The government will table the Fiscal Incentives Bill 2020 in the National Assembly tomorrow against the backdrop of the Covid-19-induced economic disruptions.
All the current exemptions granted under the Fiscal Incentives Act 2017 expire on December 31, except for the income tax exemption to small and micro-businesses in rural areas, which will end on December 2024.
These will be the first fiscal incentives to be introduced by the present government after taking office two years ago.
The finance ministry’s policy and planning division chief Chencho Tshering said the new fiscal incentives would be introduced as a Money Bill and that the details could be revealed only on the day it’s presented in Parliament.
The finance minister had earlier said that the fiscal incentives would be given in targeted areas based on the experiences drawn from the Covid-19. According to him, the fiscal incentives would be aligned with the economic recovery plan.
One of the criteria for fiscal incentives, according to the government, would be evidence of impact by the pandemic.
A performance audit released in 2016 revealed that the fiscal incentives rendered under the economic development policy did not benefit the cottage and small industries.
Fiscal incentives refer to a temporary exemption of taxes and duties or granting income tax holidays for boosting private sector development and attracting foreign direct investment (FDI) to achieve broader economic development goals.
The current fiscal incentives include tax holiday, reinvestment allowance, income exemption, exemption of tax deduction at source (TDS), additional expenditure deduction, tax rebate and sales tax and customs duty exemptions.
There are 60 different types of incentives under FI 2016, of which 36 incentives are the continuation from the FI 2010 and 24 are new incentives, nine direct tax incentives and 15 indirect tax incentives.
According to the MoF, for a developing economy with limited domestic productive capacity, fiscal incentives could play a pivotal role in strengthening the economy by boosting private sector growth and attracting FDI.
The government had forgone more than Nu 4.89 billion (B) in revenue between April 2010 and December 2015.
Similarly, the revenue forgone for the period between January 2016 and May 2017 was Nu 1.147B, of which Nu 1.104B pertained to Fiscal Incentives 2010 and Nu 42.36 million (M) is on account of new incentives granted under Fiscal Incentives 2017.