Finance Minister affirms that health of economy is sound

Total resources for FY 2020-21 up by 6%

The resources for FY 2020-21 are revised from Nu 53,822mn to Nu 56,995mn

The total resources for Financial Year (FY) 2020-21 are about 6% increase from the approved estimates, mainly due to the increase in grants, according to the National Budget (FY) 2021-22 report released on Friday.

The report stated that the resources for FY 2020-21 are revised from Nu 53,822mn to Nu 56,995mn.

However, the domestic revenue is revised upwards, the increase is attributed to profit transfers from Mangdechhu Hydropower Project (MHP). On the contrary, tax revenue has decreased on account of the closure of business entities due to the implementation of containment measures, and restrictions on the movement of goods across borders.

According to the report, the total domestic revenue for FY 2020-21 is revised from Nu 33,189mn to Nu 33,281mn, an increase of about 0.3 percent as compared to the approved budget.

The decline in the tax revenue from Nu 20,569mn to Nu 18,357mn is mainly due to the decrease in the collection from Corporate Income Tax (CIT), Business Income Tax, and Personal Income Tax (PIT). The decrease in CIT and BIT collection is mainly due to contraction in economic activities coupled with the reduction in the CIT rate from 30% to 25%.

Alternatively, the revenue from PIT decreased due to the revision of the basic PIT exemption limit from Nu 200,000 to Nu 300,000. The non-tax revenue increased from Nu 12,619mn to Nu 14,923mn mainly attributable to the estimated profit transfer from MHP which amounts to Nu 7,392.147mn.

“The surplus transfer from the RMA decreased from Nu 3,011.435mn to Nu 2,001mn,” stated the report.

The National Budget report also stated that the grant estimate for FY 2020-21 is increased to Nu 23,034mn from the approved estimate of Nu 20,142mn.

Over the fiscal year, Nu 2,783mn was incorporated, consisting of GoI grant of Nu 719.923mn, Nu 562.675mn from ADB, and balance from other development partners.

Meanwhile, the total resources for FY 2021-22 are estimated at Nu 56,765.582mn, of which domestic revenue is Nu 35,600mn, internal grants of Nu 640.271mn, and external grants of Nu 20,525.311mn.

This means with the mass vaccination and containment measures, the economic activities may pick up including tourism receipts (SDF and Visa Fees). Consequently, sales tax collections from hotels, airport tax, CIT, and BIT from tourism allied businesses are expected to gradually improve.

“The estimated growth in revenue is mainly attributed to anticipated improvement in trade and economic activities,” states the report.

The report stated that direct taxes are estimated to grow by 15% mainly due to anticipated rebound in economic activities. Similarly, tax collection from goods and services is expected to improve by 64.9%, resulting in an increase in the tax revenue by 25% as compared to -19% in the previous FY.

Furthermore, the improvement in the domestic revenue estimate is also attributed to non-tax revenue such as current revenue from government agencies which are estimated to increase by 21% compared to the previous FY.

“To ensure stability in the revenue flow, MHP shall be maintained under profit transfer modality for the FY.”

However, external grants are comprised of program grants and project-tied grants received from development partners. The major portion of the grant is from the GoI followed by ADB, GCF, EU, and others.

In FY 2021-22, the estimated grant is Nu 20,525mn.

Over the medium term, the tax revenue is expected to increase by 20.6% and the non-tax revenue by 37.4%. The notable increase in the medium-term resource outlook is expected from direct taxes (CIT, BIT, and PIT), which are expected to increase by 17%, 24.4%, and 20.3% respectively.

“Based on the evolving situation of the pandemic, if the tourism sector reopens by end of 2021 or early 2022, some tourism receipt is expected,” states the report.

According to the report, an amount of Nu 15,202mn is estimated as external grants for the medium term (FY 2022-23 to FY 2023-24) while the expected receipts from Trust Funds are estimated at Nu 729mn.

The total grants constitute 14.4% of the total resources and will cover 56.8% of the total capital expenditure in the medium term.

Assuming that the situation improves, domestic revenue is expected to improve in line with economic performance. As a result, tax revenues are projected to respond positively during FY 2022-23 and FY 2023-24 with a buoyancy of 1.94 and 1.67 respectively.

Kinley Yonten from Thimphu