The urban taxation policy is being reviewed for the first time in 22 years

Tax: Thimphu thromde is still working on the proposed urban land tax revision structure that will be submitted to the government for approval.

The thromde’s executive secretary Passang Dorji said that the proposal will be finalised in about two months. Passang Dorji said they are still in the process of gathering information. “Even the amount is yet to be finalised,” he said, adding that they are still working on the amount.

Thimphu thromde proposed the revision of the existing urban land taxes during the mid-term review in May last year to achieve financial sustainability. The urban taxation policy is being reviewed for the first time in the last 22 years to meet the recurrent expenditures of thromdes.

During the mid-term review in May last year, thromde officials said it was difficult for the thromde to meet the current expenditure through internal revenue, as the existing tax rates are based on the 1992 Tax Rate, which are low.

The existing urban land rate for commercial area is Nu 217.5 per decimal while for residential area it’s 108.75 per decimal, which translates to about Nu 14 million (M) annually as revenue for Thimphu thromde. The thromde receives less than Nu 100M annually from collection of taxes, fees and charges, which officials said is insufficient to  meet current expenses while the annual expenditure stood between Nu 140M to Nu 150M as of last year.

Thrompon Kinlay Dorjee said that the thromde’s recurrent cost stood at about Nu 150M of which only Nu 120M is covered through taxes. “We are targeting about Nu 30M through the revision that we are short of so that we can do away with the government subsidy that we receive currently,” he said.

Thrompon Kinlay Dorjee said that the tax revision is likely to take time, as the thromde will first submit the proposal to the Cabinet after which it will go to the Parliament for endorsement.

Besides revision of urban land taxes, Thimphu thromde has also proposed sharing of vehicle registration fees to achieve financial sustainability. Both the proposals will be put up to the government for approval in about two months, officials said. The thromde also proposed that they receive about 10 to 15 percent of the vehicle registration fee to be utilised for maintenance of the roads in the city.

Thromde officials said that the proposal is being worked out with support from the Asian Development Bank, as the earlier task force committee to review the 1992 taxation policy for urban areas no longer exists. The previous committee comprised of officials from the finance and works and human settlement ministries and the National Land Commission.

However, the thromde is now solely involved in reviewing the taxation policy based on the review done by the previous committee. The previous committee pointed out that while thromdes have potential to enhance their revenue generation, the 1992 taxation policy was cited as the bottleneck.  Commercial land are taxed Nu 0.50 per square feet (sqft) and residential land Nu 0.25/sqft as per the 1992 policy.

Buildings and houses are taxed based on the classification of the structure that is classified into four categories.  Class A building annually paid Nu 100 per unit, class B paid Nu 75 per unit, Nu 30 per unit was levied on class C unit and Nu 20 on class D.

Kinga Dema