A revenue of Nu 19.8B has been foregone from fiscal incentives, tax holidays and exemptions from 2011 to 2016, according to national revenue reports of 2011-12 to 2016-17.
Tax holidays on selected sector and tax exemptions on selected commodities were among the government’s initiatives to promote private sector development. While some state owned enterprises and import commodities were given tax exemption even before 2010, the fiscal incentives targeting private sector was first rolled out in 2010. Thus, the revenue foregone has been included in the revenue reports of 2011 onwards.
In 2011, the government had to forego Nu 3.02B. Some 33 firms, including hotels, private schools, media houses and ICT firm were granted direct tax exemption on the business and corporate income tax amount to Nu 74.4M. Exemptions from indirect taxes amount to Nu 2.95B.
The Bhutan Development Bank Limited (BDBL) was the largest beneficiary throughout, reaping a tax benefit of Nu 516M in corporate income tax (CIT) between 2011 and 2016. In 2015 alone, BDBL was granted Nu 117M exemption and Nu 97.5M in 2016.
Hotel Taj Tashi also availed a tax holiday of Nu 69.3M from business income tax (BIT) in the same period. However, it has not availed tax break in 2014 and 2015, while in 2016, its tax holiday amounts to Nu 30M.
In 2014, BDBL was granted exemption of Nu 84.5M, Druk Wang Alloys got Nu 27.7M break and Ugyen Ferro alloys availed Nu 13.9M break on BIT/CIT.
This is just the tax holiday granted on direct taxation (BIT and CIT). Exemption on indirect tax such as customs duty, excise duty and sales tax were also given. For instance, exemptions on raw materials and plant and machinery were granted for manufacturing units, projects, hoteliers and power and telecommunication services.
Tax break were also extended to vehicles procured by all government agencies, public transport services, private schools, projects, tourism industry, international organisations, and quota provided to public and civil servants. In 2011, tax exemption on vehicles amounted to Nu 460.01M.
In 2011, the government forewent revenue of Nu 1.33B under general goods procured by hydropower projects, IT park, hoteliers, private schools and GoI funded projects among others.
In 2012 the government forewent a revenue of Nu 2.45B on similar account. Holiday on direct tax was availed by 44 firms amounting Nu 94.23M. Revenue foregone from indirect tax amounted to Nu 2.36B. Tax exemption on vehicles amounted to Nu 128M and Nu 765M on account of general goods.
Revenue foregone in 2013 through direct taxes and tax exemption on selected commodities under indirect taxes amount to Nu 2.31B. Some 75 business firms availed a direct tax holiday of Nu 142M.
Vehicle tax exemption in the year stood at Nu 16.19M because of the import restriction in place then.
In 2014, the government forewent a revenue of Nu 2.72B in the form of various taxes, of which Nu 2.5B was from indirect taxes like sales tax, customs and excise duty. The number of firms availing the holiday from direct tax increased to 82 resulting in a benefit of Nu 153M.
In 2015, a total of 10,254 businesses availed business income tax exemption amounting to Nu 14.315M as a result of the government’s decision to exempt business in rural areas from taxes.
The total amount of revenue forgone in 2015 was Nu 4.92B, which was about 17.53 percent of the domestic revenue in 2015-16. The 2015 national revenue report stated that the amount of revenue forgone increased by 80.9 percent from the previous year. Under direct taxes, 109 business units availed tax holiday and the forgone tax amounted to Nu 145.314 million.
However, 11,571 business units benefited from the BIT exemption given to small and micro businesses located in rural areas amounting to Nu 22.25M.
Revenue foregone from indirect taxes increased by 86.2 percent to Nu 4.75B in 2015 compared to 2014. The increase was mainly due to the exemption provided to Drukair amounting to Nu 1.04B and to Bhutan Helicopter Service Ltd. amounting to Nu 82.35M.
The year also saw an increase in exemption granted for import of vehicles by Nu 492.09M from the previous year.
In 2016, the total revenue foregone in the form of exemptions and tax holidays was Nu 4,401.134 million. Of the total, direct taxes constituted Nu 667.73M in the form of CIT and BIT availed by 112 firms. Indirect taxes from sales tax, green tax, customs and excise duty constituted Nu 3.73B. Total foregone amount forms 14.8 percent of the total revenue for the fiscal year.