Property Tax – a need for 21st Century Bhutan

The bill will be further discussed on November 17, 2022

Every bill is not the same. As most bills move on softly, a bill supposedly to be tabled in the last session of the National Assembly (NA) first got postponed and now will again be deliberated. It is the Property Tax Bill 2022, which will do away with the 1992 Revised Taxation Policy.

When introduced on November 10, 2022, all members who spoke, supported the Bill. However, sources said the bill was thoroughly discussed in the cabinet but had differences in their opinions. November, 17, 2022 will see if things change when the property is the issue. The tax has raised concerns and almost all people that this paper spoke to said this tax is a need for current Bhutan.    

Meanwhile, the opposition leader (OL) expressed his concern that the property tax bill might suffer the same fate as the GST bill, which couldn’t be amended despite extensive debate in the parliament. However, many supported the bill and agreed that it is indeed time to update the three-decade-old policy for development.

OL said that since it is a Money Bill, it should take effect immediately. However, the Property Tax is only expected to take effect in January, next year.

OL also added that if a Bill is passed as a Money Bill, it has to be implemented retrospectively from the date it was introduced in the NA. But the Property tax bill will be implemented only from January 23, 2023.

The finance minister, Namgay Tshering, presented a comprehensive proposal to update the property tax, which has not been changed since 1992.

“This echoes His Majesty’s statements during the opening ceremony of the 8th session of the 3rd parliament about the Sustainable Development Fee (SDF) for Tourism, raised for the first time in over 30 years. It was not pleasant and happened because the SDF had not been revisited at all. Thus, the Property Tax Bill 2022 has all the reasons required,” a member of parliament said.

A significant part of the bill is the fact that the tax was previously collected area-based rather than value-based, which was not right. “The present property tax in Gelephu Throm and Thimphu Throm is the same, but the assessment is different,” said Lyonpo Namgay Tshering, said, pointing out just one point why the Act is required.

As per the Revised Taxation Policy 1992, towns in Bhutan have been grouped as Group A, B, C and D. Taxes differ based on the classification. Thimphu, Phuentsholing and Samdrup Jongkhar are graded as Group A and land taxes per sq.ft for the three are just 50 and 25 chetrums for commercial and residential areas, respectively.

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

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

Although the value differs in these two locations, the amount of tax collected is the same.

Similarly, there are many other sites where the valuation is substantially different yet they must pay the same amount of tax as the area requires.

The tax implemented in Dramtse, Mongar District is the same in Paro Town.

Currently, the tax revenue generated from land is not even Nu 100 mn. If the proposed Bill gets through the Parliament the government will see an increase of about Nu 250mn in revenue from land tax itself. Additionally, tax revenue from buildings/houses is a mere Nu 6 mn. Through the proposed Bill, revenue from houses alone will be more than Nu 100 mn.

However, now with the revised policy of the tax, the government will apply tax not based on the area but based on the values of the place.

According to Lyonpo, this indicates that the tax will be paid in accordance with the number of properties and the value of each property, with more properties resulting in a higher tax bill and fewer properties resulting in a lower bill.

Lyonpo proposed to raise the property tax by 0.1% and base it on the new Property Assessment and Valuation Agency Rate (PAVA).

Meanwhile, the new PAVA rate would be determined by the average of three things; the government’s current Pava rate, the local market rate, and the value of the collateral land held by the banks were averaged to arrive at the new PAVA rate.

According to Lyonpo, the updated property tax will result in a fair income distribution because the government will deposit all taxes into its revenue account before distributing them to the various locations for development purposes.

Tshering Pelden from Thimphu