid by the buyer. In such a case, the tax collected would be based on the much lower registered value rather than the Market value.
As a reaction, Thai authorities have begun to impose stricter measures in an effort to curb this nefarious practice. Note that the provisions of the Revenue Code of Thailand are broad enough to be construed as including the practice of undervaluation within the definition of tax evasion which carries criminal and civil liabilities. Also, undervaluation may constitute a direct violation of the Land Code which requires that persons recording rights dealing with real property correctly reflect the market value of such property and failure to do so may lead to corresponding fines and penalties.