Other methods are through tax grants, innovative financing, soft loans and FDI
The Nu 310 bn 12th plan has an official shortfall or fiscal deficit of Nu 29 bn. However, given that most of DNT’s main pledges are not in the plan this fiscal deficit is expected to go up to Nu 40 bn- in the Prime Minister’s own words.
Major pledges like maternity allowance, new national referral hospital, WIFI, ultra sound and endoscopy in every Dzongkhag, buy back of crops, class 11 etc. are not even in the plan yet.
The government is looking to fund this Nu 40 bn gap in various ways.
Nu 10 bn from Tax reforms
The Finance Minister Lyonpo Namgay Tshering, said, “The government is looking at taxation reforms where we might hurt the sentiments of the 10 percent of the Bhutanese population but 90 percent will be benefitting.”
Lyonpo shared that tax reform will first increase the personal income tax exemption slab to Nu 300,000 from the current Nu 200,000, which is aimed at providing relief to the poor and middle class.
However, before everybody starts celebrating, as one’s income starts getting higher then the rate of taxation increases beyond the current rates.
This is because the government will be looking at implementing ‘progressive taxation’ which simply means that the higher the income, the higher the rate of taxes.
Lyonpo said, “Progressive taxation is widely followed in Scandinavian countries and basically it will be about narrowing the gap.”
He said that progressive taxation will be applied in direct taxes like PIT, Business Income Tax (BIT) and also Corporate Income Tax (CIT).
However, Lyonpo said that it will not all be about increasing tax rates as the other important step will be to seal leakages in the tax system.
He said that leakages are everywhere and one of the reasons is the absence of a digitized information system on tax payers.
He said that with the Drukyul project coming up as a flagship project there will be a single window of information for all taxpayers 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.
Lyonpo said that the other thing being considered is that Bhutan has a lot of non-nationals working here but there is no mechanism or system in place to tax them and as a result they neither pay tax in their home country nor in Bhutan.
Lyonpo, however, said that the majority of the 10 bn in revenue for the five years is expected to come with the indirect taxes or Goods and Service Taxes (GST). The GST is expected to increase the tax base and improve compliance.
30 bn or more from Mining, grants, innovative financing, soft loans and FDI
A senior government official, on the condition of anonymity, said that the government’s aim is to raise billions from the mining sector in the next five years through a combination of government owning mines and also increasing the royalties and taxes on private miners. The target on the upper side is Nu 10 bn but it is not yet finalized and maybe scaled down.
The official said that the government is looking at taking over the ownership of some major mines.
The mining lease for Gypsum got over in 2018 and has been given to State Mining Corporation Limited (SMCL), the coal lease is getting over this year and the Dolomite mines lease is getting over next year.
There are then various strategic minerals like Tungsten, Graphite, Talc and others which are expected to be given to SMCL.
The idea of increased government and public share in private mines is also being looked at.
The official said that mines are not renewable resources and so the government should get its share. The government is expected to increase mining royalties and other levies.
One major area that the government is aiming to raise money is through additional grants beyond what has already been committed.
In that regard the upcoming 14th Round Table Meeting with Bhutan’s development partners will be important.
The government is aiming to raise more resources from this RTM. It has been learnt that the government is already in talks with the Government of India to raise around Nu 10 bn for the super specialty hospital which will be beyond the 12th plan (see story on pg 1).
Another area is innovative financing where one approach will be carbon trading to capitalize on Bhutan’s small carbon footprint. Bhutan for life kind of projects will also aim to raise funds.
Then the aim to raise around 5 bn in soft international loans which are interest free.
The government will also aim at increasing FDI into the country to increase the revenue source for the government.
A major area of raising funds will be internal borrowing from internal bills.
The government given its long list of pledges could even try and go beyond Nu 40 depending on the success of the above measures.
Meeting the pledges
During the meet the press timed with the completion of 120 days the Foreign Minister Lyonpo Tandin Dorji said that the government will require and additional Nu 30 to 40 bn to fulfill its pledges and it would complete them.
He denied that the government’s pledges are too expensive or not affordable and the gave the example of the government funding class 11 students which would cost around around Nu 170 mn to Nu 200 mn a year.
Lyonpo said that this budget is not there in the 12th plan but it can be met from the entertainment and hospitality budget of ministers.
A report showed that 30 ministerial ranks spent Nu 370 mn in hospitality and entertainment in the last 10 years.
Lyonpo said that the government will not work just with the 45 bn grant from India or internal revenue but it will raise the additional Nu 30 to 40 bn required.
He asked the media to not write an obituary for the government right from the start as it has only been four months.
The minister said that one or two pledges that cannot be done would not be done.
The Prime Minister Lyonchhen (Dr) Lotay Tshering said that the government will not look at only short term political gain on pledges. He gave the example of re-examining the free Wi-Fi pledge as it would harm Bhutan Telecom and Tashi Cell.
He said that if the population is political then it may not give DNT another term in 2023 but the result could be different if the people are sensible and see that the government is here for the long haul and is looking beyond five years.