This week marks the end of filing Personal Income Tax. The reports revealed that internal tax significantly contributed to the progress of the nation. However, the tax collection system is not robust and only a limited number of individuals pay taxes.
This is particularly true due to cash transactions which are done through informal means. Contractors, popularly known as thikedars, are possibly the group of individuals who should either file PIT or BIT as per their income they take millions out of the country without having to pay anything.
There is a need to address the loopholes, as it is unfair.
Article 8, Section 8 of the Constitution states that “a person shall have the responsibility to pay taxes in accordance with the law” as a Fundamental Duty. This section makes it clear that the duty to pay taxes is not only on Bhutanese citizens but every person in the country who derives benefits from The State.
The Preamble of the Income Tax Act, 2001 states: “Whereas, it is expedient in the interest of the People of the Kingdom of Bhutan, in order to promote social justice, general welfare and the adoption of a tax system that is fair, uniform, equitable, efficient, and just, thereby securing equal distribution of wealth, financial sustainability, growth, progress and prosperity, do hereby, ordain and enact this legislation on taxation of Companies, Businesses and Individuals.”
Since the thikedars are the same as contractors, they should be filing the Business Income Tax, but there are no records available if they are filing taxes. Further, since the building owners are required to deduct three percent of the payment made to the thikedars, the records indicate. The Income Tax Act states that “wilful attempt to evade tax or failure to pay fines, penalty or interest imposed under this Act or wilful act or omission to file an income tax return” not only attracts heavy financial penalties but also attracts up to third-degree felony under the Penal Code of Bhutan.
Since the thikedars are foreign workers, they are governed by the Labour and Employment Act and Regulations. As per the available informal information, these are brought in as skilled foreign workers. Section 219, 220 and 221 prohibits any foreign workers from deviating from their original terms of reference. Under Section 222, the workers themselves as well as the building owners are liable for a fourth-degree felony, making everyone a criminal under the labour law. Currently, the Thikedars are not recognized by any law, the entire system is criminal in nature. As per the Contract Act of Bhutan, 2013, any agreements made between the building owners and Thikedars are null and void since it is illegal under the LEA.
One of the arguments including private contractors and law enforcement officers made on this is that without Thikedars, bringing foreign labourers is impossible and that is why it remained a challenge thus far. Appointing labour agents outside Bhutan and reskilling Bhutanese contractors to take up private real estate development are possible and doable solutions.
This will address numerous issues. The labour agents outside Bhutan can supply Bhutan with foreign workers. The possible abuse of workers by Thikedars can be prevented as there are reports of such abuse like refusing to pay their salary. The strain on Bhutan’s Rupee reserve will be reduced greatly. Finally, income tax will increase substantially.
Disclaimer: The views expressed in this article are author’s own.