When it is time to file the income tax, a few months from now, we will know how the tax reforms and the fiscal policies would have left a big dent on government revenue.
The government had reformed the taxation policy. As of now, the bold ones to recuperate millions of Ngultrums are yet to be seen. The reforms so far, like the reduction in property transfer tax of land, building and vehicle and doing away with the 5 percent tax on voucher recharge had been popular with the people.
It is obvious that there will be not many taxpayers next tax year as the Covid-19 pandemic has disrupted the economy and all businesses are affected. The fiscal and monetary measures, initiated to save businesses and even livelihood, we know, would leave a bigger hole on the government coffer.
A government trying to squeeze people during a pandemic will not be popular. It is not right. However, with the generous fiscal and monetary policies during the pandemic year, a lot of people would have benefited from the policies that were inclusive of both the affected and not affected.
The waving off of the equated monthly interest on loans and the deferment of loan repayment helped many. Among them are the landlords who need not pay interest. Some let it trickle down to the tenants. Some were not so generous.
The shortage of housing across the country means rents are beyond the control of authorities. It is left to the market force and the market is skewed towards property owners. The revenue and customs department last year, before the pandemic, made it mandatory for landlords to issue rental receipts to tenants. The receipts will help officials know how much the taxpayer has earned through rental income. It will help prevent under-declaring of income or tax evasion.
How it will serve the purpose is a big question. If landlords are not serious of the new rule, tenants are least bothered about demanding one. The reason is obvious. If a tenant can benefit, in terms of concession on his or her tax returns, they would insist on the receipt and even question the manipulation in the amount when landlords issue the receipt. Why would a tenant, who pays Nu 10,000 a month, the average house rent in Thimphu, insist on a receipt if he is not benefiting.
Because the amount paid on house rent is not tax deductible or eligible for concession, many listen to the landlord and even manipulate the amount paid to help the landlord evade tax. There is no practice of deducing tax deducted at source for residential properties except houses rented for business and offices.
There are no monitoring or verification systems even with rules and regulations. This is a double edge sword as it makes tenants more vulnerable to the whims of the landlords and the government is losing revenue. The tax department is not even sure of how many people own property or how much tax they earn from rental income. Personal income tax is broad based in the sense that incomes from all sources are clubbed together. This leads to revenue leakage.
The responsibility also falls on tenants, who so far had been crying foul in the house rent debate. If they insist on receipts, a portion of the “exorbitant” rent they pay will get into the government coffer.
How do we plug such loopholes? Could we make house rent tax deductible so that everybody insists on documents to help revenue leakage?