The Bhutanese Leading the way.
There is a public concern in Thimphu on the recent tax revision, which many say was enacted without conducting public consultations. Property owners are particularly worried about the implications of the significant tax increase, as the country grapples with the aftermath of the pandemic, leading to a substantial number of people leaving for foreign shores and home rentals standing vacant.
What are the taxes now
Under the new tax structure, several key changes were highlighted.
Previously, 25-decimal plots in E-4 areas paid a land tax of Nu 2,723 based on the 1992 policy. With the revised tax, these plots will pay Nu 12,156, equivalent to 0.1 percent of the total land value according to the recent PAVA Rate. For one acre of land in an E-4 area, the payable tax will be Nu 48,624.
For 10-decimal plots in UV2 MD, the previous tax was Nu 726. With the revision, the payable tax will be Nu 7,335.13, calculated as 0.1 percent of the total land value.
Similarly, in the core area with 10-decimal plots, the tax paid was Nu 1,452, and it will now increase to Nu 26,540.
Previously, building tax was determined based on class categories (I to IV). Class I units, equivalent to 3 BHK units, cost Nu 100 per unit. Therefore, for a building with 10 units of 3 BHK apartments, the tax paid was Nu 1,000. With the revised tax, if such a building has a monthly rent of Nu 12,000 per unit, the annual tax would be Nu 18,000, calculated as 0.1 percent of the total capital value based on the monthly rent.
Property owners concerned
Property owners find themselves in a risky situation, attempting to recover from the economic impacts of the pandemic, including paying off loans and construction costs. Now, faced with higher taxes, they feel overwhelmed by additional financial obligations imposed on their already depleting incomes.
One approaching concern is the possibility of property owners being unable to meet their tax obligations due to reduced income from their properties.
Additionally, property owners have noted that while taxes, fees, and salaries have increased, the government has strictly limited their ability to raise rent. Rent serves as a primary revenue source for property owners, a portion of which is used to pay taxes and fees. The inability to adjust rents in line with tax and fee hikes puts property owners in a difficult financial position.
For owners of undeveloped or vacant land, obtaining financial support from institutions is challenging. Consequently, they may struggle to develop their properties and generate income, especially in an already saturated market.
The public has drawn attention to the recent urban development plan for Thimphu city, highlighting the classification of certain areas, such as E-4 areas, as controlled or restricted development zones. This classification significantly affects property owners’ ability to capitalize on their land. They argue that taxation should be adapted to consider the unique challenges faced by property owners in such areas, rather than treating them the same as land with no restrictions.
Furthermore, there is a call for a more nuanced approach to taxation for old traditional houses in areas like Chang Jalu, Olakha, Babesa, and others where reconstruction or redevelopment of land is restricted for conservation or government purposes. Due to these restrictions, property owners in these areas are unable to fully utilise their land and properties for residential or commercial purposes, affecting their income potential.
Three-year deferment request
Given the ongoing pandemic recovery and a significant exodus of citizens from the country, concerns have been raised about the timing of this tax increase. The public requests that the government consider a three-year deferment of the revised tax collection to allow individuals and businesses time to recover and stabilise their financial situations.
Request to retain tax with Thromde
A proposal has also been made to retain tax collections with the Thromde office, ensuring that funds are reinvested into infrastructure development and improved services within the local communities. This is because unlike before the MoF will take all the taxes into the central coffers.
The public has called for good governance and autonomy for Local Governments, citing the Local Government Act passed by the Parliament with strong public support. They believe that Thromde should have the authority to plan, make decisions, generate, and utilise budgets to meet the expectations and requirements of the general public for their benefit.
In response to the recent public concerns over the tax revision in Thimphu, Thimphu Thromde has offered clarity on the reasons behind the revision and proposed a compromise to address some of the pressing issues raised by citizens.
Thimphu Thromde emphasized that the previous tax collection system was based on the property and land taxation policy of 1992. In light of the changing lifestyle and the increased demand for basic services, both in the city and across the nation, the government saw the need for significant investments in infrastructure development and service enhancement. The recent tax revision was deemed essential to providing the government with the financial means to fulfil these growing expectations.
These revisions are expected to empower the government to fund crucial development activities, with the cost being covered by taxes collected from the public.
However, there are concerns about the potential centralization of tax collection by the central government. Thromde has raised valid concerns regarding the potential impact of centralization on service delivery and overall efficiency, given their role as a service-oriented organization. As a solution, they have proposed retaining 70 percent of tax collection within Thromde and depositing 30 percent with the central government, aligning with practices adopted in other developed countries and cities worldwide.
Thromde also stressed the importance of keeping building tax under their purview, as they handle related services, including scrutiny of building plans and maintenance until a building ceases to exist. This approach would ensure the timely and quality delivery of these services.
The discussion on taxation concluded with a joint agreement between Thromde and the public to raise their concerns about property taxes with the relevant government agency for review and consideration.
Even though there was a public announcement on 20 March 2023, to do so, it was discovered that the new property tax statute of Bhutan 2022 has not yet been legally implemented among all the discussion and consultation among the public and the local governments. It was said that the reason for the delay is due to Ministry of Finance not issuing an executive order.
The outcome of subsequent discussions and agreements between the government, the local government, and people will determine the fate of these tax adjustments.
