What the taxes mean

The government’s various tax measures, on the whole, is a movement in the right direction.

The judgment on GST comes from the private sector itself which has largely welcomed the tax reform measure pending some minor issues that they want resolved. The main challenge though will come in implementation.

The PIT tax is a progressive one where the lower and middle income category are getting much needed tax relief. The money saved from this will go back into the local economy or into the Financial Institutions which needs deposits.

The reduction of CIT for private companies will also come as a much needed relief and encourage them to give pay hikes to their staff.

The Property Tax Bill is also another very progressive tax legislation that not only reduces property and vehicle transfer tax to ensure better compliance, but it also gives important exemptions to transfer of property within the family.

The USD 16.25 SDF for regional tourists is yet another welcome move by the government, which is supported by the vast majority of Bhutanese keen to protect Bhutan from the ravages of mass tourism.

In the Tax Amendment Bill, the removal of voucher tax makes sense to the degree given that communication is no longer a luxury, but what does not make sense is raising the tax on post paid connections.

The government must encourage post paid connections given the paper voucher that it saves and as a more efficient system. The taxing of post paid connections will simply see people flocking to the pre-paid vouchers resulting in more littering.

Also, this tax does not make sense at a time when Bhutan is trying to go digital.

The removal of taxes on mobile phones make sense since again mobiles are no longer a luxury item but a necessity. The same goes for environment friendly energy saving devices. The reduction of taxes on hybrid vehicles is also a progressive move.

The increase of taxes on junk food will be controversial given its link to inflation and retail business, but the intent and aim is good.

The continuation of the BIT exemption for small businesses in rural areas will also bring much relief to these essentially hand to mouth businesses.

It can be said that the measures above will improve the lives of ordinary citizens and also bring a boost to the economy.

However, at the end of the day the government must be clear-eyed in knowing the revenue impact of the above measures and how the budget must be balanced.

As an example, the government must have back up plans if it cannot get its Nu 3 bn additional revenue target from GST.

You don’t get gushers of revenue by raising tax rates. You get it through expansion.     
George P. Shultz

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