While the increase is attributed to fiscal measures, concerns that the measures did little to curb imports are rife
Economy: The tax revision, introduction of new taxes and lifting of import restrictions in 2014 helped the country’s tax revenue swell by Nu 2.2 billion (B) in the fiscal year 2014-15.
In 2013-14 fiscal year the revenue from taxes was Nu 16.18B.
These fiscal measures to curb imports has led to an upsurge in collection of indirect taxes to Nu 6.76B from about Nu 5B in 2013-14.
However, direct tax has experienced a lower growth, as business income tax (BIT) did not perform as anticipated. Between the last fiscal year and the previous, direct taxes increased marginally from Nu 11.13B to Nu 11.62B.
Direct taxes are those levied on the income or profits such as personal income tax and BIT while indirect taxes are those levied on goods and services like sales tax, customs duty and green tax.
Five percent sales tax on telecom services were levied since October 2014 besides revision in sales tax, customs duty and green tax on vehicles since July 2014.
While tax revisions on vehicles resulted in an increased vehicle prices between 45 to 120 percent, a separate five percent green tax was also introduced simultaneously.
Sales tax collection in the last fiscal year stood at Nu 3.06B, showing an increase of 33.9 percent compared to the previous year. The increase, according to the national revenue report, was attributed to the introduction of a sales tax on telecom services amounting to Nu. 85.04 million (M) and the vehicle tax revision.
Sales tax constituted 12.2 percent of the total revenue.
Collection from customs duty amounts to Nu 447.40M, an increase of 43 percent compared to the previous year’s collection. The increase is again attributed to the lifting of the ban on the import of selected commodities and revised taxes.
Customs duty constitutes 1.8 percent of the total revenue.
Total green tax collected during the year was Nu 545.870M.
Of the total green tax, Nu 265.563M was from vehicles and Nu 280.307M was from fuel. It constituted 2.2 percent of the total revenue.
Given these figures, economists are of the view that the fiscal measures did not serve the intended purpose.
“The sole purpose of sales tax revision on vehicles and slapping green tax was to discourage import and this is not happening,” a local economist said.
The country experienced a trade deficit of more than Nu 32.8B last year, registering a record high deficit in the last five years. Compared with 2014, the trade deficit widened by about Nu 11.6B, Bhutan Trade Statistics reveals.
Trade deficit is an economic condition that occurs when a country is importing more goods than it is exporting. The deficit is determined by subtracting the value of goods imported from value of goods exported.
“The government might have benefitted from the increased tax collection becasuse of enhanced domestic revenue, but the economy is suffering,” said the economist. The increased import, he said may harm the country’s reserves and current account balance. “The government has to think long-term on the economic front instead of easing the situation for the time being.”
Another economist said increased taxes on vehicles, introduction of fuel tax, and even the banks lowering the amount car buyers can borrow have done little to discourage people from buying new cars.
More than 8,000 cars were imported in a year’s time (July 2014 to July 2015). As of November 2014, there are 68,685 cars in the country.
“Neither has the import gone down nor the concerns on traffic jams addressed,” a businessman said.
Figures also revealed that lifting of alcohol import ban has led to increased alcohol import.