MoF working on system to catch tax avoiders

The Ministry of Finance (MoF) is currently in the process of studying a Revenue or Tax Intelligence System, that once set up will monitor tax evasions and investigate tax frauds.

The Department of Revenue and Customs (DRC) under MoF has submitted a proposal to the MoF which is looking at it.

A senior MoF official on the condition of anonymity said, “We are definitely going to have such a system which is needed.”

He said that what the MoF was looking at is to start off with what should be the size and what should also be the modality depending on Bhutan’s situation, tax system and tax culture.

He said that there are various models and so MoF would study what is there in the SAARC region and also beyond in more developed countries. The official said that the eventual system adopted should be relevant to Bhutan.

The MoF and DRC feel the need for such a system to be able to not only detect people who avoid paying tax but also keep at pace with an increasingly growing and complicated economy. The official gave the example of various numbers and kinds of businesses like online businesses and even online shopping which required a more intelligent system.

Currently without such a system the DRC is more reliant on the information provided by businesses to collect taxes.

The MoF official said that tax avoidance is there in both the developing and developed worlds but it is more in the developing countries as there is less transparency.

Once the modality and system is finalized then the MoF will approach the Royal Civil Service Commission to come up with the requisite manpower.

Currently the DRC is more reliant on individual businesses keeping proper records and paying taxes. The function of the new system once introduced would be to not only make sure the correct amount of taxes are being paid but also go after businesses that pay no tax at all.

A performance audit on Business Income Tax by the Royal Audit Authority pointed out several areas whereby businesses could avoid paying taxes totally or even under declare their income.

The RAA found business units that were declared as non-operational but they still made huge imports.

It pointed out many informal businesses that are currently on the rise but they are not under the ambit of the tax system except for paying customs duty and sales tax at the point of entry of goods.

It was also found that currently there is no practice to ensure that information relating to issuance of new license, cancellation and transfer is shared between licensing agencies and the RRCOs in order to curb the possibility of non filing of business tax.

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