Evolution of Bhutanese Taxation System

Evolution of Bhutanese Taxation System. Comprehensive Overview (1960 – 2025).

[Audio] Slide 2: During the years between 1960 and 1974, Bhutan experienced significant changes in their taxation system. The introduction of the Gyaltse Kha Lowa in 1961 brought more structure and accountability to tax collection, while the establishment of the Ministry of Finance in 1968 allowed for better management of government revenue and spending. Reorganization of the Department of Revenue & Customs in 1971 led to improvements in tax collection and enforcement. In 1974, the responsibility of tax collection was devolved to municipalities, resulting in a more efficient tax collection process and better distribution of funds at the local level. These developments laid the foundation for a more modern and efficient taxation system in Bhutan. In the following slides, we will explore the changes and developments that occurred in Bhutan's tax system over the next 65 years..

[Audio] Slide number 3 of our presentation discusses the major tax reforms that took place in Bhutan from 1989 to 2001. These reforms brought significant changes to the country's taxation system, creating a more modern and efficient framework. In 1989, the Bhutanese government replaced the previous turnover tax with the Income Tax, aiming to simplify the system and improve revenue collection. The Income Tax Act also established a more comprehensive and organized legal framework for taxation in Bhutan. The Sales Tax and Customs & Excise Act were passed in 2000, further streamlining the tax system and promoting economic growth. This legislation allowed for the imposition of taxes on imported and exported goods, as well as domestic sales. In 2001, the Income Tax Act was updated and modernized, providing the foundation for Bhutan's current taxation system. This major reform was a significant step towards creating a more equitable and efficient tax structure in the country. Each bullet point on this slide represents a milestone in Bhutan's tax reform journey, playing a crucial role in shaping the country's economy and promoting sustainable growth. The development and modernization of Bhutan's taxation system has been a gradual and continuous process, with each reform building upon the previous one to create a more stable and transparent system. This progress has allowed the country to better manage its resources and provide necessary services to its people. The next slide will focus on the current state of Bhutan's taxation system and its impact on the country's economy. Please stay tuned for more insights on this topic in the following slides..

[Audio] The following presentation will discuss the modern reforms that have been implemented in Bhutan's taxation system from 2017 to 2022. The Customs Act was aligned with international standards in 2017, resulting in smoother processes and increased efficiency for both the government and taxpayers. Digitalization played a key role in modernizing the system as e-filing, automation, and online payments were introduced in 2020, making tax compliance more convenient. The final milestone of this journey will be the revision of customs, sales, and green taxes in 2022, ensuring the system remains current and in line with the country's economic and environmental needs. Each bullet point on the slide signifies a significant accomplishment in Bhutan's tax reform efforts, demonstrating great progress. Further developments and improvements can be expected as the country moves forward..

[Audio] Our discussion now moves to the fifth slide, which highlights the recent tax reforms in Bhutan in 2025. These reforms mark significant progress in modernizing and simplifying the tax system in the country. The Personal Income Tax and Business Income Tax have been consolidated into the Income Tax Bill, making it easier for individuals and businesses to understand and comply with their tax obligations. Additionally, the Excise Tax Bill has been implemented to discourage the consumption of harmful commodities and promote healthier habits among citizens. Starting from January 2026, a 5% Goods and Services Tax (GST) will replace the sales and excise taxes, making the tax system more streamlined and efficient. Moreover, there have been increased deductions for Provident Fund, insurance, parenthood, disability, and education to provide relief for taxpayers and encourage investments in crucial areas like education. These reforms demonstrate the government's dedication to modernizing the tax system, promoting transparency, and making it more efficient for its citizens. As we conclude our presentation, we hope you have gained a better understanding of the development of Bhutan's taxation system over the past 65 years..

[Audio] As we approach the final slide of our presentation, let us take a moment to discuss the overall impact of Bhutan's tax reform journey. Over the past 65 years, this small country nestled in the Himalayas has made significant progress in modernizing its taxation system. The results have been truly remarkable. The first bullet point on this slide highlights how the tax reform has promoted fairness and equity. Previously, the burden of taxation in Bhutan fell primarily on the lower income groups. However, with the implementation of the new system, there has been a shift towards a more progressive tax structure, ensuring that those who earn more also pay more. This has not only helped reduce income inequality, but also promote social justice. Moving on to our next point, we can see that the tax reform also supports sustainable development. By prioritizing environmental conservation and sustainable growth, the new system has introduced various environmentally-friendly taxes, such as the carbon tax. This not only aids in reducing carbon emissions, but also generates revenue for the government to invest in sustainable development projects. Lastly, the tax reform has played a crucial role in aligning fiscal policy with the national happiness of Bhutan. As we are all aware, the Gross National Happiness index is a fundamental development philosophy in Bhutan. The new tax system has been carefully designed with this in mind, aiming to promote economic well-being, social harmony, and environmental conservation, all of which are vital components of the GNH index. In conclusion, the modernization of Bhutan's taxation system has had a tremendous impact on the country's development. It has promoted fairness and equity, supported sustainable growth, and aligned fiscal policy with national happiness. We hope this presentation has provided you with a better understanding of this journey and its significance. Thank you for your attention throughout this presentation. I would be happy to answer any questions you may have. Have a great day..