National Land Commission (NLC) is in the process of revising the land tax rates in both rural and urban areas with the aim of generating revenue, preventing speculation over land, and also concentration of land holdings in a few hands.
The rates are yet to be finalized and will have to go through the Gross National Happiness Commission (GNHC) and the Cabinet before being approved.
One of the main revisions is a proposed 5% land transaction tax on rural land. Currently land transaction tax of 5% of the market rate is levied only on urban land transactions.
“Since most of the land transaction is happening in semi-urban areas, the land commission is looking at imposing tax at par with urban land transaction rate,” said Sangay Dorji, the chief of the Policy and Planning Division at NLC.
The proposed transaction tax in rural areas is meant to discourage investors speculating on land.
As of now, in the case of Kamzhing land, the proposed land tax is Nu 330 per acre up from the earlier Nu 12 per acre.
For Chuzing the proposed tax is Nu 240 per acre up from Nu 24 per acre.
Land types such as Pangzhing (fallow land) Tshoesa (vegetable garden) and Bamboo would be included under Kamzhing, if the tax revision is finalized.
To discourage farmers from keeping their land fallow, the NLC has come up with two proposals. First the government can buy the non-utilized land after three years at the prevailing government rate and secondly, the government can levy a 24% penalty.
For urban areas the land tax rate being proposed is a minimal increase of 0.10%. Currently, the core urban area tax is Nu 0.50 per square feet or Nu 21,780 per acre and Nu 0.25 per square feet or Nu 10,890 per acre in extended areas. After the increase, the rates will be Nu 21, 801.78 per acre for core urban area and Nu 10,900.89 per acre for extended areas.
The proposed industrial land tax is Nu 640 per acre keeping the base of the current lease rate.
Tax rate for recreational land is proposed at par with Kamzhing, which is Nu. 330 per acre as it is seen as serving the general social welfare.
Proposed tax on institutional land, whether it’s private or government land will be at par with industrial rate, which is Nu 640 per acre.
A 50% tax concession was proposed for land that falls under environment heritage and Dzong precincts, and green space in urban areas.
Recently, the stakeholders – the Ministry of Home and Cultural Affairs (MoHCA), Ministry of Works and Human Settlement (MoWHS), Ministry of Finance (MoF), Ministry of Agriculture and Forests (MoAF), Thimphu Thromde and NLC had a meeting on the issue of land tax.
Sangay Dorji said they agreed to compute the proposed tax amount by taking the ratio of the previous land tax and land rate, along with present land rate.
In other words they decided the new rate by calculating the then government approved land compensation rate and the tax rate with respect to the current Property Assessment and Valuation Agency (PAVA) compensation rate
The existing land tax was formulated during the revised Taxation Policy 1992, and approved by the Lhengye Zhungtshog during its 133rd meeting. According to NLC, the land tax remained the same for the last two decades.
NLC officials say that the tax rate remaining the same in the face of increasing land value prompted people to illegally hold onto large amounts of limited land.
Therefore, the NLC says, it is appropriate to recommend a suitable tax rate to government considering the enormous land transactions taking place.
Increase in the acreage of landholding leads to incremental increase in the tax rates slab, therefore the tax revision would bring about equity.
Land tax is proposed to be exempt below certain landholdings .