The Bhutanese Leading the way.
Tax collection could be under Nu 1 bn
The initial projection of the Department of Revenue and Customs (DRC) was that the total property tax on land and buildings expected to be collected is Nu 675.59 million (mn), however, the latest estimates show that if everyone pays their share then it could well exceed that and touch close to Nu 1 billion (bn).
This is compared to Nu 57.25 mn that was collected nationally in 2021 before the Property Tax Act.
So far, the DRC has collected Nu 100 mn in Property Taxes with the final deadline being 31st March 2024. There are 190,000 people liable to pay Property Taxes of which around 60,000 have paid so far.
The close to Nu 1 bn tax figures comes on the basis of the survey by the Ministry of Infrastructure and Transport that found around 300,000 houses and buildings in Bhutan including government structures and 600,000 land plots in Bhutan.
Property Taxes burden more on Richer and Landed people
However, the estimates show that the majority of the property tax burden is falling on the more well-off people in the Thromdes.
Of the Nu 675.59 mn taxes in the original projection, around Nu 323.44 mn is being paid just by the four thromdes of Thimphu, Phuentsholing, Gelephu and Samdrupjongkhar.
Nu 51.07 mn is paid by the various municipalities and Nu 301.08 mn is paid by rural areas which also includes those areas just outside the Thromde boundaries of Thimphu, Paro, Phuentsholing and Gelephu.
Within the Nu 675.59 mn figure is around 330 mn in building taxes.
When it comes to building taxes of the total Nu 330 mn around half at Nu 126 mn to 150 mn is paid by Thimphu alone, Nu 42 mn is from Phuentsholing while Paro is 32 mn and Sarpang is 13 mn.
The most valuable Dzongkhag when it comes to property is Thimphu with 21,000 plots in total.
Within these 21,000 plots in Thimphu there are 8,700 plots at or above 20 decimals, 6,800 plots at or above 25 decimals, 3,000 plots at or above 50 decimals, 1,500 plots at or above one acre, 764 plots at or above 2 acres, 517 plots at or above 3 acres, 299 plots at or above 5 acres, 147 plots at or above 10 acres, 98 plots at or above 15 acres and 63 plots at or above 25 acres. The biggest plot size in Thimphu is 518 acres.
The above includes government institutions too like the JDNWRH, RBA and Ministry of Agriculture and Livestock’s Yusipang property but it has a majority of private land holders.
The above also does not show that a single person can own multiple plots. This means that one person could well be owing multiple 10 decimal plots running into even acres.
The data above for Thimphu shows that there are many large land owners in Thimphu owning property running into several acres and it is this category of people that have to pay the heaviest property taxes.
Earlier Thimphu Thromde used to collect Nu 75 for two bed room apartments and Nu 100 for three bedroom apartments but now under the new system the annual rent will be multiplied into 12.5% capitalization rate and then 0.1% of it will be the building tax.
In short, if a person earns Nu 100,000 house rent per month then it will be Nu 1.2 mn per year into 12.5% divided by 0.1% which comes to Nu 15,000 annual building tax.
Bhutanese property taxes among lowest in the world
The Director General of DRC Sonam Jamtsho said that internationally Bhutanese property taxes are among the lowest in the world.
He said in many countries it starts from 0.2 to 0.7% and in New Jersey USA it is 2.10% while in Japan it is 1.70%.
Bhutan is on the lower end along with Thailand and Cambodia at 0.1%.
Tashi Tangbi, the Principal Engineer of the Department of Macro Fiscal and Development Finance (DMDF) under MoF said that the taxes in other countries are based on market value with a 10% to 20% discount, but in Bhutan it is based on the PAVA rate which is much below the market rate and is in fact the rate at which the government provides compensation for acquiring private land.
Tashi said it is an irony that earlier people complained the government compensation rate or PAVA rate was too low for land acquisition as it is not the market rate, and now people are saying the same PAVA rate is too high for tax calculation.
Tax actually falling in some places
DG Sonam Jamtsho said the fairness of the system can be seen in the fact that in fact in some places the property tax is actually falling since it is based on valuation and not a flat rate.
The places are Chamkhar, Tsimasham, Dagana, Sunkosh, Gasa, Haa Throm, Faling in Lhuentse, Mongar and Gyelpozhing.
For example, a 23.74 decimal plot in Faling used to attract Nu 2,069 annual tax but it is now Nu 1,786.
The DG said the tax that is collected will go to the domestic revenue and this in turn will be used to provide services for the people.
Royal Family members and Govt agencies also paying Property Taxes
The Property Tax is being paid by all including Royal Family members and government offices.
A source said one Royal Family member will be paying more than Nu 400,000 in tax every year for his residence and the land around it in Thimphu. This is even though there is no commercial activity happening there.
Similarly, all the commercial properties of the Royal Family members like buildings on rent etc. are also being taxed at the same rates.
Government offices and agencies will also have to pay the property taxes based on their structures and the land they own.
