Despite the plunge in domestic revenue, the government has proposed a fiscal incentive for both state-owned and private enterprises.
Presenting the Fiscal Incentives Bill 2021 in the National Assembly yesterday, Finance Minister Namgay Tshering proposed to reduce the Business Income Tax (BIT) to 5 percent for small, cottage, and micro businesses located in the high-risk zone for the income year 2021.
The BIT rate is 30 percent otherwise.
The fiscal incentive was proposed in view of the impact of the Covid-19 restrictions on businesses in the high-risk zone.
Enterprises that employ one or more additional Bhutanese will be entitled to a 100 percent additional tax deduction on the emoluments paid to the employee for the first three years of the employee’s employment.
However, the employees should be retained for at least one year for the business to qualify. The Bill also proposes the ceiling of the deduction on the emolument at Nu 35,000 per employee.
Lyonpo Namgay Tshering said that the measure was aimed at creating job opportunities in the country.
According to the Bill, enterprises that carry out construction projects using locally manufactured construction materials will be entitled to a 30 percent additional tax deduction on the cost incurred in respect of such materials.
These additional deductions granted will be valid until December 31, 2026.
The finance minister also proposed exemptions of sales tax (ST) and customs duty (CD) on electronic cash registers, point of sale (PoS) machines, and Automated Teller Machines (ATM) for financial institutions, games and sports equipment; and plants and machineries for the service industry, among other items.
“The fiscal incentives are proposed as part of the government’s support for the private sector in the form of fiscal and monetary policies and to boost the economy, which has been affected by the pandemic,” he said.
The government has also proposed tax exemptions on interest income derived by financial institutions from the preferential lending schemes until December 31, 2016.
The “approved preferential lending schemes” means preferential lending schemes approved by the Royal Monetary Authority of Bhutan (RMA), including, but not limited to, preferential lending schemes for the purposes of education, skills development, and overseas employment.
The Bill also provides an investment allowance at 100 percent of the amount of the fixed capital expenditure incurred for projects, regardless of their date of commencement of commercial operation.
Small and micro businesses located in rural areas will be exempted from payment of BIT until December 31, 2024.
“Rural area” refers to places located outside the boundaries of Thimphu, Phuentsholing, Gelephu, and Samdrupjongkhar thromdes.
Businesses that received tax holidays under the Fiscal Incentives Act of Bhutan 2017 will continue to enjoy the benefit for the period specified earlier in the Act.
The Bill will be reviewed by the Economic and Finance Committee of the House and presented for deliberation in the coming days.
The finance minister said that the fiscal incentives are aimed at boosting the private sector and creating employment in the economy. The fiscal incentives, he said, covered indirect, direct, and sales taxes, as well as customs duties.
The finance minister said that the government has forgone a total of Nu 6.1 billion (B) in taxes through fiscal incentives.
About 50 percent of the beneficiaries, he said, were hotels and other tourism-related businesses.
Lyonpo Namgay Tshering said that 2,100 jobs were created through the implementation of the Fiscal Incentives Act.