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Plugging the loopholes

In settling a long legal battle amongst four businessmen, the High Court has revealed several loopholes in the system of governance.

They have found that the litigants had not paid income tax for years and expressed grave concerns of how businesses are getting away evading taxes. The High Court has also asked the department of revenue and customs to calculate and collect taxes based on income tax rules from the four businessmen.

Going by the figures presented at the court, the amount not collected or evaded is huge as profit ran into millions. That was not for just one year, but for several years. Evasion of tax is a crime and the Court has rightly penalised them by asking them to pay penal interest. As the litigants fight it out in the court, some secretes are revealed that the amount reflected in the book of accounts are far less than what they earned.

While we laud the judiciary for taking the extra step and finding the loophole, the bigger concern is how businesses could escape evading taxes and authorities not being able to nail them. Given the expertise in the government or within the revenue and customs department, it is quite difficult to escape without paying tax, or so says those who declare their income tax every year.

We know that there are lots of tricks to side step rules and declare less income to deliberately avoid paying tax. But when the amount is huge, it is quite difficult to escape, especially not paying tax altogether. With new systems in place now, it is quite difficult to get away. Our systems are so good that if one is a civil servant or a corporate employee, a slight increase in savings is questioned by authorities like the Anti Corruption Commission.

On the same case, the appellant Court also expressed concerns on the prevalence of fictitious companies. To a large extent, such fictitious companies were allowed by the government in the mid 2000 so as to enable them earn hard currency. These companies that dealt with export of software, magnetic discs, records tapes and recorded media that are actually not at all made in Bhutan. Export however crossed, for instance in 2006, Nu 3.5 billion.

Such companies also thrived on the differences in taxes and duties levied by the Bhutanese and Indian government. The honeymoon period was long over when the government of India lifted the duties.

It is not clear if such fictitious companies exist any more, but the High Court’s concerns should be taken seriously. We are not enjoying the best of times when it comes to the economy. And it is during such times that loopholes are explored to maximise profits illegally.

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