Land tax calculated on revised PAVA rate that differs from area to area

Thukten Zangpo 

If the Parliament passes the Property Tax Bill 2022 as proposed, a building owner in Norzin lam, the capital city’s main thoroughfare, would have to pay Nu 57,502 in property tax annually.

This is after the proposal to revise the property tax by 0.1 percent where the land tax would be based on the new Property Assessment and Valuation Agency Rate or PAVA rate, which the finance ministry calculated at Nu 2,654,005.17 a decimal.

For buildings, the tax would be based on the building’s annual rental value and rates of capitalisation (expected rate of return from the property). 

Finance Minister Namgay Tshering, presenting the Bill in the National Assembly yesterday, said land tax would be value-based instead of the area or location to have the principles of equity and fairness. In other words, the more valuable the land, the higher the tax. Property owners have to pay 0.1 percent annually on the taxable value of the land (rural and urban) and building.

In determining the value of the land, distance from highway or feeder road, water availability on land, topography of land, soil instability, scenic, cultural and historical value would be considered.

The new PAVA rate was derived after averaging the government’s prevailing PAVA rate (2017), the current market rate and bank rate or collateral land to loan value.

“The government’s new PAVA rate would be 10 to 15 percent less than the market value,” Lyonpo said.   

He added that it will resolve several ambiguities and biases of the 30-year old policy, which was being followed even today for property owners.

The existing urban land tax rate for commercial areas is Nu 217.5 per decimal while for residential areas it is Nu 108.75 per decimal in Thimphu, Phuentsholing and Samdrupjongkhar.

Lyonpo said that the earlier taxation policy was biased to some thromdes although they do not have basic amenities.

Although land prices are higher in Thimphu, the taxes paid by the Thimphu and Gelephu were the same, he added.

Lyonpo also said that the government will centralise the tax collection in the government revenue account and redistribute to the local governments. “Thimphu thromde’s tax revenue can cover 100 percent of the current expenditure while Samdrupjongkhar’s revenue would be adequate for only 30 percent.”

However, the Bill is not expected to sail through easily. Speaker Wangchuk Namgyel said the Property Tax Bill, as Money Bill was referred to the Legislative Committee for further review. The third reading will be held on November 17.

Opposition Leader Dorji Wangdi raised concern on the implementation date of the Bill which is from January 2023.

He added the effective date does not conform to the Section 46B of Public Finance Act 2012 which prescribes that the money bill shall be applied retroactively from the date it was introduced in the National Assembly.

The land tax revision alone will earn the government Nu 675 million (M) from 57M earlier annually.

Tax concessions

The Bill also gives land and building tax concessions.

Lyonpo Namgay Tshering said that to protect the wetland and reduce import of rice aligned to the government’s policy of food self-sufficiency, 90 percent of the amount of land tax payable on land, which is registered as wet land (Chhuzhing) under the Land Act of Bhutan 2007 shall be exempted.

Similarly, 90 percent of the amount of land tax payable on land shall be remitted for highland communities as identified by respective dzongkhags and prescribed in the rules.

Subject to conditions prescribed in the rules, a percentage not exceeding 50 percent of the amount of building tax payable on traditional houses, which are used wholly for self-occupied residential purposes shall be remitted.

Similarly, a percentage not exceeding 50 percent of the amount of building tax payable is also applicable to protected traditional houses in urban centres shall be remitted..


Vacant land surcharge tax

The Bill proposed a vacant land surcharge tax of 15 percent on the total amount of land tax.

Ten areas that fall under the surcharge tax are 9 thromdes-Thimphu, Wangduephodrang, Punakha, Trashigang, Gelephu, Samdrupjongkhar, Samtse, Phuentsholing, Mongar, and Paro town precinct.

The vacant land surcharge tax is applicable if no development has been carried out on the land within two years from the date on which all of the urban services have been made available.

A late payment penalty of 24 percent per annum of the outstanding tax is payable on any tax under this Act.

However, a competent authority may permit any tax payable in respect of any land or building under the Act to be paid by way of installments, whether with interest or otherwise.