One of the surprises of the Income Tax Bill 2020 (Amendment) was the reduction of the Corporate Income Tax for private companies from the current 30 to 25 percent.
The Finance Minister, Lyonpo Namgay Tshering said that the tax cut will mean revenue forgone will be Nu 368 mn a year from private companies.
Lyonpo, however, clarified that the CIT cut is not for the state owned enterprises which will have to continue paying the current 30 percent CIT.
The 2019-20 annual budget report forecast a CIT revenue of Nu 10.677 bn of which the minister said around 85 percent is paid by SOEs.
Lyonpo said that the private sector keeps complaining that the SOEs are getting into everything and taking away their business and so he said this tax cut for the private companies is an opportunity for them to become more competitive against the SOEs.
The minister said that another major reason for the CIT cut only for the private sector is so that the private sector corporations can give a pay hike to its staff after the civil service hike and the hike to SOEs.
The minister said that another aim of the hike is also to ensure that more private companies get incorporated as corporations to avail of the CIT reduction.
Companies that are not incorporated and pay Business Income Tax will continue to pay the 30 percent BIT.
The incorporation of a company brings its under the Companies Act with more regulatory supervision including more transparency of its own internal workings.
The minister also pointed out that India was going through a major economic slowdown and that any economic impact in India ultimately will impact Bhutan’s private sector given the huge level of trading between the two economies.
The tax cut is also to cushion private companies for an economic slowdown.
The slowdown in India has been coupled with an economic slowdown in Bhutan as its 2018 GDP growth was only 3.03% which is the second lowest recorded rate since the advent of democracy.
In a boost to tour companies the Income Tax Bill says that 8 percent of the net profit will be allowed for deductions for promoting of the business. The earlier limit was 5 percent.
Lyonpo said that the amount has been increased to encourage tour companies to go out and market their services in other countries to encourage high value tourism.
In a boost to 12,571 small and micro businesses in rural areas the Finance Minister announced that under the Fiscal Incentives Amendment Bill 2020 they will continue to get tax exemption till 2023. The exemption was first given in 2017. The revenue implication here is only Nu 38 mn.
Lyonpo also announced that total dividend income from Bhutanese companies not exceeding Nu 30,000 per annum will be exempt from PIT. The earlier limit was only Nu 10,000.
Lyonpo said this is to encourage people to invest in shares and companies.
The minister also proposed that cash crops would no longer be taxed. Lyonpo, said that tax collection here is a major challenge as the people growing cash crops are mostly small farmers and there is a huge up and down in production.
He said the main reason to do away with the tax is that the government wants to encourage people to get into commercial and cash crops which can be exported to earn revenue for the country.
An income tax of 20 percent will be applicable to all lottery prizes at Nu 5,000 or above and the lottery companies have to deduct the amount and deposit it with the government.
Lottery earnings, worldwide, are heavily taxed as these are windfall gains.