In 2022, the government tabled the much-awaited property tax bill to the parliament, and subsequently, the parliament enacted the Property Tax Act of Bhutan 2022.  The property tax rates have not been revised since the Revised Taxation Policy (RTP) 1992. Many provisions of the RTP were revised between 1992-2022, but those related to immovable property (buildings and land) remained unchanged for 30 years. 

In these 30 years, Bhutan experienced rapid economic growth, followed by rapid urbanization. Our GDP per capita grew from USD 440 in 1992 to USD 3,540 in 2021. This growth was driven mainly by government investment. Most of these investments were funded with aid and debt.

Infrastructural development from government investment resulted in an increase in the number of property transactions in the market, which increased property values. Investment in land and buildings became attractive. Buildings sprung across districts and valleys. The land was subdivided to the lowest permissible sizes. The cost of land translated to rising living costs. Many, including financial institutions, became rich, but not the country and government. We still have to depend on aid to finance our investments. 

Between 1992 and 2022, salaries of public servants increased manifold. Modern amenities (road, mobile, and water supply) have even reached our rural areas, and the income of our citizens has increased. Over the years, many economists, professionals, professors, urban experts, planners, etc., have pointed out that our property tax rates were low. Bhutan needed to diversify its revenue streams to finance infrastructure and public services.

Other countries have more advanced ways to finance their infrastructure needs, though property tax is common in most countries. Techniques like “ land value capture, transfer of development rights, land-based (lease and sale)  financing” are used to finance infrastructure. 

As I witnessed the property tax being submitted and enacted by the parliament, I observed how officers, executives, parliamentarians, and ministers, who were mostly landlords and property owners,  came together to support and endorse the bill. Their selfless attitude and concern for fiscal sustainability were deeply inspirational. 

The new property tax reform allows the levy of property tax based on the value of land and buildings. The value of land is based on the government compensation rates. The permissibility of land use, the location of land from urban boundaries, and other features determine these values. Building values are determined by their ability to generate income rather than the price from the highly speculative housing market. 

The revised property tax rate of 0.1% of the property value is lower than in most countries. Thorough research was conducted on Bhutan’s land and housing markets to determine the tax rates and property tax rates across the border and abroad were thoroughly studied. Affordability was the concern, and it was closely looked into.  For example, Mumbai has tax rates of 0.3% to 2.2% of the property value. Bangalore has property tax rates of 20% to 25% of annual rental value. Singapore has a tax rate of 0-4%. Tax rates at 0.1% of the value were found affordable for people, given the value of the properties, income level, and economic conditions. 

Implementing property tax requires technical and spatial data on the property. For example, web GIS-based spatial data, a prerequisite for a dynamic and reliable database,  is relatively new in Bhutan and demands sophisticated skills. People experience difficulties paying taxes because of technical glitches in the newly commissioned property tax system. In general, any changes in its infant stage will experience some glitches. 

Our real estate market is in infant stages, and the values often are understated for the property transfer tax. When you are a seller, you escalate the value; the opposite is true when you are a buyer. The economic performance of the real estate market is complicated to determine, making it difficult to diagnose in the event of a crisis. After a few years of implementing the Property Tax Act using GIS, it would enable citizens, financial institutions, and agencies to get real price information on houses, apartments, and land.

The most significant benefit of property tax reform is understanding the dynamics of property ownership in rural areas. Some of us must know how much our parents own properties in the villages. This will help connect our younger generations to their ancestral roots. 

By paying taxes, you can demand better services from public agencies. In advanced countries, because citizens pay significant taxes and fees to the government, public agencies are more transparent, efficient, and accountable to the public.

Section 57 of the Property Tax Act 2022 empowers the government to provide remissions/ exemptions to indigent people who lack the economic means to pay tax. Recent comments from various groups on social media or in the press reflect ignorance of such provisions.

As Section 8 of Article 8 of the Constitution prescribes, we, as citizens of the country, have the responsibility to pay taxes. Every country has developed with tax revenue, and Bhutan will only develop with them. One day, our revenue should be able to finance all our expenditures. Many countries with good and robust taxation systems have achieved economic prosperity.

It’s not just about paying more; it’s about building a future we can all be proud of. Let’s support this change, knowing we’re doing something good for our country and each other. 

Contributed by

Sonam Dorji  

Disclaimer: It is my view only and doesn’t reflect my employer’s view