What could come as a welcome for the government is revenue from corporate income tax (CIT) and dividends from the 15 state-owned enterprises (SOEs), which have grown by over 600 percent in 2021.
The 15 SOEs excluding the Druk Holding and Investments companies contributed Nu 311.042 million (M) in the form of CIT and dividends, according to the budget report 2022-23.
Tax contribution saw an increase to Nu 201.042M and a dividend to Nu 110M. The increase was mainly due to the improved performance of Bhutan Development Bank Limited, Bhutan Lottery Limited, and Bhutan Duty-Free Limited. Many SOEs are still recuperating from the impact of the Covid-19 pandemic.
Figures from the finance ministry show that the SOEs contributed Nu 43.236M, out of which Nu 30.236M was in taxes and Nu 13M in dividends in 2020. The SOEs could not perform better because of the pandemic. Their contribution also declined by 77.1 percent compared with 2019.
“During the pandemic, most SOEs were exposed to additional operational and financial stress in ensuring uninterrupted public service delivery under circumstances for which they were not necessarily equipped,” the budget report stated.
However, the ministry stated that the SOEs operated under broad social mandates to primarily fulfil non-commercial social objectives through the delivery of public goods and services.
Government subsidies were provided to many SOEs as compensation to cover the cost incurred or revenue foregone while executing social obligations.
According to the budget report 2022-23, Nu 398.7M was transferred as subsidies to SOEs in the fiscal year 2020-21, which is an increase of 24.7 percent from the previous year.
Bhutan Broadcasting Service Corporation Limited operational subsidy increased by 12.1 percent (Nu 180.913M) from the previous year. Similarly, National Cottage and Small Industry Bank Limited (NCSIDBL) by 23.2 percent from the previous year.
NCSIDBL was also provided with an interest subsidy of Nu 13.860M annually for 10 years starting from the fiscal year 2021-22.
Bhutan Agro Industries Limited, Food Corporation of Bhutan Limited, National Housing Development Corporation Limited, and NCSIDBL are the SOEs that receive the interest subsidy from the Government. Kuensel Corporation is the only SOE that has not received any subsidy despite suffering losses.
Subsidies provided to farmers through the Farm Machinery Corporation Limited for the hiring of farm machinery also increased by 38.6 percent from the previous year. Similarly, subsidies to support city bus services also increased by 104.6 percent.
The overall debt of SOEs has increased from Nu 39.821B to Nu 39.871B in the year 2021. The increase was mainly due to borrowing for Druk Green Power Corporation by 7.1 percent, Drukair Corporation Limited by 8.3 percent, and Penden Cement Authority Limited by 16.7 percent.
Meanwhile, the ministry has initiated a reform study aimed to enhance efficiency, reduce the SOEs sector size, measures to track fiscal support and strengthen financial oversight.
The ministry projected that the CIT and dividend transfer from state enterprises was likely to increase considering new measures undertaken to open up restrictions. “Tax revenue was estimated to increase by 19.5 percent and dividend transfer by 3.6 percent in the fiscal year 2022-23.”
Eleven SOEs are wholly-owned by the government, two majority-owned, and two minority-owned. As of December 2021, the combined net asset value of SOEs was Nu 11.381B which was an increase of 15.7 percent as compared to the previous year.