The DNT government in its 2018 manifesto says it will recover Nu 10 bn by strengthening the tax collection system and avoiding tax evasion.
This has become all the more imperative as the government faces a Nu 40 bn deficit in the 12th plan to meet its many pledges, some of which are outside the plan itself.
The Department of Revenue and Custom (DRC) under the Ministry of Finance is currently in the midst of taxation reforms of which the biggest component is to digitize taxation.
According to a senior official, the first aim would be to digitize the Goods and Services Tax (GST) system that will aim to capture all digital tax information on such transactions for tax purposes.
The next priority would be to integrate Personal Income Tax (PIT), Corporate Income Tax (CIT) and Business Income Tax.
The final phase would be integrating taxable assets like land, buildings, financial assets and others of all tax payers into the system.
The official said, “As an example a person may hide an income after selling an equipment but if the other person who bought it declares it as a cost then the system could catch the former person.”
The project is a huge leap in collecting detailed financial information and transactions of Bhutanese citizens. Another senior official in the know said, “In the end, at the click of a button we would know all the financial transaction records, income, assets, loans, land records and other financial information of any Bhutanese.”
Preventing tax leakage
Finance Minister Lyonpo Namgay Tshering said, “Under DRC the big feature of digitization would be the Bhutan Integrated Taxation system (BIT). The BIT system once it is up and running will replace the conventional RAMIS system for filing PIT and it will also take care of many other issues. So BIT system is one thing that is coming up in a very big way and will be tagged to Goods and Services Tax.”
He said the leakages don’t usually happen with the PIT, Business Income Tax or CIT which are direct taxes but leakages are mostly with indirect taxes like sales taxes.
“So since one rationale for introduction of GST is to prevent the leakages, GST will be automated and this automation will be an integral part of the BIT system,” said Lyonpo.
Lyonpo said that for income from rental by the landlords, and especially big landlords, the MoF is closely working with the Thromdes and they will try to identify a common platform which is agreeable to Thromde as well as for the MoF or the government where there will be sharing of information.
This, the minister said, can also be interlinked with the BIT system.
The ministry will also be re-visiting the property tax to help take care of this.
He said BIT can also capture somebody with huge shares not declaring their income or other financial assets.
In an earlier March 2019 interview the Finance Minister Lyonpo Namgay Tshering said leakages are everywhere and one of the reasons is the absence of a digitized information system on tax payers. At the time he said that with the Digital Drukyul project coming up as a flagship project there will be a single window of information for all taxpayers which will be stored there.
He said that with such a system the actual earning of the individual will be coming up in the system. He said that if a person owns a building in Thimphu then the system will show it so that taxes cannot be avoided.
Digital Drukyul is a Nu 2.5 bn flagship project that has been approved for much broader applications for good governance and service delivery but the DRC BIT component will be one of the main projects within it.
Access to data for DRC and others
DRC will be able to get all this information as it will get access to other digitized information like bank records, land records, financial transaction records etc, already available in these agencies which will be integrated under the project.
As an example, the Credit Information Bureau (CIB) has access to vast data base on all loans and assets mortgaged in the banks. Banks currently use this information to ensure that an asset is already not mortgaged in another bank or even find out if the person has other liabilities.
The National Land Commission (NLC) already has digitized Thram or land records including maps. Banks themselves verify and get data from the NLC on assets it is about to hold for loans including the original Thram copy.
Banks themselves already have all the financial information on the financial assets and transactions of its depositors.
For example, the ACC using powers granted to it under its Act regularly goes through these account details and transactions of citizens either during investigations or even in the course of verifying the annual asset declaration of public servants.
With a new digitalized system, agencies like the DRC, ACC and others using powers under their Acts can access all financial information and assets of not only public servants but also all citizens in the country and take necessary measures, if and when required.
Even financial transactions as mundane as paying a traffic fine to the RSTA or Traffic police will be captured. For example, the RSTA and Traffic police have recently turned over an enormous tranche of data of citizens paying fines for traffic violations to the ACC. The ACC has been using the data which includes CID number and phone numbers to call up the fine payers for interviews as part of a national integrity survey.
A connected system
Currently the systems are not all connected to each directly and so don’t talk to each other as much but the foundations have already been laid in the form of a National Data Exchange Center located in the IT Park in the form of massive servers connected to all government systems.
An officer from a technical background said that an earlier problem with the government online system was that different agencies used different systems and so it was difficult to integrate them.
But subsequently, the creation of this National Data Exchange Center and agencies now using compatible systems means that some systems already talk to each other with the possibility of connecting more.
In fact, a lot of the G2C online services and other government online payment systems including for rural land taxes make use of the data exchange system that can access any government system.
The aim for the DRC’s BIT project will be to not only create and enhance a digital system or net that can collect all the transaction, financial and assets data relevant to taxation but also ensure that the data itself is high quality and reliable.
The DRC will also need legal powers to enable it to properly access and use such a digitized system and data and so the Income Tax Act is also being put up for amendment.
This digital BIT project is currently under negotiation between the MoF and DHI and may soon be awarded to the IT Park.
In terms of data security, the technical officer said that all this data will not be available just to any civil servant sitting on a government computer but agencies, under the new E-Gov policy, will be accountable for the information with them and access will be permission based.
Often it is a citizen who while accessing services will have to give permission to an agency to access his or her data.
This means that a relevant Land official can access the land records of a citizen but he or she will not get access to the person’s tax records.
However, while this maybe the case the fact that digitization is coming now presents unique legal challenges and data protection issues as well.
Many oversight agencies and even normal government agencies have huge oversight powers to access and collect data in Bhutan on citizens, but now given the volume of data and how critical they are there may be need for separate legislation or even safeguards to ensure that the data of citizens are protected and not misused by unauthorized people or agencies.