Many support the govt’s bold decision to increase property tax
The road to Bje Bamo (Tshotsho Baykha) in the extended Thimphu town is bad. It is muddy in summer and dusty these days. Property owners, mostly new settlers, recently approached the Thromde for help. The Thrompon had the same answer – “no budget”.
The road, property owners said, is devaluing their property, as they cannot rent out their flats or not getting the expected rent. A blacktopped road would save time, improve safety and income.
The Thimphu thromde is cash-strapped, according to owners who approached the Thrompon. If the Thromde had money, the road to Tshotsho Baykha is one of the priorities.
The thromde depends on the government budget for the upkeep of the capital city. It can raise some through fees and levies. Revising tax on property – building and land in the thromdes is one way of raising revenue. The thromde has no authority on taxes.
However, there is a ray of hope with the Property Tax Bill 2022 submitted in the Parliament. What the Bill proposes will be known when the finance minister introduces the Bill on November 7. The Bill is related to money or financial matters, and is confidential in nature.
The expectation is that there will be a revision in property tax.
Property tax in the country had not been revised since 1992, which is based on the Revised Taxation Policy 1992 although the property value has increased over the years.
As per the policy, dry land in rural areas is still taxed Nu 12 per acre and Nu 24 per acre for wet land. In urban areas like Thimphu, Phuentsholing, and Samdrupjongkhar, the rate is Nu 25 chetrum per square feet for residential areas and Nu 50 chetrum per square feet for commercial areas.
Talking to Kuensel, Prime Minister Lyonchhen Dr Lotay Tshering said that the current property tax system is not favourable and the revision is timely and must be done now.
“The property tax in the capital city, Thimphu is the lowest in the world and services are the worst in the world,” Lyonchhen said, adding that if services are provided better, why not we pay.
A bold decision
Tax is a sensitive subject and not many elected governments will take the risk of angering its voters. The government had since last year announced that it was working on a value-based property tax revision.
However, according to the Lyonchhen, the proposal is not only to generate revenue for the government or thromdes. “It is a tough, seemingly unpopular decision, but the government is trying to balance between what the nation requires and what the system requires as well as what the public demands.”
Asked why now, the surgeon prime minister said that it is inherently the surgical training that made him take the decision. “We have to take bold decisions if we want to save a dying patient. We want to take the disease out as soon as possible,” he said, relating to the reform needed in the property tax.
Lyonchhen said that the government is clear on the proposed Bill. “It is not only to generate revenue. It is to fix accountability and make the service providers responsible.” While the prime minister refused to elaborate saying that the Bill will be discussed soon, he hinted on why taxes should be revised to empower people to question and demand better services from the government.
Tax payers, he hinted, could demand and question when the basic services are not provided or if facilities are not to the expectations. The idea is that tax money is ploughed back to improving services and making elected leaders accountable.
Revision at what cost?
The proposal to revise property tax has generated some discourse among the urban populace.
An owner of two buildings and a civil servant said that revising the property tax is long overdue. “Taking into consideration the development, progress and the needs, it is high time we revise property tax,” he said.
Well-versed in thromde policies and laws, the owner said that there is no Act on property taxes. The current rate is based on an outdated policy – Municipal Finance policy, 1992, the reason many agree for a revision.
However, he said that revising the tax on property could lead to double taxation on property owners. “Those with property, especially buildings, are paying personal income tax and if not cautious how we levy the property tax, it could be a burden on the owners,” he said.
The proposal to revise the tax in the Property Tax Bill, although not shared with the public, will be value-based or ad valorem (according to value). The concern among property owners is how the value of property is assessed.
“How will the value of property be assessed? What is the basis,” said one adding that basing on market value, for instance price of land, will be a mistake. “A plot of land in Thimphu thromde could be sold for Nu 1 million (M) a decimal if the seller is desperate or Nu 2M if a buyer is desperate. Value of land differs from precinct to precinct.”
Determining the value of property would be the challenge and not the proposal to revise property tax, say many. Today, all properties in the thromde albeit the location (precinct) pay almost the same tax.
“There has to be a difference in tax paid by an owner in UV1 (urban village 1 in core city) and E4 zone or UVMD (urban village medium density). It is not fair to impose the same rate across all owners in the thromde,” said another.
This is because the value of land and usage is also different. For instance, a plot size in E4 zone is minimum 25 decimal and the owner can build only a three-storied building and use only 30 percent of his plot. In an UV2 precinct, the coverage is 40 percent and the owner could build a 5-floor tall building.
Kuensel learnt that the government is looking into revising the property assessment and valuation agency’s (PAVA) rate.
Thromdes and tax
Gelephu Thrompon, Tshering Norbu said that the property tax revision would help the country’s exchequer. “Thromde has to survive on the government budget with meagre earnings from tax collection. We are struggling to be fully autonomous.”
“The public want good roads, water, footpaths, drainage systems, electricity, when it comes to tax, they drag their feet,” he said. “Water bills are so nominal that we cannot even meet our day-to-day maintenance costs.”
Tshering Norbu added that if the tax is increased, Thromdes could develop and provide better and improved infrastructure facilities from roads, drainage and sewerage system, streetlights, water services to parks for the community vitalities with better technologies.
“If there is negligible increase in tax, it would not make much difference. However, if the revision is significant, we also have to look at the capacity of the property owners since most of the property owners are dependent on the exorbitant interest rate on loans,” Tshering Norbu said.
He also said that there are risks the costs would cascade to the tenants, if the building owners were taxed heavily.
A tenant in Taba said that he got his rent increase notice recently. The rent he paid Nu 9,500 earlier was to increase to Nu 11, 500. “It is unreasonable for a house owner to increase the rent by 21 percent as per the Tenancy Act.
Samdrupjongkhar Thrompon, Thinley Namgay supports the proposed revision. “It is the right time, if not late.”
He said that Samdrupjongkhar Thromde is different from other thromdes because most of the people are still engaged in livestock and agriculture with land-owning in acres.
“To increase tax we need to provide services and develop the thromde,” he said.
Phuentsholing Thrompon, Uttar Kumar Rai said that to fulfill the demands of people in the current context, the present taxation system of 1992 is not fair enough. “Three decades have passed, taxes haven’t increased but development costs have extensively increased beyond the revenue generation of local governments,” he said, adding that the Thromde faces acute fund shortage.
He added that in order to match the need of development cost and for sustainability purposes, fair means of taxation needs to be in place. “No better services or quality infrastructure comes without good investment. Source of investments is purely dependent on the local taxes.”
Increased taxation, Uttar Kumar Rai said would help the Thromde in developing infrastructure and providing better services. “Revenue collection from thromdes is not enough to meet operating and regular maintenance costs.”
Revise tax, say residents
Residents in the urban areas feel that property taxes should be revised to improve services for the general public. The taxes property owners pay today are “peanuts’ compared to revenue they earn from their properties, said a corporate employee. “We will get what we pay in house rents and other fees if the taxes are revised,” he said. “When they feel the pinch of the revised tax, they will demand the thromdes for services. Today we pay about Nu 300 a month in water bills, but we have to store water in drums and buckets. Parking is another headache.”
The logic of an increased tax, many feel, is that taxpayers will demand better services. “The thromde will have revenue and property owners would make the thromde or Thrompon accountable. They will have the right to question the poor roads, water and garbage services,” said a tenant.
“We welcome the government’s decision to increase property tax. Hope our rich members of parliament will understand the logic.”