The tax revenue to grow to 11.7 percent of gross domestic product (GDP) in this fiscal year (FY).
The projection was based on the macro-economic framework coordination technical committee of the finance ministry as of October 2021 in the Royal Monetary Authority’s (RMA) annual report 2021.
The tax revenue was further projected to grow by 13.3 percent of GDP in FY 2022-23 and by 13.9 percent in FY 2023-24.
In FY 2020-21, tax revenue collected was Nu 20.66B—11.7 percent of gross domestic product (GDP) — which saw a decline of 9.4 percent from the previous FY. Of the total domestic revenue, tax revenue accounted for 57.6 percent.
“With accelerated government investment activities, economic activities are anticipated to pick up in various sectors, contributing to the growth in tax revenue,” according to the report.
It added that the economic activities are likely to pick up including tourism receipts (sustainable development and visa fees) on account of mass vaccination and re-opening of the economy in a calibrated manner.
Sales tax collection from hotels, airport tax, corporate income tax, and business income tax from tourism and allied businesses are also expected to gradually improve.
The growth in tax revenue would increase the domestic revenue which will narrow the fiscal deficit.
The Constitution mandates that the government should meet the cost of recurrent expenditures from the internal resources of the country.
The finance ministry has estimated a resource of Nu 55.24B for next FY 2022-23, of which Nu 36.37B is estimated from domestic revenue and Nu 18.87B from grants.
With the estimated budget outlay of Nu 70.92B, Nu 36.37B would be as recurrent budget, and Nu 34.55B as capital budget for FY 2022-23.
The ministry has projected the fiscal deficit at Nu 15.69B (7.54 percent of GDP) for the FY 2022-23 which would be financed through concessional external and domestic borrowings.
In the last FY 2020-21, the fall in the tax revenue from corporate income tax (CIT), business income tax (BIT), and personal income tax affected tax revenue, the report stated.
The decline in BIT was due to various containment measures and restrictions imposed on the transactions of goods and services.
Deduction in CIT from 30 percent to 25 percent and CIT deferment resulted in lower CIT revenue.
The tax deferral benefited 332 CIT and 16,764 BIT payers.
To ensure uninterrupted imports and supply of essential items, sales tax, and customs duties were also deferred in the same FY.
According to the report, fiscal deficit for FY 2021-22 is expected to remain at 8.6 percent of GDP with the total budget outlay expected to increase by 4.4 percent (Nu 73.92B) from the previous year.
To recoup tax in FY 2021-22, the finance ministry has asked all real property owners to declare the annual rental income correctly while filing personal income tax for the year 2021.
Undervaluation, misdeclaration, and non-declaration of the import and export consignment is a criminal offense.
Finance ministry has asked importers and exporters to refrain from such practices.
The Department of Revenue and Customs is expected to come up with the Bhutan Integrated Taxation Systems and Goods and Services Tax (GST) software by July this year as a measure to seal tax leaks.
The government hopes to recoup additional revenue of Nu 3B with the implementation of the GST.