Many support the government’s bold move to raise property tax
The road to Bje Bamo (Tshotsho Baykha) in the extended city of Thimphu is bad. It’s muddy in the summer and dusty these days. The owners, mostly new settlers, have recently approached the Thromde for help. The Thrompon got the same answer – “no budget”.
The road, the landlords said, devalues their property because they cannot rent out their apartments or do not collect the expected rent. A paved road would save time, improve safety and income.
Thimphu Thrompon is running out of money, according to owners who approached 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 maintenance of the capital. It can increase through fees and levies. Revising land taxation – built and land in the thromdes is a way to raise revenue. The thromde has no authority over taxes.
However, there is a ray of hope with the 2022 Property Tax Bill submitted to Parliament. What the bill proposes will be known when the Minister of Finance introduces the bill on November 7. The bill concerns money or financial matters and is confidential in nature.
It is expected that there will be a review of the property tax.
Property tax in the country had not been revised since 1992, which is based on the revised tax policy of 1992, although the value of property has increased over the years.
As per the policy, dry land in rural areas is still taxed at Nu 12 per acre and Nu 24 per acre for wet land. In urban areas like Thimphu, Phuentsholing and Samdrupjongkhar, the tariff is 25 Nu chetrum per square foot for residential areas and 50 Nu chetrum per square foot for commercial areas.
Speaking to Kuensel, Prime Minister Lyonchhen Dr Lotay Tshering said the current property tax system is not conducive and the review is timely and must be done now.
“The property tax in the capital, Thimphu, is the lowest in the world and the services are the worst in the world,” Lyonchhen said, adding that if the services are better, why not pay.
A bold decision
Taxation is a sensitive subject and few elected governments will take the risk of irritating their constituents. The government had since last year announced that it was working on a review of the property tax based on value.
However, according to the Lyonchhen, the proposal is not just to generate revenue for the government or thromdes. “It’s a tough decision, apparently unpopular, but the government is trying to balance what the nation demands and what the system demands as well as what the public demands.”
Asked why now, the premier surgeon said it was inherently the surgical training that made him make the decision. “We have to make bold decisions if we want to save a dying patient. We want to get the disease out as soon as possible,” he said, of the needed property tax reform.
Lyonchhen said the government is clear on the proposed bill. “It’s not just about generating revenue. It’s about fixing responsibility and making service providers accountable. Although the prime minister declined to elaborate saying the bill would soon be discussed, he hinted at why taxes should be reviewed to allow people to question and demand better services from the government.
Ratepayers, he suggested, might demand and wonder when basic services are not being provided or if facilities are not up to expectations. The idea is that taxpayers’ money is reinvested in improving services and holding elected leaders accountable.
Overhaul at what cost?
The proposal to revise the property tax has generated some debate among the urban population.
A landlord of two buildings and a civil servant said the property tax review is long overdue. “Given the development, progress and needs, it is high time to revise the property tax,” he said.
Knowing the policies and laws well, the owner said there is no property tax law. The current rate is based on an outdated policy – the Municipal Finance Policy, 1992, which is why many are in favor of a review.
However, he said the property tax review could lead to double taxation of property owners. “Those who own property, especially buildings, pay personal income tax and if they are not careful about how we levy property tax, it could be a burden on owners” , did he declare.
The tax review proposal in the property tax bill, while not shared with the public, will be value-based or ad valorem (depending on value). The concern of property owners is how the value of the property is assessed.
“How will the value of the property be assessed? What is the basis,” said one, adding that basing it on market value, for example the price of land, would be a mistake. “A land in Thimphu thromde could be sold for Nu 1 million (M) one decimal if the seller is desperate or Nu 2M if a buyer is desperate. Land values differ from neighborhood to neighborhood.
Determining the value of the property would be the challenge and not the proposal to revise the property tax, many say. Today, all properties in the thromde, regardless of location (district), pay almost the same tax.
“There must be a difference in tax paid by an owner in UV1 (urban village 1 in the city center) and in zone E4 or UVMD (medium density urban village). It is not fair to impose the same rate on all owners of the thromdium,” said another.
This is because land value and use are also different. For example, the size of a plot in the E4 area is at least 25 decimal places and the owner can only build a three-storey building and use only 30% of his plot. In a UV2 district, the coverage is 40% and the owner could build a 5-storey building.
Kuensel has learned that the government is considering revising the Property Assessment and Valuation Agency (PAVA) rate.
Throdes and taxation
Gelephu Thrompon, Tshering Norbu said the property tax review would help the country’s treasury. “Thromde has to survive on the government budget with the meager income from tax collection. We struggle to be completely self-sufficient.
“The public wants good roads, water, sidewalks, drainage systems, electricity, when it comes to taxes they drag their feet,” he said. “The water bills are so low that we can’t even cover our daily maintenance costs.”
Tshering Norbu added that if the tax was increased, Thromdes could develop and provide better and improved infrastructure of roads, drainage and sewage system, street lights, water services to parks for community vitalities with better technologies.
“If there is a negligible increase in the tax, it would not change much. However, if the overhaul is important, we also need to look at the capacity of the owners since most of the owners depend on the exorbitant interest rate on the loans,” Tshering Norbu said.
He also said there were risks of costs being passed on to tenants, if building owners were heavily taxed.
A Taba tenant said he recently received his rent increase notice. The rent he was paying earlier, 9,500 Nu, was to increase to 11,500 Nu. “It is unreasonable for a landlord to raise the rent by 21% under the tenancy law.
Samdrupjongkhar Thrompon, Thinley Namgay supports the proposed revision. “It’s the right time, if not late.”
He said Samdrupjongkhar Thromde is different from other thromdes because most people are still engaged in herding and farming with land owning acres.
“To raise taxes, we have to provide services and develop the thromde,” he said.
Phuentsholing Thrompon, Uttar Kumar Rai said to meet people’s demands in the current environment, the current tax system from 1992 is not fair enough. “Three decades have passed, taxes have not increased but development costs have increased significantly beyond local government revenue generation,” he said, adding that Thromde was facing a severe shortage of funds.
He added that in order to meet the need for development cost and for sustainability purposes, fair means of taxation must be in place. “No better service or quality infrastructure comes without a good investment. The source of investments depends solely on local taxes.
An increase in taxation, said Uttar Kumar Rai, would help Throde develop infrastructure and provide better services. “Thromdium revenue collection is not sufficient to cover regular operating and maintenance costs.”
Revise the tax, say locals
Residents of urban areas feel that property taxes should be revised to improve services to the general population. The taxes property owners pay today are “peanuts” compared to the income they earn from their properties, a company employee said. “We will get what we pay in rents and other fees if the taxes are revised,” he said. “When they feel the pinch of the revised tax, they will demand the tromdes for services. Today we pay about Nu 300 per month in water bills, but we have to store water in drums and buckets. Parking is another headache.
The logic of a tax increase, many believe, is that taxpayers will demand better services. “The thromd will have income and the owners will hold the thromd or Thrompon responsible. They will have the right to question the poor service of roads, water and garbage,” said one tenant.
“We welcome the government’s decision to increase the property tax. I hope our wealthy parliamentarians will understand the logic.