Pension tax weighs heavy on the retired

Pensioners say income tax on pension should be done away with

With the annual tax filing deadline closing in, tax payers are visiting the revenue and customs office to do the needful, but pensioners are not very happy with tax being deducted on their pension as well.

A pension of Nu 17,000 and above is taxable. The maximum pension one is eligible for at present is Nu 28,370 for which a tax amount of Nu 2,802 has to be paid annually. The pensioners get the pension, 40% of their last monthly salary during their service.

Considering that there are 159 posts in the executive 1 level, hypothetically a total amount of around Nu 446,000 would be deducted in tax from the pension of executive 1 level ex-civil servants. There are around 26,000 slots in the civil service at present. If all the civil servants were receiving minimum taxable pension, around Nu 123,000 would be deducted from their pension.

Dasho Lam Dorji, former Secretary of Ministry of Finance (MoF) said that pension is a reward for the retired as they dedicate their services for an extended period of time. “It will benefit the pensioners if pension is made tax-free. The tax amount foregone would be minimum to the government.”

A 63-year-old pensioner said that pension is a kind of subsistence allowance for the elderly and the retired. “Bhutan is already a tax-heavy nation but taxing even pensioners when the authorities should be looking into old age welfare schemes is taking it a bit too far,” he said.

According to the 2017-18 annual report of National Pension and Provident Fund (NPPF) the number of pensioners grew from 5,861 in 2016-17 to 6,498 in 2017-18.

The average age of pensioners is 60 years. The NPPF annual report states that during the year 2017-18, Nu 1,220.12mn was paid out as monthly pension payment, refund of provident fund and pension contributions.

Dasho Pema Wangda, former Secretary of labor ministry, and one of the former and longest serving board members in the NPPF, said that pension is the only source of income for retired people and tax on pension should be removed.

“I remember this issue on removing the tax on pension has been discussed during the board meetings but the issue is still not resolved,” he added.

During Meet the Press on February 15, Lyonchhen Dr. Lotay Tshering said that government will reform the pension scheme and the taxation policy.

Lyonchhen said that the government’s focus is on narrowing the gap. “The pensioners have worked very hard during their services and they should have something to take with them at the end of the day,” he said.

The draft national policy on pension and provident fund scheme was reformulated making it a more generic national policy for extending defined contribution provident fund scheme to cover larger section of the workforces under a regulatory framework.

The previous government had approved the policy in principle and will be submitted to the present government for approval and implementation.

The NPPF annual report also states that in order to establish a framework for sound and prudent financial management of NPPF’s assets and liabilities for civil servants and state enterprises and Armed Forces Pension and Provident Fund Scheme for the members of armed forces, the NPPF has drafted funding policy during the year and the national pension board has endorsed it for submission to MoF.

The policy outlines plan of actions and strategies to manage the plan liabilities by reflecting on funding risks facing the plan, setting out priorities for orderly funding of the plan and providing rationale for the chosen funding philosophy and practices.

Dechen Dolkar from Thimphu