Revised Property Tax and Royalty to be tabled in the Parliament

The Finance Ministry will submit royalty revision, standardization, and changes in Property Tax to the government for deliberation in the Parliament

The Ministry of Finance (MoF) has almost completed all works related to the revision of royalties imposed on different products and also the progressive increase of the Property Tax, which will be submitted to the government for deliberation in the extraordinary session of the Parliament.

Replying to questions asked, officials from the finance ministry said that the work on royalties is to ensure uniform application as different agencies have different royalties currently.

An official from the MoF said that as per Section 46B of the Public Finance (Amendment) Act 2012, the imposition or increase of any tax or abolition, reduction or remission of any existing tax once passed as law by Parliament, shall be applied retroactively from the date it was initially tabled in the National Assembly.

The official added that the reason for the Tax or Money Bills being retroactively applied from the date it was initially tabled in the National Assembly is to avoid market speculations and distortions.

Currently, Royalty is imposed on various natural resources in the country, which includes Royalties from Surface Collections, Forest Products, Non-Wood Forest Products (NWFP), Cosmetic Products, International Film Producers, Tourism, Hydropower, and Mines and Minerals.

Meanwhile, the MoF is also reviewing the Revised Taxation Policy of 1992 to provide a legal basis to promote equity & fairness, simplify tax rates for the taxpayers, Modernization of the tax system, and finally reduce inequality, according to the official.

However, the official said that the revision will be subject to Parliamentary processes, adding that the revised policy will benefit the country with increased domestic revenue and equity and fairness for the tax payment.

On questions pertaining to Property Tax, the official said that currently, the Revised Taxation Policy 1992 (RTP1992) is the principal guiding policy document for the application of taxes on both moveable and immovable properties and has not been revised for almost 30 years.

“It also faces challenges of legality issues resulting in inconsistency in applicable taxes. The tax rates are also very minimal and do not take into account changes in relative values of property over time.”

When asked about some of the changes and differences in relation to the former Property Tax, and benefits for the country with the proposed property tax, the official said that due to this the MoF is reviewing the Revised Taxation Policy of 1992 to provide a legal basis to promote equity and fairness, simplify tax rates for the taxpayers, make tax system modern and finally reduce inequality.

“However, the revision will be subject to Parliamentary processes,” said the official adding that the benefits to the country will increase, domestic revenue will rise and there will be equity and fairness for the tax payment.

According to the 1992 taxation policy, towns in Bhutan have been grouped as Group A, B, C, and D. Land 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.

Similarly, 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.

Concerning buildings, according to the Taxation Policy 1992, the term house includes Bungalow, Duplex house and Cottage, of permanent or semi-permanent structure. A unit is defined as either a shop and office or a dwelling unit. Where one shop or office or warehouse occupies large spaces, the unit would be calculated on a carpet area of 771 sq. ft, per unit.

If a building in Thimphu has ten units, the owner has to pay just Nu 1000 as building tax in a year. And even if the lowest margin of Nu 10,000 per month is taken as house rent, the owner earns Nu 100,000 a month, which is Nu 1,200,000 per year. From this only Nu 1,000 is paid as tax.

The Property Tax has not been revised since 1992.

Sherab Dorji from Thimphu