Fiscal incentives likely to affect revenue growth

Budget: The delay in commissioning of hydropower projects, free rural electricity, tax exemption for small businesses and other fiscal incentives are likely to upset the country’s revenue target.

In the 2013-14 fiscal year the domestic revenue sourced about 65 percent of the total expenditure. The target was to increase the country’s domestic revenue to at least finance 85 percent of the total expenditure by fiscal year 2017-2018.

However the 2016-17 budget report, which the finance minister presented in the National Assembly four days ago stated that the country’s domestic revenue might not be able to finance 85 percent of the total expenditure by the end of 11th FYP.

This is because the revenue from Punatshangchhu-I, II and Mangdechhu would not be realised due to delay in their commissioning.

Further the royalty from hydropower are being used to subsidise the electricity tariff to rural households. The government receives Nu 1.45 billion (B) worth of electricity as royalty in total and, of this, Nu 1.27B was allocated for low voltage consumers, including the free electricity.  The remaining Nu 186 million (M) is used to subsidise the medium voltage consumers.

The business income tax exemption to small businesses in rural areas has been availed by 11,571 business units and 109 other businesses availed tax holiday.

In 2015, the government had to forego almost Nu 5B from various exemptions and incentives. This comes to almost 20 percent of the total domestic revenue for the fiscal year 2014-15.

Exemption amounting to more than Nu 1B was on account of purchase of aircraft by Drukair and around Nu 82M on purchase of helicopter.

tax

The government also had to forego Nu 676M from vehicle tax exemption, which is an increase of Nu 492M compared with the previous year. Tax exemption from hydropower projects amounted to Nu 618M.

However the domestic revenue will be able to source the country’s current expenditure fully. This means that most of the capital expenditure for the remaining years of the Plan would come from external grants and borrowings.

Notwithstanding the challenges, tax measures initiated by the government is expected to increase domestic revenue.

With the commissioning of the hydropower projects, the domestic revenue by the beginning of the 12th Plan is estimated to grow by 44.2 percent.

The government anticipates over Nu 5B as transfer of profit from Mangdechhu hydropower project and almost an equivalent amount as interest payment from Punatsangchhu II and Mangdechhu.

In the next fiscal year a revenue of Nu 28.4B is estimated, fueled by increase in PIT, CIT and dividends from Druk Holdings and Investment (DHI), Druk Green Power Corporation (DGPC) and Dagachhu Hydropower Corporation Ltd.

For now, state owned enterprises (SOEs) are the major source of government revenue contributing more than 40 percent of the domestic revenue in 2015.

This is again likely to increase with establishment of five new SOEs last year. The total portfolio of SOEs and linked companies have now reached 34 including wholly owned and linked companies.

SOEs contributed total amount of Nu 6.2B in form of taxes and Nu 3.8B in dividend payout last year.

“DGPC continues to be the highest revenue earner and major contributor towards the government revenue,” the report stated. The company contributed more than 20 percent of the total domestic revenue.

The total expenditure in 2016-17 is estimated at Nu 51.8B. The following fiscal year is expected to incur an expenditure of Nu 47.6B. This is estimated to rise to Nu 53.2B in 2018-19.

Tshering Dorji

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply