The move, however, will take effect only when the Tax Bill is approved by the Parliament
The Cabinet, in line with the 100-days pledges, has decided to do away with taxes for small rural businesses. However, before this can be implemented on the ground, the Ministry of Finance will have to define the size and scope of small businesses and then a Tax Bill will have to be put up to the Parliament.
The Prime Minister Lyonchhen Tshering Tobgay said, “We have taken the decision to do away with taxes on small businesses in rural areas, but
we have to put it up to the Parliament for approval as a Tax Amendment Bill in the next session, in line with the Constitution, Article 14 section 2.”
Lyonchhen said, “The Finance Ministry has been asked to come up with the details of what would constitute a small business, what types of small business and so on.”
The move is in keeping with one of the important economic pledges that the private sector is looking forward to. PDP’s manifesto under the 100-days heading says, “We will do away with taxes for small and rural.”
The PM said that doing away with taxes on small rural businesses would promote rural prosperity, stimulate the rural economy and bring rural people in other parts of the country into the economic sphere.
He said, “It will promote economic activity outside Thimphu and Phuentsholing and the overall aim will be to promote balanced development.”
The PM said that the revenue foregone by such a move would not be much and it would be a small price to bear in order to help the economic activity in rural areas.
He said that the more often than not, it was a big hassle for both the tax payer and collector and it could even cost more to collect the taxes than the tax itself.
“We should be making it easier to do business and also make it more enjoyable,” said the PM.
Lyonchhen said that there were various definitions of a small business which have to be harmonized and finalized. He said the Finance Ministry would be working on it. He, however, made it clear that small businesses in rural areas did not include larger rural industries.
The Finance Secretary Lam Dorji said, “The tax cut will be a part of the Tax Bill to be tabled to the Parliament. We have been asked to do some studies and research and submit the details.”
The Secretary emphasized that the key work for the ministry would be to come up with a comprehensive definition of small business in the rural areas and the types of business that would fall under the category.
He said that during the last presentation by the ministry to the Cabinet on the issue, it had been highlighted there are different definitions of small businesses with a different one for income tax by the Trade and Industry departments and others.
He also said that the ministry would also be submitting technical information and data on the potential revenue that will have to be foregone along with other relevant figures.
He said that the ministry would present all the information to the Cabinet in the next few weeks.
According to the Bhutan Chambers of Commerce and Industry (BCCI) officials, the smaller business communities in dzongkhags and rural areas complain about the heavy business tax burden.
Unlike big or even medium sized businesses, most businesses in the rural areas operate like a hand to mouth existence, and with the inability to even keep the basic accounts. This has resulted in a practice over many years of tax officials indiscriminately increasing tax rates every year based on percentages.
Even in the recent past, many small businesses in rural areas have had to close shop due to the burden of heavy tax rates.
Bhutan has more than 30,000 business licenses, of which the smallest and poorest businesses are based in the rural areas.
The total Business Income Tax expected in the 2013-2014 budget is around Nu 1.6 bn the bulk of which is mainly from businesses in towns.