Taxes: where have we come from?

The government has proposed major tax reform and in the words of the Prime Minister people smart enough would be already at work spotting loopholes.

While 166 countries have already moved from the conventional taxation system to the electronic goods and services tax, it doesn’t mean that the system is flawless.

For Bhutan, we have not moved far from the system of taxes-in-kind. Abolishing the taxes was one of the major economic reforms that were undertaken under the reign of the second and third Druk Gyalpos. There was one intention then: to remove the undue burden on the people.

Thenceforward, with economic maturity, under the reign of the Fourth Druk Gyalpo, taxes were rationalised. This nous changed with democracy and parties altering taxes to the extent that the supreme court’s interpretation had to be sought at one point in time.

Even today, when the government and the speaker declared goods and services tax (GST) as the money Bill, the verdict of Constitutional case comes in.

From the laymen’s perspective, anything to do with taxes are still considered sensitive and it is beyond the latitude of any party to alter taxes for the sake of future votes. It is easy for any power to grant exemptions or reduce taxes but then to reverse the status quo is an Herculean task as it involves the sentiments of voters.

Nevertheless, this government has dared to initiate a major tax reform but then the voters’ sentiments are also taken care of by way of a balancing act: bringing the GST rate as low as seven percent, exempting GST for more than 200 commodities and granting ‘zero tax’ to close to 300 import items.

This move should be considered bold enough because negative items that are harmful to the environment, health, economy and society are slapped with excise equalisation tax (EET).  Will this bring about a positive impact? The government may want to simply explore the tobacco black market. Higher taxes has resulted in higher prices. And did the tobacco consumption decrease? Yes, according to the trade statistics since it is contingent on the amount of taxes paid. Practically, the answer is no. Worse is that the experts could not even derive the country’s inflation rate by truly reflecting the price changes of narcotics and tobacco.

This indicates that we failed somewhere with the implementation. The GST will become a law once the parliament endorses it. This law, for sure, will come with discrepancies in some segments.

It is the responsibility of both the government and gaining  entities to pass the benefit down to its consumers, without whom the economy cannot move ahead.  The government’s efficiency in implementation of tax credits and refunds will influence the consumer patterns.

Taxes are levied primarily to raise government revenue. But it is also one of the tools to direct the course of the economy as it is  a fiscal tool.

Before implementing a reformed tax model, shouldn’t the government assess the value of impact across the sectors. For instance, PIT will increase the disposable income. But where will the people invest in the absence of avenues?

It is time the country’s taxation module is changed. When the country undergoes change and experiences progress, as the Prime Minister said, some people might have to pay more taxes and some would not be doing so.

The government can only rely on proud tax-paying citizens to direct the course of the economy.

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