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Need for tax reforms

The government is clear on its fiscal policy. It will ensure sustained economic growth by broadening the tax base and rationalising capital and recurrent expenditure.

How the government rationalise capital and recurrent expenditure will depend on what activities are listed in the 12th Plan and how they implement and monitor it. The question on many minds is how the government will broaden the tax base or how it will carry out tax reforms.

The Prime Minister didn’t have answers or thought it was early to share when questioned about the details of his government plans on tax reforms.  Taxation polices are complex and sensitive. It will take time. What is important is the decision to initiate reforms.

Whether the government’s reforms will be populist, to please the voters, will be seen when the government propose the reforms, but what is sure is that we need reform.

The government of India has granted Nu 45 Billion for the 12th Plan. This still leaves a resource gap of Nu 29B. If we are depending on our hydropower projects for domestic revenue, we know how tricky it is. What we also know is that there is a huge scope of raising fund from within the country.

A sure source for domestic revenue is from taxes, both direct and indirect. But for that we need the political will.  Critics say Bhutan’s taxation policy is rich centric. Economists are already concerned about the dwindling revenue from the various tax reforms in the recent past.  If our tax base is already narrow, the increasing amount of revenue foregone through incentives is eroding the tax base. Huge amounts of revenue is foregone through tax exemptions and tax holiday every year.

With the introduction of Goods and Service tax (GST) in India, the government will not receive excise duty refund from this year. Excise duty refund from India constitutes about 10 percent of the total revenue.

All these call for bold policies to bridge the resource gap and compensate the revenue loss.  The government had, during the campaign period, said they will monitor tax evaders and institute penalties besides reviewing prevailing taxes and tax bands to ensure the wealthiest do not pay less than the middle class to “bridge the gap”.

Globally, domestic revenue collection is receiving growing attention in recent years. For instance, the Organisation for Economic Co-operation and Development, the World Bank and many more are calling for more determined action to combat tax evasion and avoidance. Developing countries are urged to increase their own tax collection.

The more important reason, close to Bhutanese is the rising inequalities. Experts have estimated that the inequality is so stark that one Bhutanese in the mining sector is earning as much as 16,824 other Bhutanese. The salaried civil servant is also wondering why they pay income tax when the proprietor of rich luxury hotels, started with the grandest proposal, are coming in their flashy Prados to declare their loss, year after year.

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