MoF explains tenets of the Property Tax Act of Bhutan 2022

The new property tax is more fair and equal as it is based on the value of the property: MoF

As people around the country ventures to pay the property tax as per the newly passed Property Tax Act of Bhutan 2022, there has been complaints from the public, beginning with the new app developed to the sudden jump in taxes paid by some people. However, the Ministry of Finance (MoF) stands with the hope that as time passes, people will acknowledge the changes. Officials also say that since the taxpaying system has been changed, inconveniences have been caused.

An official from the MoF said that it is true that the people will feel the pinch of increased tax since the country has not revised taxes for almost 30 years.

“With the new act passed in 2022, the ministry was supposed to follow the tax act starting 2023 but it got differed since the new property tax system was on the process of being finalized,” the official from the ministry said.

In addition, the official said that it is not surprising that some people will need to pay more than what they used to, as tax rates have been derived taking into consideration the value of land and structures as per the government’s Property Assessment and Valuation Agency (PAVA) rate. This means that people holding huge property in areas where the PAVA rates are high will need to pay more.

For instance, the official said that till now people has been paying equal land tax in Thimphu Throm and Samdrup Jongkhar Throm though the land price in Thimphu Throm is very high as compared to Smadrup Jongkhar Throm. With the new tax, the official said that the people of this Throm will now have to pay the tax as per the PAVA assessment at the rate of 0.1%, meaning, if the land price is more they will have to pay more and if the land tax is lees they will have to pay less.

The official also said that people will have to pay tax on land and building according to the PAVA rate of 0.1% and further added that the people will get tax discount on three categories.

The tax discount includes a discount on wet land of 90%, 50% on dry land if it is used in cultivation and 90% tax discount for highlanders.

Similarly, on building taxes, the people will have to pay tax in accordance to the value of the building, categories of the building and annual income generated from the building, amongst others, where the tax will differ as per the PAVA rate of 0.1%.

However, the official said that people who own traditional house and which is self-rented or residential house will get tax discount up to 50% and those government identified traditional house which is in the Throm area will get a tax discount up to 70%.

Meanwhile, as of the joint ownership property, an official from the department of revenue (DRC) said that the tax payment for the joint ownership has been differed until the rectification from the national land commission secretariat (NLCS).

Notably, the government revised the property tax of land and building to 0.1% of the taxable value of land and buildings during the winter session of the Parliament in 2022.

Before the revision, Nu 12 per acre or Nu 0.12 per decimal was taxed for dry land in rural areas, and Nu 24 per acre or Nu 0.24 per decimal for wetland. While the commercial land tax rate in Thimphu and Phuentsholing was Nu 217.5 per decimal and the residential land tax rate was Nu 108.75 per decimal.

For instance, a 24 decimal land in E4 including Babesa, Simtokha, and Pamtsho, amongst others, in Thimphu, which was earlier taxed at Nu 2,623 annually will now has to pay about Nu 12,156 annually and the tax will also differ with the PAVA assessment of 0.1%.

Similarly, a 10 decimal land along the Norzin lam, which falls under the core sub-precinct 1A in Thimphu will see the annual tax increase from Nu 1,452 to about Nu 26,540, an increase of over 1,500%.

However, the official from the Ministry clarified that the tax rate is based on the value of land and building as accordance of the PAVA rate unlike before it used to be based on the size of the property.

The official said that the collected tax will be used graciously in health, education, infrastructures, amongst others.

Meanwhile, the finance ministry had projected the country’s tax revenue to grow by about 18% in the current fiscal year 2023-24 from fiscal year 2022-23. In figures, the tax is forecast to grow to Nu 31.5 billion (B) from Nu 26.75B with anticipated improvement in economic conditions.

People should pay the tax using the Bhutan NDI app within the 31st of next month this year or they can visit the revenue and custom offices for their convenient.

Before the new Property Tax Act was passed, Bhutan followed the  Revised Taxation Policy 1992, which had lot of issues. Towns in Bhutan were grouped as Group A, B, C and D. Taxes differed based on the classification. Thimphu, Phuentsholing and Samdrup Jongkhar were  graded as Group A and land taxes per sq.ft for the three was just 50 and 25 chetrums for commercial and residential areas, respectively.

Under Group B were towns like Gelephu, Trashigang, Mongar, Trongsa, Paro and Samtse, where land taxes per.sq.ft were 40 and 20 chetrums for commercial and residential areas, respectively.

Zhemgang, Jakar, Tsimakothi, Damphu, Wangduephodrang, Punakha, Pemagatshel, Gomtu and Deothang were categorized as Group C. Land taxes in these towns were only chetrums 30 and 15 for commercial and residential areas. The last group comprised towns like Lhuntse, Chengmari, Kanglung, Daipham, Bangtar, Dagapela and Lamidara; where people paid only Chetrums 20 and 10 respectively per sq.ft.

Although the value differed in many locations, the amount of tax collected was the same. Similarly, there were many other sites where the valuation was substantially different. Yet people paid the same amount of tax as the area required. For example, the tax paid in Dramtse, Mongar district was the same as in Paro Town.

Sherab Dorji from Thimphu