Thromdes forego huge revenue as taxation policy was never revised for last 26 years: RAA

The review of Thromdes’ financial statement indicated that Thromdes are spending more than their ability to raise revenue thwarting the goal of attaining financial sustainability.

Nevertheless, the Thromdes have been using the same tax rates for the past 26 years. Thromde taxes, fees and charges are assessed based on the Revised Taxation Policy of 1992.

This was revealed by the Royal Audit Authority (RAA) report 2018.

The Revised Taxation Policy 1992 is a unit based tax which is perceived to be regressive as it is uniformly applied based on units irrespective of the economic prospects (income quantum and ability to pay) of the property adding burden to low income taxpayers. These tax and fee rates developed in 1992 does not reflect the true cost of providing and running services in the current context.

The Royal Audit Authority (RAA) came to know that a taskforce comprising of members from four Thromdes, National Land Commission Secretariat (NLCS) and Ministry of Works and Human Settlement was formed to revise the taxes in 2014 and the proposal was submitted to the Cabinet in 2015 but it was not endorsed.

Similarly, in 2016 another taskforce was formed to rework on the initial proposal and even this was not endorsed and not submitted to the Parliament for approval. The proposed taxation is based on ad-valorem taxes which are computed as a percentage of the assessed value of the property being taxed and are in-line with the principle of ability to pay and equity.

It is noted that although Thromdes have the authority to levy taxes, fee and charges, the revision of the same is not determined by Thromdes; it is subject to government endorsement and parliament approval. “While it is good to keep the taxes affordable to taxpayers, it has also become increasingly difficult for Thromdes to even meet its current expenses with the changing environment in which services are provided. It is clear from the discussions with Thromde officials that Thromdes will not become sustainable based on the tax rate of 1992,” states the RAA report.

Moreover, the enactment of LG Act came later than Revised Taxation Policy 1992 (urban taxes) and there is need to align the policy with the Act. For example, LG Act identifies vacant land tax as one of the revenue heads while there is no mention of it in the taxation policy of 1992.

Similarly, Thromde Rules 2011 stipulates the assessment for land and house tax be based on value of the property whereas the policy has prescribed rates to be calculated based on the land usage (commercial and residential) and class of the buildings/house.

Thromdes apparently forgo huge revenue which otherwise would have been collected if taxes and rates were revised in a timely manner. This raises the concern of whether Thromdes will ever be able to enhance revenue generation and achieve financial sustainability.

NLCS responded that Thimphu Thromde had actually revised land tax rates in 2011 but agreed to the observation that land and property taxes have not been revised since 1992.

Gelephu Thromde, in their response, stated that the Thromde does not have authority to revise taxes but have proposed for revision with the Ministry of Works and Human Settlement.

Similarly, Thimphu Thromde stated that the Thromde has no authority but have proposed the revision of taxes twice which was not approved by the Parliament.

“The RAA is aware that revision of taxes is under the purview of the parliament but the Thromdes should persist and continue proposing for revision of taxes,” states the report.

Tshering from Thimphu