Bold Tax moves by the Govt

In the last year of any elected government, they normally stay a mile away from any controversial decisions or legislations that would impact its political prospects.

The most controversial of these are tax legislations that increases taxes.

However, almost counterintuitively this government has already introduced two major tax legislations that overall will increase the tax burden on Bhutanese citizens.

The first is a higher tax on junk food, tobacco, processed meats for health or products available in the country like furniture, cement, mineral water etc to protect their market share.

However, taxes have also been decreased on essential items like cereals, pulses, oil and milk powder mainly in terms of Customs Duty for third country imports.

The taxes are to reduce imports, promote healthy living and protect the local industries.

Of the above the high taxes on tobacco products is commendable given how readily available and cheap tobacco was leading to a smoking scourge in the country, especially among young students.

The reduction of Customs Duties and some Sales Tax on essential imports are also a welcome move.

However, when it comes to the broad category of ‘junk food’ the government has to be careful of the inflationary pressures it can add as junk food like biscuits, noodles, juices etc are not luxury items, but almost like essentials, though of the unhealthier kind.

People will keep buying it and end up paying more.

In terms of taxing items to protect local industries, there are two facets. The GST tax of India has essentially made many Bhutanese exports uncompetitive in the Indian market with higher taxes, and so at one level it does make sense to tax imports which are mainly from India.

However, on the other hand the government must ensure that the local substitutes stand up to price, availability and quality, otherwise there will be additional inflationary pressures.

In the long run, the mindset must turn from a defensive one of reducing imports or import substitution to one of increasing exports.

In the case of property tax, it has remained unchanged since 1992, and on the other hand land value, especially in urban areas, have been going through the roof.

Even if one looks at the value of even the most remote rural lands the land taxes of 1992 are too less and even absurd at Nu 24 per acre of Kamzhing land.

The increase in land taxes is a welcome move as they were too less in the first place, and secondly it can be used to fund thromdes who are all in need of funds to carry out developmental activities.

The surcharge tax on vacant urban land is also welcome as it will reduce land speculation that drives up prices.

However, there are two issues here. The first is that it is not fair that the land tax by Thimphu residents are used to fund other thromdes. This goes against the whole concept of local government and democratic participation in it through taxes and then seeking accountability for the local taxes.

The other issue is that if urban land and building taxes are too steep then it can result in it being transferred to tenants by landlords in rent increases. The last thing we want in such inflationary times again.

While the government must be commended overall for its bold tax measures just before elections, it must also be ready to make changes based on how the ground situation plays out.

“Taxes are paid in the sweat of every man who labors.”
Franklin D. Roosevelt

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