Tax revenue expected to improve slightly this year

The CIT and sales tax were the highest contributors to the overall domestic revenue to the GDP

With the anticipated improvements in economic activities during FY 2022-23, the buoyancy for the overall domestic revenue is expected to improve to 0.8 and the buoyancy for tax revenue is also estimated to improve by 2.07.

Finance minister Namgay Tshering said that the buoyancy for tax revenue is estimated at 1.01 and 2.07 during FY 2021-22 and FY 2022-23, presenting the budget report for the fiscal year 2022-23 in the National Assembly on June 6.

“With anticipated improvement in the economic scenario, domestic revenue is expected to improve. As a result, tax revenues are projected to respond positively during FY 2022-23 and FY 2023-24 with a buoyancy of 2.07 and 2.28 respectively,” Lyonpo said.

In addition, domestic revenue during FY 2022-23 and FY 2023-24 are also expected to improve on account of increased domestic demand, Government spending, and anticipated commissioning of Punatsangchhu -II with a buoyancy of 0.80 and 3.34 respectively.

Tax buoyancy is an indicator to measure the efficiency of tax revenue mobilization in response to economic growth. A percent change in GDP should translate to a one percent change in domestic revenue.

If it is greater than 1, it indicates a more than the proportionate response of the revenue to rise in GDP and if it is less than 1, it shows a less than the proportionate response of the revenue to growth in GDP.

However, the total net domestic revenue realized during the FY 2020-21 was Nu 35.8bn, forming 20.3% of the GDP. The net domestic revenue decreased by 1% as compared to the previous FY 2019-20 of Nu 36.2bn.

According to the budget report for FY 2022-23, the revenue collected from CIT, BIT, and PIT during the year decreased by 3.6%, 5.3%, and 40.4% respectively, last year.

Lyonpo said the fall in revenue was mainly due to the deferment of CIT payment as part of the fiscal measures. Further, with the enhancement of the PIT exemption threshold from Nu 200,000 to Nu 300,000, and an increase in allowable deductions, the PIT collection has also declined.

The sales tax collected during the fiscal year 2021-22 was Nu 4.1bn, a decrease of 16.9% as compared to the last fiscal year of Nu 4.9bn. The decrease was mainly from Telecom Services due to the exemption of 5% sales tax on prepaid and postpaid telecom services effective from January 2020.

The collection under Customs Duty was recorded at Nu 555mn with an increase of 18.6% as compared to the last fiscal year of Nu 467mn. Under other taxes, there was an increase of 9.1% mainly from royalty collection.

The revenue collected from the dividend was Nu 3bn with a decrease of 34% as compared to last fiscal year which was mainly due to a decrease in dividend from Druk Holding and Investments (DHI).

During FY 2020-21, the tax to GDP ratio was 11.7%, a decrease of 1% as compared to the previous FY. This was mainly due to a decrease in the collection from the CIT, BIT, and PIT, sales tax, excise duty, and green tax.

The CIT and sales tax were the highest contributors to the overall domestic revenue comprising 4.1% and 2.3% of total GDP respectively.

Meanwhile, the tax foregone in the Income Year 2020 was Nu 5,010.062mn. A total of 10,732 business entities were either exempted from tax or under tax holidays. The CIT and BIT forgone stood at Nu 67.080mn.

The tax forgone on Customs Duty, Sales Tax, and Green Tax is Nu 2.8bn, Nu 2bn, and Nu 7.7bn respectively. It is on the account of Customs Duty, Sales Tax and Green Tax granted on the import of vehicles.

Kinley Yonten from Thimphu