It is an unfortunate and difficult time for the government as well as for the people. And in a country like ours where the majority of the population is just able to meet the days end, the people at the lower rungs of the economy are hit most by the prevailing COVID-19 situation. So the wisdom and compassion of our king and the government come as a rescue force and sustainability measure for enduring the normal life of their people. I am eternally indebted to His Majesty and the Royal Government for this impeccable gesture.
The loan repayment has been deferred by three months to help the public and to curb the financial crisis among the citizens. This has empowered the public in business sector, private sector and certain government sector to breathe in hope of overcoming the financial difficulty in a virtually dead business period. However, the certain sector of the public has failed to whole-heartedly appreciate the gesture offered by the higher authority in this national crisis. Particularly the people, who stay in rented house as tenants, have been demanding house rent waive off even by minimal amount, the loan repayment deferment offer by the government as a legitimate basis for their demand. They have failed to understand the fundamental concept of the loan deferment. It is the deferment and not a deletion. The loanee has to repay the entire installment by an extended period of three months. Tenants have not been happy about the loan repayment deferment. They imagine the house owners are benefitted by loan deferment by centuples and took up to the social media, and flooded them with criticism, allegation and condemnation to their house owners. Whereas, going by the payable amount to the banks, the mathematical reality remains unchanged for the house owners.
Generally any Bhutanese individual would be from a poor economic background. In the beginning one has to work much more hard to accomplish a material wealth. One has to go through lots of hardships, compromise a lot of comfort to save money to be able to construct a new house for rent to generate extra income. With so much hardship, and with the help of loan from banks, people have been able to build houses for renting purpose. His Majesty has most graciously offered the house owners a kidu of loan deferment, and tenants have been barking for rent waive off. Why couldn’t they also build their own house when their house owner who was once a poor person could? Is it ethical? Indeed, it is a recognition that our king has showered to his people for their hard work, the hard work that built a nation. Buildings in Thimphu city have not come up just by being lazy and barking behind the pseudo names in social media. It takes much more, persistent hard work, determination and faith in hope.
Some house owners have waived off some portion of their house rent. They might own multiple buildings and have many tenants, similarly they may also have loans in multi-million, therefore, the interest waived will be correspondingly high. It is a question of small versus big owners; financially big ones will be relatively better, so they can comfortably waive off all or certain percentage of the house rent. On a more serious note, it is to be asked, whether a small house owner with just one or two rented apartments could afford the same? House owners, who have just put the tenants in, can’t even think of such, they have exhausted all their money in completion of the house, and must be practically in bankrupt state. The loan repayment deferment as ‘basis’ for demanding house rent waive off also hints towards ‘after completion of loan repayment, house rent be reduced by the same proportion or nullified’, the question of unrealistic and ethical legality on the part of tenants!
Civil servants (any person who draws salary from the govt.) whose monthly income is not affected are demanding waive off openly as well as from behind their fake names in social media is hypocritical irony. When they are thought of as the elite group and expected to understand the situation better are turning into black sheep. Civil servants who are tenants could encourage their house owners not to defer the loan installment instead because even a small drop would make an impact in the time of crisis; and that is the RMA’s hint to the loanees while announcing the blanket loan deferment check. But yes, if the tenants are from the affected sectors, then the house owner has to waive off house rents full or in certain percent (regardless of loan deferment) because this is exactly the expectation of the loan deferment by the government. By the same token, this kind gesture of the government to the affected people is expected to motivate wealthy section of the society to come forward and help the government, which of course is happening at an appreciable level, thanks to the people.
Mathematics of Waive-off amount
On a real case scenario, let us consider a family of four members owns a house that is being rented. The house has two apartments, which are rented at Nu. 6000.00 per month. The total house rent collected by the owner is Nu. 12,000.00 per month from two apartments. The family has a housing loan of 1,000,000.00 (one million) and pays an interest of Nu. 10,000.00 per month. So the interest benefit as imagined by tenants is Nu. 10,000.00 per month. The question about what could be the justifiable basis to fix waive-off amount if at all to offer waive-off; it must be done with a conscious mathematics. Counting tenants as the house owner’s family member, the total house owner’s family becomes six (four family members plus two tenants) in this particular case. The benefitted amount from interest waive-off of Nu. 10,000.00 divided by six people amounts to Nu. 1,667.00. Therefore, the each tenant could be waived off Nu. 1,667.00 (28%) per month for three months.
According to the Royal Government of Bhutan’s regulation on income tax generated through house rent, 25 percent of the annual income is specified for annual maintenance. In this scenario, it is 25 percent of Nu. 1,44,000.00 that amounts to Nu. 36,000.00 per annum. So per month maintenance cost in this case is Nu. 3000.00 and Nu.1,500.00 per apartment per month. Hence, the waive-off calculated using humanistic mathematical rationality is Nu. 1,667.00 (28%) and the authorized maintenance cost per month is Nu. 1,500.00 (25%), the difference is Nu. 167.00 (3%).
Implication by the waive-off
Case one: If the owner plans to waive off even 28% rent – the seeming benefitted amount from the loan interest waive off, the owner has to bear the monthly maintenance cost from the taxable amount, the net income generated for the house owner. House owner loses the maintenance cost.
Case two: If the owner decides to use the maintenance cost from the taxable income, then the taxable income further reduces to Nu. 3,250.00, the difference in taxable amount is 1250.00 which is 21%. This situational reduction can implicate in two ways; minimize the taxable amount itself, and secondly held back the taxable amount from reaching the higher tax slab.
Inference: Firstly rent waive off even by minimal percent will directly hit at the maintenance cost of house owner’s income, secondly, impact on the tax payable to the government. In either case the ultimate loss is for the government and secondly for the house owner. Alas the loss, to the owner, to the government! So where is the hyped benefit the house owner gets? Hence proved that it is only an eye sore of the greedy tenants who are not able to digest the seemingly beneficial scenario unfurling to their house owners.
Ram C BajgaiLecturer, Sherubtse College