When the government was campaigning for power and stated that it would recoup Nu 10 billion by strengthening and streamlining tax collection, it was seen as a bold campaign promise.
Tax is sensitive, especially if the rich are made to pay more through policy reforms. A government monitoring income and taxes, ensuring transparent information sharing so that everybody pay their fair share would lose support of the rich and the powerful. If it can be done, it gains the trust of the masses.
The National Assembly yesterday passed the Income Tax Amendment Bill with a lot of changes. The government was quick to share the changes it incorporated. It highlighted nine changes from exempting tax on mobile recharge voucher to adding 10 percent surcharge for individuals paying more than Nu 1 million in income tax.
The changes, however, are more of exemptions than recouping or plugging leakages in the taxation system. Probably, driven by their motto of narrowing the gap, it has taken a safer route.
The rich are not affected with the current reform apart from the 10 percent surcharge. How many pay 1M in income taxes? What inequality and wealth distribution are we looking at? The majority will be happy with, for instance, not having to pay Nu 5 in voucher tax from Nu 100 recharge.
Critics are concluding that the reform has tuned out to be a populist decision. Not the bold reform they expected.
The private sector wants jobs. They are feeling the heat of an economic slow down. Some are presenting a situation where the private sector would be recognised if the government’s salary revisions depended on the performance of the private sector. They are looking for policy interventions to let them grow, create jobs and not depend on the “five-year cyclic” excuse every elected government give them.
They prefer policies to fuel the “engine of economic growth”, not a 5 percent reduction in corporate tax or state owned enterprises competing for jobs that they could do easily.
At a time when domestic revenue is receiving growing attention, the exemptions are not going to help the government coffer too. Bhutan is gearing to graduate to a mid level country and the organisation like the Economic Co-operation and Development (OECD), the World Bank and many more are urging developing countries to increase their own tax collection. Some are more blatant. They are calling for more determined action to combat tax evasion and avoidance.
Exemption is a good reform. Like they claim, it can boost cash crop production and export. But there are bigger reasons than tax alone. Apple orchards have disappeared, orange orchards are lost to citrus greening and cardamom ridges are dying too.
Our taxation policies are blamed for the growing inequalities in a nation striving for “a just and harmonious society.” Experts have estimated that the inequality is so stark that one Bhutanese in the mining sector is earning as much as 16,824 other Bhutanese.
The salaried people who pay tax wonder why a proprietor of rich luxury hotels, started with the grandest proposal, come in their flashy Prados to declare their loss, year after year.
The Income Tax reform is just one aspect of the government’s tax reforms. We should expect bolder decisions.