Top 900 accounts own more than half of fixed deposits

The top fixed deposit account holder has Nu 545 million, while the second highest holds Nu 348 million

Thukten Zangpo

The government has proposed to levy a 10 percent tax on the interest earned through fixed deposits and dividend in the Income Tax Bill 2025, which would be deliberated on June 18 and adopted on June 20 in the National Assembly.

This proposal, according to the finance minister Lekey Dorji, draws on the principles of equity, investment neutrality, social justice, and fiscal sustainability.

“The objective of the proposal is to ensure that all forms of income, whether from employment, business or capital are treated fairly, without unduly distorting savings behavior or investment decisions,” Lyonpo added.

However, there will be no taxes on recurring deposits or saving accounts.

“The government could tweak the policy to allow a Nu 300, 000 exemption for individuals whose sole income is from fixed deposit interest,” finance minister Lekey Dorji said.

According to the figures, the savings accounts in five commercial banks account from 23 percent to 49 percent while fixed deposit accounts from 32 percent to 69 percent.

As of August 2024, 12,933 account holders own 16,404 fixed deposit accounts with a collective principal of Nu 18.56 billion, generating Nu 1.46 billion in annual interest, from which a 10 percent tax is projected to yield a modest Nu 146 million in government’s annual revenue.

The top fixed deposit account holder has Nu 545 million, while the second highest holds Nu 348 million.

Figures also show that 2, 016 individuals have multiple accounts ranging from 1,449 individuals holding two accounts to an individual holding 188 accounts. Only 10,917 individuals hold one account. There are 382 account holders who own Nu 10 million or more in fixed deposits with holding Nu 6.33 billion, the majority of total deposits’ holders.

For fixed deposits owning more than Nu 5 million and less than Nu 10 million, there were 474 account holders with an amount of Nu 2.99 billion while 3, 310 holders owned more than 1 million but less than Nu 5 million, their amount stood at Nu 6.22 billion.

About 9, 150 account holders own more than Nu 0.1 million but less than 1 million, with total deposits of Nu 2.88 billion. There were 3, 088 account holders with Nu 127 million deposits less than 0.1 million in fixed deposits.

The proposed tax on interest income from fixed deposits is grounded in several key economic principles.

Lyonpo said that taxing interest income upholds the idea that those with greater ability to pay should contribute more. “Fixed deposit interest is largely earned by higher-income individuals who can accumulate substantial savings bringing that unearned income into the tax net strengthens the progressive nature of the system.”

At the same time, broadening the base to include interest income allows Bhutan to reduce the tax rate and slab, and reliance on a small group of taxpayers and generate stable revenues over the economic cycle.

This approach aligns with International Monetary Fund’s recommendations that emphasise comprehensive income taxation as the most efficient and equitable design.

Moreover, Lyonpo said that the taxing interest income aims to create a level playing field for investments. “When capital income such as interest is exempt or taxed less favorably than other income types, investors have a clear incentive to favor low-risk fixed deposits over riskier, growth-oriented ventures.”

This tax-driven bias can divert funds away from productive sectors—manufacturing, services, agriculture and infrastructure—where they would generate higher returns for the economy and create jobs.

Lyonpo also said that exempting interest income tends to benefit wealthier households disproportionately, exacerbating inequality. Low-income earners generally hold minimal bank deposits and derive most of their income from salaries, which remain taxable, he added.

In contrast, Lyonpo said that high-net-worth individuals can earn significant passive returns without contributing to public revenues. Including interest income helps remove this regressive feature, ensuring that every citizen pays tax in line with their overall income.

To ensure its long-term development goals given dwindling grants and volatile existing revenue, he also said that Bhutan plans to introduce a modest tax on interest income to boost fiscal self-reliance and reduce reliance on debt.

According to the minister, the government’s decision to tax interest income aligns with global norms and best practices in taxation.

He said that most countries worldwide treat bank deposit interest as taxable income within their comprehensive tax frameworks, with only a small number of jurisdictions offering exemptions.

Critics often claim that taxing interest discourages savings, but international evidence, including Bhutan’s own past experience with a 5 percent tax, shows that low interest taxes (5-10 percent) have minimal impact on deposit growth as long as real returns remain appealing, as seen in India and Nepal, Lyonpo said.

Another common criticism is double taxation, but the government clarified that only net interest income is taxed, not the principal, aligning with international practice that avoids taxing the same income twice.

The government spends over 30 percent of its annual budget on crucial social sectors like health and education.

The ongoing fiscal reform initiative aims to foster investment, create jobs, and encourage risk-taking, demonstrating a long-term national interest through tax deductions and incentives for childcare, education, home ownership, and disability relief.

On behalf of the finance minister, Industry, Commerce and Employment minister Namgyal Dorji during 16th meet the press said that dividends are considered as passive income, and international practice has shifted  away from imposing a Dividend Distribution Tax (DDT) at the corporate level;  instead, dividends are taxed directly in the hands of shareholders.

“Because both dividends and interest represent passive income streams, subjecting them to a uniform 10 percent withholding tax ensures equitable treatment and prevents distortions in investment decisions, Lyonpo Namgyal Dorji said.

By applying a single 10 percent rate to dividend and interest income, the Income Tax Act promotes  horizontal equity—taxpayers with identical types of income bear the same tax  burden, regardless of the underlying instrument, he added.

Furthermore, Lyonpo said that Bhutan’s Double Taxation Avoidance Agreements cap withholding  taxes on dividends and interest at 10 percent, adopting a flat 10 percent rate aligns automatically with treaty ceilings, avoiding conflicts and eliminating the need for  taxpayers to claim refunds or treaty benefits.

Internationally, withholding rates  on dividend income range from 10 percent to 25 percent by setting the rate at the treaty maximum of 10 percent, Bhutan strikes a prudent balance between maintaining  competitiveness for investors and safeguarding its revenue base.

The proposed taxation has ignited a fierce  public debate.

The opposition party also sought public feedback by June 16, ahead of the parliamentary deliberation.