However, tax revenue, projected to account for 13 percent of GDP in 2025, falls below World Bank’s benchmark of 15 percent

Thukten Zangpo 

Tax revenue in the country is projected to grow by 5.82 percent, or Nu 2.04 billion, in the fiscal year 2024-25, according to the finance ministry.

In absolute terms, tax would contribute Nu 37.08 billion to the domestic revenue. In the previous fiscal year, tax revenue totaled Nu 35.04 billion.

The increase in both tax and non-tax revenue has also led to an upward revision of domestic revenue, now estimated at Nu 55.49 billion for 2024-25, compared to the earlier projection of Nu 54.75 billion.

The finance ministry also projects the tax revenue to reach Nu 44.53 billion and Nu 47.72 billion by fiscal year 2025-26 and 2026-27, respectively.

In the last fiscal year 2023-24, the corporate income tax contributed the highest with Nu 11.96 billion, an increase of 14 percent compared to the previous year. For this fiscal year, it is estimated at Nu 11.91 billion.

Personal income tax and business income tax are also expected to grow to Nu 3.54 billion and Nu 1.83 billion in this fiscal year.

In addition, the property tax is anticipated to increase to Nu 772.03 million from the previous fiscal year’s collection of Nu 709.24 million.

Under the Property Tax Act of Bhutan 2022, the government revised the land and building tax with 0.1 percent tax on taxable value of land and buildings in 2022.

The collection from the goods and services which includes sales tax, excise duty, green tax is expected to contribute Nu 10.64 billion to the tax revenue, Nu 7.5 billion from royalty, and Nu 752.81 million from customs duty.

Tax revenue is projected to account for 12.3 percent of GDP in 2024 and 13 percent in 2025, below the World Bank’s benchmark of 15 percent.

Bhutan’s tax-to-GDP ratio lags behind the Asia and Pacific countries’ average of 19 percent, as well as the 33.5 percent average among the Organisation  for Economic Co-operation and Development countries.

The tax-to-GDP ratio serves as a measure of how effectively a government manages the country’s economic resources.

According to the World Bank, countries with tax collections below this level must strive to enhance their revenue generation in order to meet the essential needs of citizens and businesses. Attaining this level of taxation is seen as a crucial tipping point that propels a state towards viability and sets it on a trajectory of growth.

The Asian Development Bank points out that several developing countries struggle to achieve a tax yield of 15 percent of GDP due to a limited tax base and the overall low capacity of tax administration, which are now widely recognised as hindrances to sustainable development.

The ADB emphasises the significant importance of strengthening domestic resource mobilisation and increasing tax revenues for countries to finance their sustainable development goals and promote medium-term fiscal sustainability.