Still in 1992 – Bhutan’s Static Property Tax

Owner of a building in Thimphu with ten units used to pay Nu 1,000 as building tax a year in 1992. Nothing has changed even after three decades
  Class 1  Class 2  Class 3  Class 4 
Group A Towns Nu.100/unit p.a  Nu.75/unit p.a  Nu.30/unit p.a Nu.20/unit p.a 
Group B Towns Nu.75/unit p.a  Nu.50/unit p.a Nu.25/unit p.a Nu.15/unit p.a
Group C Towns Nu.50/unit p.a  Nu.40/unit p.a Nu.20/unit p.a  Nu.10/unit p.a
Group D Towns Nu.25/unit p.a Nu.20/unit p.a  Nu.10/unit p.a  Nu.5/unit p.a
For Houses Nu. 500/unit p.a Nu. 300/unit p.a  Nu.200/ unit p.a Nu.100/unit p.a
                                                             Bhutan's unimaginable and absurd Property Tax

Bhutan has undergone tremendous progress, including transition in the form of governance. However, one important component which has not changed since 1992 is the Property Tax, with taxes levied on buildings, houses and land, still following the Taxation Policy of 1992. While house rents in urban areas continue to increase, a building owner in Thimphu who has a building with ten units, pays just Nu 1,000 as building tax in a year. And even if the lowest margin of Nu 10,000 per month is taken as house rent, the owner earns Nu 100,000 a month, which is Nu. 1,200,000 per year. Moreover, land tax per square foot in Thimphu is just 50 chetrum for commercial areas and 25 chetrum for residential areas, while current land prices in the capital have crossed Nu 1,200,000 and more for a decimal (435.6 sq.ft). What would have been relevant in 1992 is obsolete now, and if the government is serious to narrow the gap and increase funds for local governments, one of the necessities is to increase Property Tax.  
The Asian Development Bank’s (ADB) Asian Development Outlook 2022, Mobilizing taxes for development, provides a complete picture of the economic scenario in Asia, challenges faced and the future of Asia’s economy. An important component of the report is about taxes and as pointed out in the title of the document itself, the report has illustrated how taxes can be mobilized for development. While most of what is mentioned is relevant for Bhutan, one of the most significant ones is Property Tax, which in Bhutan has remained unaltered and taxes on property collected as per the Revised Taxation Policy 1992. “More revenue can be raised as well from property taxes,” ADB’s report says, and a study of Property Tax in Bhutan shows how much the state has been losing, while property owners continue to benefit. Additionally, it is baffling to learn that when all taxes were revised and some like the personal income tax (PIT) introduced, Property Tax has remained the same. 
According to the 1992 taxation policy, towns in Bhutan have been grouped as Group A, B, C and D. Land taxes differ based on the classification. Thimphu, Phuentsholing and Samdrup Jongkhar are graded as Group A and land taxes per sq.ft for the three are just 50 and 25 chetrums for commercial and residential areas, respectively. 
Under Group B are towns like Gelephu, Trashigang, Mongar, Trongsa, Paro and Samtse, where land taxes per.sq.ft are 40 and 20 chetrums for commercial and residential areas, respectively.
Zhemgang, Jakar, Tsimakothi, Damphu, Wangduephodrang, Punakha, Pemagatshel, Gomtu and Deothang are categorized as Group C. Land taxes in these towns are only chetrums 30 and 15 for commercial and residential areas. The last group comprises towns like Lhuntse, Chengmari, Kanglung, Daipham, Bangtar, Dagapela and Lamidara; where people pay only Chetrums 20 and 10 respectively per sq.ft.
While this almost negligible tax would make any rational person question why the taxes are so low, there is more in the Building and House taxes, which also follow the Taxation Policy of 1992.  
    According to the Taxation Policy 1992, the term house includes Bungalow, Duplex house and Cottage, of permanent or semi-permanent structure. A unit is defined as either a shop and office or dwelling unit. Where one shop or office or warehouse occupies large spaces, unit would be calculated on a carpet area of 771 sq.ft, per unit.
If a building in Thimphu has 20 units, the owner has to pay just Nu 2000 as building tax in a year. And even if the lowest margin of Nu 10,000 per month is taken as house rent, the owner earns Nu 200,000 a month, which is Nu. 2,400,000 per year. From this only Nu 2,000 is paid as tax.
Meanwhile, people are calling for a change and “substantial increase” in Property Tax. “Building owners will argue that they pay loans and income tax etc. But these are baseless arguments compared to what they earn. And the money paid as tax is embarrassing; if such amounts are to be paid, the government could lift the taxes all together,” a civil servant said.. 
“The figures speak for themselves and at this point, land taxes, which are again very low, compared to the rates in the market, calls for an urgent need to revise the Property Tax  and increase land and building taxes. Just as urban areas, the story is the same in rural Bhutan; the only difference being the market rates in the two areas,” Neten, a private employee said. “Several rich people pay land and building taxes and I think they must be laughing when paying these taxes, looking at the amount,” he said. 
An engineer said, there is a need to study the classifications of towns. “For instance, Paro is enlisted as Category B. In 1992, this qualification may have been correct but not today".
If urban centers in Bhutan are not able to deliver services like 24x7 hours water supply, one of the reasons is lack of funds. An increase in property tax will enable Thromdes to deliver services efficiently. Additionally, people can question the authorities for pot holes, sanitation, recreational areas etc, if the margin of taxes paid are high,” he said, adding that the current property tax is even “hundred times lower than parking charges paid by the people.”  
“Another development has been the transition of rural areas to urban ones. While the transitions have been acknowledged, taxes paid remain the same, with new urban areas, which have graduated from rural areas, paying the same tax,” he added.     
In 2021, the Finance Ministry said the government is working on introducing the Property Tax Act, which will include a value-based taxation policy. It was reported that the new Property Tax Act will resolve ambiguities and biases that come from the Revised Taxation Policy 1992. 
Many experts also cited the policy as the bottleneck as local governments including Thromdes cannot often carry out developmental activities required by urban policies due to lack of funds. “In the rural area, the gewog office collects the taxes and in Dzongkhag, the Dzongkhag administration collects that. When officials go to each household to collect tax, the revenue we generate isn’t even enough to pay our officials,” the Finance Minister had said.
It was further said that the new Property Tax Act will be based on Property Assessment and Valuation Agency (PAVA) rates and is expected to make a fair and equitable system for the taxpayers.
The Finance Minister was quoted by a local paper saying we need to have a value-based taxation policy in place at ad valorem rate.  “If we have that in value-based, we can determine one tax rate multiplied by the value amount, it will be applied uniformly across the board. Right now, for example, Debsi in Thimphu as per 1992 RTP falls under rural area, whereas if we look at the infrastructure development, it has already become urban core within Thimphu Throm. But in terms of land tax, they continue to pay rural tax,” he had added. 
However, revising Property Tax may have gone back to 1992 or buried as it is no longer talked about. As reported in the recent ADB report, “tax and other reform to lift revenue is hard but doable.” “Tax reform to boost revenue may be politically challenging, but global experience shows that strong leadership can enable success.”