The Tax (Amendment) Bill 2020, which the National Assembly adopted yesterday, is not only considered as one of the tools for narrowing the gap, but also a measure to bring about compliance among taxpayers.
However, reduction in various taxes and exempting the 5 percent voucher tax have left some observers asking if the tax measures will help the government make revenue.
Prime Minister Dr Lotay Tshering, at the meet the press yesterday, said the overall losses in taxes through the reductions were estimated at Nu 850 million (M) annually. But he said that the amount of taxes and levies collected through new measures would be much higher than revenue forgone.
“What has been heard and discussed till now has been all about exemptions. The question has been valid until now, but please follow through the discussion,” he said.
Among other reforms, the National Assembly adopted the government’s proposal to reduce the Corporate Income Taxes (CIT) from 30 percent to 25 percent on state-owned corporations, increase the Personal Income Tax (PIT) slab from Nu 200,000 to Nu 300,000.
Doing away with the 5 percent voucher tax, he said, would cost about Nu 190 M. The change in the PIT slab is expected to cost Nu 230 to Nu 240M.
The prime minister said the government was expected to lose another Nu 300 to Nu 330M through the CIT reduction for state-owned enterprises (SOEs).
The state portfolio comprises 38 companies, of which 19 are held directly by the ministry of finance and as many through the Druk Holding and Investments (DHI). In 2017, SoEs generated gross revenue of Nu 54,611M, which was 30 percent of GDP and profit after tax of Nu 17,752M.
The government has also reduced the land transfer tax from 5 percent to 3 percent and the vehicle transfer tax from 5 percent to 1 percent.
However, the prime minister added that other changes the government was proposing would actually increase the overall revenue generating capacity of the country.
Dr Lotay Tshering said that the government is expected to get additional revenue of up to Nu 23M through surcharges, Nu 20M to 25M through taxes on windfall gains on lottery.
The sustainable tourism fee (SDF) that will be imposed on regional tourists is also expected to contribute to the national exchequer. “We are targeting some percentage of the royalty that dollar-paying tourists are paying,” he said.
The government has tabled a daily SDF of USD 16.25 on each regional tourist.
He said that even after considering that the revenue reduces by about 20 to 30 percent from the current baseline, the government was expecting the revenue to increase by about 70 to 80 percent with impositions of new levies. The government, he said, was hoping to recoup about Nu 850M to Nu 860M from new measures.
“When we compare the decreased and the increased figures, the decreased amount comes to more than Nu 800M and the increased amount more than Nu 900M. There is already a positive change of Nu 100M,” he said.
The main charm of the tax reforms, he said, was the Goods and Service Tax (GST). “We will tax everyone less under GST because the charge will be a minimum of 7 percent, which is one of the least in the world,” the prime minister said.
The consumer-based GST, he said, would help the country generate revenues through broadening of the tax base. “All those who consume will be paying taxes,” he said.
Dr Lotay Tshering said that the introduction of GST would enable the country to roughly make about Nu 3 billion more annually through registered GST payers alone.
“The best thing is not the amount we are going to get now, but tax collection is expected to increase by at least 10 percent every year because it’s a very efficient system,” Dr Lotay Tshering said.
According to the prime minister, the percentage of tax increase under the current rudimentary sales tax system is just about 3 percent. He said the GST would make all Bhutanese responsible consumers and smart investors.
Dr Lotay Tshering said that one of the benefits of the GST would be that there would be no tax on invested money but on consumption. “The leakage of taxes will be minimum while the collection will be maximum through efficiency.”
The prime minister said that the overall objective of the tax measures was not to charge the maximum but to build the efficiency of the tax collection system. “Overall, it will definitely generate more.”
The prime minister said that the initial objective was to start implementation of the modern taxation policy. However, direct taxes on PIT must come down when the exempted lists shrinks subsequently and as the economy develops.
“We thought of increasing the PIT slab to Nu 500,000, but to begin with we needed to take a middle path. Once the GST becomes efficient, PIT should not be there theoretically because it has been found out that high-income groups tend to pay almost 10 times more than low-income groups under GST,” he said.
Dr Lotay Tshering said PIT and CIT must gradually decrease so that there is more money in the capital market.
According to the prime minister, CIT in countries that had GST are minimum and that the 25 percent CIT was comparatively high. He said that keeping Bhutan’s CIT at 30 percent would be a mistake considering that CIT in India, biggest trading partner which had already introduced GST.
“We are directly taking PIT from the incomes of individuals. Owners of companies are PIT payers.
The government has proposed to increase PIT from 25 to 30 percent for the highest income bracket along with 10 per cent surcharge on income equal to or more than Nu 1M.
The Bill also proposes one-time income tax of 20 per cent on all lottery winning prize equal to or more than Nu 5,000.
Finance Minister Namgay Tshering said that salient feature of the tax measure was compliance by taxpayers. He said that out of almost 61,000 registered PIT payers, only about 43,000 actually filed their PIT.
He said that the government’s tax reform approach has been holistic and that its aims and objectives are long-term.
The National Council will deliberate on the Tax Bill.