Under the new property tax policy of 2022, the land tax for a 24 decimal plot in the E4 precinct has risen by Nu 9,533 (370%); those in the UV2 (MD) precinct by Nu 6,609 (900%) for a 10 decimal plot; and in the core sub-precinct A1 a rise of Nu 24,998 (900%) for a 10 decimal plot
One of the key highlights of the presentations made during the public consultation conducted by Thimphu thromde last week concerned changes on property and building tax that would be applicable from 2023. Depending on the precincts that a property would fall into, owners will have to pay substantially more than what they have been used to paying.
The E4 precinct, encompassing areas like Babesa, Simtokha, Lubding, and Pamtsho, will now have to pay Nu 12,156 for a 24-decimal plot, amounting to Nu 506.5 per decimal under the new property tax 2022. In comparison, the previous tax rate based on the 1992 taxation policy was Nu 2,623 for the same plot, equivalent to Nu 109.2 per decimal. This implies that landowners in these areas will have to pay an additional amount of Nu 9,533.
Similarly, the UV2 (MD) precinct, which includes areas in Dechecholing, Taba, Jungshina, Motithang, Changangkha, Changzamtog, Olakha, and Babesa, will now face an increased tax burden. Landowners in this precinct will be required to pay Nu 7,335.130 as land tax for a 10-decimal plot, equal to Nu 733.51 per decimal under the new property tax 2022.
In contrast, the previous tax rate was Nu 726 for the same plot, amounting to Nu 72.6 per decimal as per the 1992 taxation policy. This results in an additional payment of Nu 6,609 for those owning a 10-decimal plot in the UV2 precinct.
Furthermore, the Core sub precinct 1 A, which includes Norzin Lam, will also witness a substantial increase in property tax rates. Landowners in Norzin Lam will now have to pay Nu 26,540 for a 10-decimal plot, equivalent to Nu 2,654 per decimal under the new property tax 2022. Previously, the tax rate for the same plot was Nu 1,425, amounting to Nu 145 per decimal based on the taxation policy of 1992. This implies an extra payment of Nu 24,998 for those owning a 10-decimal plot in Norzin Lam.
Failure to pay these rates have their consequences. According to the new property tax regulations, if land tax remains unpaid for three consecutive years, the Competent Authority will issue a notice to the landowner, requiring them to settle the outstanding tax and applicable penalties within three months. Failure to comply with the notice may result in the annulment of the Thram (land ownership document) by the National Land Commission Secretariat, leading to the government taking over the land as government land or Government Reserved Forests land under the Land Act of Bhutan 2007.
Meanwhile, building owners will also have to pay more in taxes. For instance, a building with 10 flats (3 BHK) in Olakha, under the Taxation Policy of 1992, falls under Class I. The total annual tax paid was Nu. 100 per unit and Nu. 1000 for the entire building. However, starting from 2023, as per the Property Tax Act of 2022, the calculation method changes.
If the monthly rent for one flat is Nu. 12,000, and considering there are 10 flats of 3 BHK, the total annual rent (AR) is calculated as: 12,000 x 12 months x 10 flats, resulting in Nu. 1,440,000.
To determine the assessed capital value, a rates capitalization factor (r) of 12.5 is applied to the annual rent (AR). Multiplying the two values gives 1,440,000 x 12.5, which is Nu. 18,000,000. Based on the assessed capital value, the total annual tax for the building is calculated by applying a tax rate of 0.1%. Thus, 18,000,000 of 0.1% is Nu. 18,000.
In comparison, the building tax amount significantly increases from Nu. 1000 in 1992 to Nu. 18,000 under the new Property Tax Act of 2022.
There will be consequences for failing to pay the building tax. If building tax on any building or sub-divided unit of a building is not paid for three consecutive years: the Competent Authority shall serve a notice to the property owner requiring the owner to pay the tax and applicable penalties within three months of the notice; and If the owner does not comply with such notice, the competent authority may seize and sell the property to public auction upon the court order.
In a significant development last year, the government successfully adopted the Property Tax Bill of 2022, marking a crucial step towards fairer income distribution and development across the country.
The Minister of Finance, expressed confidence that the new tax system would ensure that property owners pay taxes commensurate with the number and value of their properties. Under the adopted bill, the property tax will be calculated based on the Property Assessment and Valuation Agency Rate (PAVA). Lyonpo proposed an increase of 0.1% in the property tax rate, which will be determined using the newly introduced PAVA rate.
The PAVA rate, in turn, will be determined by averaging three key factors: the government’s existing PAVA rate, the prevailing local market rate, and the value of collateral land held by banks. This comprehensive approach aims to establish a fair and balanced valuation system for properties.
The Finance Minister then emphasized that the updated property tax system will contribute to a more equitable distribution of income. All tax revenues collected will be deposited into the government’s revenue account before being allocated to different locations for development purposes. This ensures that the tax funds are utilized efficiently and effectively for the benefit of the entire nation.
By linking property tax payments to property values and the number of properties owned, the government seeks to establish a progressive tax structure that promotes fiscal responsibility and encourages property owners to contribute their fair share towards national development.
Meanwhile, Thimphu Thromde recently organized a public consultation meeting with landowners and residents of Thimphu city to discuss the implementation of new property tax rates. The meeting took place on July 1, 2023, at Lungtenzampa Middle Secondary School.
Tshering Pelden from Thimphu