NA adopts the Income Tax Bill, exempts up to Nu 400, 000 in fixed deposit interest

Dorji Choden

The National Assembly (NA) yesterday adopted the Income Tax Bill of Bhutan 2025, incorporating a key recommendation from the National Council (NC) regarding exemptions on fixed deposit interest, while rejecting a proposal on dividend income.

The House adopted the NC’s recommendation to exempt income from interest received from fixed deposits up to Nu 400,000 in an income year for individuals not operating a business.

However, the NA rejected the NC’s proposal to exempt income from dividends received up to Nu 200,000 per income year for non-business individuals. Instead, after considerable debate, the House decided on dividends up to Nu 300,000.

The Member of Parliament (MP) for Mongar and member of the Economic and Finance Committee, Naiten Wangchuk supported the Nu 400,000 interest exemption. “We support what the NC recommended as Nu 400,000 on interest earned from fixed deposits.”

However, concerning dividends, he argued that dividends are useful for a company’s productivity which will further help the country’s revenue as well.

The debate saw many MPs advocating for equal tax treatment for both fixed deposits and dividends.

MP for Gangzur-Minjey Loday Tsheten emphasised the principle of equality in tax acts.

“Whether the income is earned from fixed deposits or dividends, it is the same. The exemption should be equal whether it is fixed deposit or dividends. As for tax, it is not true that dividends will only be owned by rich people,” he contended.

Arguing for equal exemptions, Health Minister Tandin Wangchuk said, “You do not have risk with fixed deposits as we earn interest annually from the deposit whereas, if you invest in shares, the value of shares goes up, however, we don’t know if we will get a dividend or not. Sometimes we do, sometimes we do not.”

In addition, the MP for Radhi-Sakteng clarified that the basis for taxation rests not only on the principle of equality but also on the principle of equity.

He said that personal income tax, which exempts incomes below Nu 300,000, is an example of applying the principle of equity. If taxation were based solely on equality, the MP argued, then everyone would have to be taxed regardless of their annual income.

Ultimately, the house, by a majority vote, adopted the exemption of interest tax on fixed deposits up to Nu 400,000 and on dividends up to Nu 300,000.

The NA also rejected the NC’s recommendation regarding delayed tax refunds. The NC had proposed that interest at a rate of 15 percent per annum must be paid to the taxpayer from the due date until the date on which the refundable amount is paid.

MP Naiten Wangchuck explained the rationale behind rejecting this higher interest rate.

“The maximum lending rate is 14 percent. It is kept at a minimum rate and hence if increased, people will deliberately pay more tax thinking they can earn income from refund. That is the reason it is kept at 5 percent,” he said.

The adopted Bill maintains the existing provision under Section 515, which states: “If the department is required to refund an amount under section 513(3) and does not do so by the due date, interest at the rate of 5 percent per annum must be paid to the taxpayer from the due date until the date on which the refundable amount is paid.”