Fiscal incentive help private sector growth Losing values?

Nu 6B revenue forgone in four years through tax holiday

Economy:  The government has foregone about Nu 6B from tax exemption between 2010 and 2014, which could have resulted in more economic activities and private sector growth.

While no studies and analysis has been conducted, calculations based on the data from Association of Bhutan Industries reveal that only 34 selected manufacturing industries contributed Nu 2.4B in just two year (2013 and 2014) in the form of taxes.

In two years, these 34 industries has generated more than INR 15B and about USD 15M after deducting the respective foreign currency these industries spent for import of raw materials.

As of last year, these industries were employing 3,283 Bhutanese at various levels.

The turnover of these industries in 2013 and 2014 account for more than Nu 40B, including Nu 9.8B of domestic sales, that again lead to growth in construction sector.

“So the benefit these industries’ brought in two years is worth far more than the incentive government gave in four years,” said an industrialist adding if the whole private sector were taken into account, instead of just 34 industries, the benefit would be huge.

“But government never tried to access this type of indirect benefit,” said another businessman. However, he said this would have never happened if government did not incentivize the private sectors.

Albeit the contribution towards the economy from the industries, most beneficiaries from tax incentives are in the service industry, especially hotels and educational institutes like private schools and institutes.

The national revenue report of the last fiscal year reveals that of the 75 firms enjoying the tax holiday, 30 were hotels, 11 educational institutes, four print media, four cooperatives and three waste management and recycling units. There were only three industries involved in Ferro silicon, calcium carbide and stone crushing and the remaining were small industries.

Another calculation based on data from the statistical yearbook, revealed that private sector growth has been increasing over the years while there has been a negative growth in the government owned business entities.

About 79 percent of tax revenue in 2008-09 financial year was contributed by the government owned enterprises, 19 percent by private sector and the remaining two percent from personal income tax.

The compounded average growth rate or the growth rate considering 2008-09 as the base year compounding till 2014, reveals a 19 percent growth in corporate income tax from the private sector, 22 percent in personal income tax and downward growth of 4 percent in CIT from state owned enterprises including the Druk Holding and Investment owned companies.

Tshering Dorji

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