Mindset change and Govt Debt
Tashi Tangbi said the reluctance around property tax is because of the Kidu Mind-set or Culture where people expect the government to give and do everything, but when it is their turn to contribute then they have objections.
Tashi Tangbi said that people have been used to paying the 1992 Revised Taxation Policy which is more than 30 years old despite the huge escalations that have taken place. He said the old rate of Nu 12 per acre for Kamzhing and Nu 24 per acre for Chuzing is peanuts and the tax is also about changing the mind-set of the people towards tax.
He said the old rate is not equitable and in fact the new rate taxes the person based on the wealth they hold.
He pointed out that the government debt is already around Nu 280 bn and the fiscal deficit has been widening for a while and so the government has been forced to borrow.
Tashi said the Property Tax is a small measure to alleviate the problem otherwise an example is Sri Lanka where politicians kept waiving off taxes until it became bankrupt.
Land Speculation and vacant plots
Another aspect is a major problem of vacant plots in urban Throms as the government borrows billions from international banks to develop roads, water, electricity, sewage etc. and has to pay it back, but when people leave it vacant then the government cannot recover the value in terms of building taxes etc.
Tashi said currently people just hold on to vacant land as a place to hold wealth and this led to speculation and drove up prices even higher. He said the taxes will curtail such speculation and bring stability in the market in a few years.
The additional vacant land tax of 15% is imposed on Thromdes in Thimphu, Paro, Phuentsholing, Wangdue, Punakha, Trashigang, Gelephu, Samdrupjongkhar, Samtse and Mongar as an ADB study found a housing shortage in these Throms along with underutilization of land.
Tashi said there are cases where people have inherited large tracts of land but have not generated income with it and now with the tax they will have to make the land productive.
Tax as a policy tool and Opposition from the rich
The Finance Secretary Leki Wangmo said a lot of the momentum being built against the property tax is coming from people who hold more property.
She said property tax is a policy instrument to shape the economic development of the country and not just fund the government. She gave the example of the 15% additional vacant land tax imposed on the total land tax in 10 Thromdes which is an effort to place capital in the right hands.
The Secretary said that the land tax in Bhutan is not exorbitant but the only change is that earlier people were not paying a value based tax and now they are.
She said in the old system a person holding land in Thimphu paid the same rate as someone in Merak Sakteng which is not fair.
She said some people have said the tax is so high that they will have to sell their land, but in reality, the tax burden of 0.1% is not high.
The secretary said that the loud voices are those who hold more property and also have access to authority and decision makers and are trying to reverse the property taxes.
The secretary said the land tax even as a whole is not a very big amount for the national revenue and hence it is not a huge burden as it is being made out to be.
She pointed out that in rural areas tax also becomes a policy instrument to incentivize food production as those with wet land cultivating paddy or crops get a 90% rebate, while cultivated Kamzhing gets a 50% rebate and owner occupied traditional houses (not for rent) gets another 50% rebate to preserve culture.
Since the highlanders up north play an important role in securing the country’s security they get a 90% rebate.
The secretary said that the Property Tax is a progressive tax which means you are only taxed based on your wealth and in a way, it is the government collecting taxes and redistributing it.
She said that for the Thromdes even if the money is being collected by MoF they will get back amounts for delivery of services as people expect services when they pay tax.
The secretary said that land is a factor of production and it must be used productively.
Teething problems
So far there has been mixed signals from the public on the taxes with some supportive of it given what it means for the country while others are not in favour.
However, the latter group is more because taxes were raised after 32 years and it is an initial shock and there has to be a mind-set change now.
As of now more than the taxes itself the main complaint has been around the difficulty in paying it.
The finance secretary said there are some teething problems because this is the first time and due to some data correction issues, but it will become more efficient in the coming years.
DRC’s Joint Collector Tenzin Yuden who is heading the land tax collection team there said that for rural areas they are asking the Gups and Mangmis to help who in turn will be supported by officials from the 8 Regional Revenue and Customs Officials. Gewog Community Centers are also being used in some cases. There are plans to provide trainings to LG officials too apart from the instructions already given.
Rural folk can also go directly to the regional RRCOs in their areas if it is nearby.
Tenzin said that unlike in the past the Gups cannot calculate and collect cash and issue receipts as only the online system can do the tax calculation.
She said that one issue being faced was that people were unable to follow the NDI app instructions to register using face recognition and they could not log in.
She said that another issue was that the data collected in places like Thimphu for buildings and apartments was not complete and so this is being updated and resurveyed which at times is faced with uncooperative landlords.
Under the earlier BOLTS system for land tax collection one person could pay tax for several people using the CID card number only, but complaints came in saying this compromises the privacy of people as they could view the assets of any person using the CID card.
So, the new system requires additional information like location and Thram number.
The plan is also to make the Dzongkhag Urban Planner the key focal person.
To collect information for the tax purposes the MoIT surveyed 66 throms or settlements and for rural areas satellite imaging was used to capture households.
This has resulted in some cowshed and green house structures being recorded as homes, but people can ask the DRC to remove them and make changes which is being done.
