Tax revenue sharply dropped to negative 49% last year
While the pandemic pummelled tax collection across the board, the taxes on products (indirect taxes) growth dropped to -49.48% as compared to the previous year, according to the National Accounts Statistics, 2021.
For this, the government is initiating reforms to increase compliance by setting up measures to overcome leakages in the taxation structure.
According to the Ministry of Finance (MoF), the fall in domestic revenue inter alia will increase the fiscal deficit. “One way of improving the fiscal deficit is to borrow from the domestic market by the issuance of Treasury Bills and Bonds.”
MoF’s Chief Planning Officer Chencho Tshering said the debt instruments will in the long run develop the domestic bond market. “The import substitution and import promotion will be a way forward for overcoming these issues,” he said.
However, the drop was one of the highest within the past 19 years.
The drop in taxes on the products was attributed to the fall in the collection from import duty and excise duty. The taxes net of subsidies made a growth contribution of -2.31 percentage points to the GDP growth.
The taxes on products (excluding value-added tax, import and export taxes) consist of taxes on goods and services that become payable as a result of production, sale, transfer, leasing, or delivery of those goods or services, or as a result of their use for own consumption or own capital formation.
In terms of current prices, the sector was estimated at Nu 4.5mn in 2020 accounting for 2.68% of the GDP. The share to GDP also dropped by 2.01 percentage points from the 4.69% share in 2019.
In addition, the wholesale and retail trade sector (trade and repair of motor vehicles, motorcycles, personal, and household appliances) growth dropped from 13.17% in 2019 to -6.96% in 2020, a drop of 20.13 percentage points.
Within the sector, the wholesale and retail trade sub-sector recorded a growth of -14.27% as compared to 12.95% in 2019, down by 27.23 percentage points.
Likewise, the performance of the hotels and restaurants sector is mainly driven by the number of tourist arrivals in the country.
The ongoing COVID-19 pandemic situation in 2020 impacted the number of tourists with the arrival dropping by 91.29% in 2020.
Further, there was a similar drop in regional tourists’ arrival in 2020. With a substantial drop in the inflow of tourists, the sector’s growth contracted by a record low of -73.46% in 2020.
Meanwhile, the total value of imports in the current prices was recorded at Nu 79,698.79mn in 2020 compared to Nu 86,048.08mn in the previous year, and it accounted for 46.45% of the GDP.
Due to the pandemic, the import of goods accounted for 83.94% and services 16.06%. The import of goods and services growth dropped by -12.38% in 2020 as compared to a growth of -6.21% in 2019. This means that the import of goods observed a drop of -9.06% and services by -26.42% in 2020.
In addition, the economy noted a drop in exports to -20.22% from a growth of 14.39% in the previous year. The export of goods accounted for 94.41% of the total export.
On the other hand, the export of services accounted for only 5.59% of the export, and it recorded an all-time low growth of -78.36% as against the growth of negative 19.61% in 2019.
The total value of export of goods and services at the current price was valued at Nu 51,109.60mn in 2020. The export of goods and services accounted for 29.79% of the GDP, down by 4.15 percentage points.
The economy registered a trade deficit of Nu 28bn which accounts for 16.66% of the GDP.
Kinley Yonten from Thimphu