Evolution of Bhutanese Taxation System

[Virtual Presenter] The country's tax system was established in 1960 with the introduction of a single tax on all citizens. A progressive tax structure was introduced in 1971, which allowed for more equitable distribution of wealth among citizens. However, the tax system remained largely unchanged until the 1990s, when a new set of laws and regulations were put into place. These changes included the implementation of a value-added tax (VAT) and a goods and services tax (GST), as well as the creation of a national tax authority. In the 2000s, the government began to shift its focus towards digitalization, introducing electronic payment systems and online tax filing. This move aimed to increase efficiency and reduce corruption in the tax collection process. By 2010, the country had implemented a nationwide electronic payment system, allowing taxpayers to make payments securely online. In recent years, the government has continued to evolve its taxation system, implementing measures such as a carbon tax and a financial transaction tax. The introduction of a carbon tax in 2019 marked a significant shift in Bhutan's fiscal policy, as it aimed to reduce greenhouse gas emissions and promote sustainable development. The financial transaction tax, introduced in 2020, aims to discourage excessive speculation and encourage responsible investment practices. Overall, the evolution of Bhutan's taxation system has been shaped by a combination of technological advancements, policy changes, and shifting societal values. As the country continues to grow and develop, its taxation system will likely undergo further transformations to meet the needs of its citizens and the environment..

[Audio] The tax system in Bhutan has undergone significant changes since its inception. The primary source of revenue during this period was goods and labor, rather than income tax. The establishment of the Gyaltse Kha Lowa in 1961 helped to ensure accountability in the tax collection process. The formation of the Ministry of Finance in 1968 marked a major shift towards centralized control. The reorganization of the Department of Revenue and Customs in 1971 further solidified this trend. The transfer of tax collection responsibilities to municipalities in 1974 represented a significant step forward in Bhutan's tax reform journey..

[Audio] The year 1989 marked a significant milestone in Bhutan's tax reform journey when income tax was introduced. Income tax was removed from the list of taxes in 1992. Two years later, in 1991, the country implemented its first sales tax. The passage of the Customs and Excise Act in 2000 provided a comprehensive framework for taxation, including customs and excise duties. In 2001, the Income Tax Act was established, providing a modern legal foundation for the country's tax system. These key reforms laid the groundwork for future developments in Bhutan's taxation landscape..

[Audio] The country's tax system is based on a progressive income tax structure, where the tax rate increases as the taxpayer's income rises. The tax rates range from 1% to 25%, depending on the taxpayer's income level. The tax system is designed to encourage economic growth and development through various incentives and benefits. The government provides subsidies to low-income families and individuals who are unable to pay their taxes. The tax system is also designed to promote environmental sustainability by taxing carbon emissions and other pollutants. The country's tax authority is responsible for administering the tax system, including collecting taxes, processing tax returns, and enforcing compliance with tax laws. The tax authority is headed by a Commissioner who oversees the entire tax administration system. The Commissioner is assisted by a team of officials who work closely with taxpayers to ensure compliance with tax laws. The tax authority is also responsible for providing education and training to taxpayers on tax laws and regulations. The tax authority works closely with other government agencies to ensure that tax laws are enforced consistently across the country. The tax authority is equipped with advanced technology to streamline tax collection and processing. The tax authority uses electronic filing systems, online payment systems, and other technologies to make tax collection more efficient and convenient for taxpayers. The tax authority is committed to transparency and accountability in all aspects of tax administration. The tax authority publishes regular reports on tax collections, tax revenues, and other key performance indicators. The tax authority also conducts regular audits to ensure that tax laws are being enforced consistently and fairly..

[Audio] The government of Bhutan has taken steps to simplify the tax system by introducing a new tax structure that combines personal and business income taxes into one single tax rate. This change aims to reduce complexity and make it easier for individuals and businesses to understand and comply with the tax laws. The government also introduced an Excuse Tax Bill to regulate the production and sale of harmful substances such as tobacco and alcohol. The new tax structure will be effective from January 2026, when a 5% Goods and Services Tax (GST) will replace the existing sales and excise taxes. The government has also announced plans to increase deductions for certain expenses, including provident funds, insurance premiums, and education costs. These measures are expected to benefit taxpayers and contribute to the overall economic growth of Bhutan. The government's efforts to simplify the tax system reflect its commitment to providing a fair and efficient tax regime for its citizens..

[Audio] The government of Bhutan has implemented several tax reforms since its inception as an independent nation. One of these reforms was the introduction of a new tax system that aligned with international standards. This system included customs regulations, sales taxes, and other levies on goods and services. The government also established a number of institutions and agencies responsible for administering and enforcing these taxes. These institutions were tasked with ensuring that all citizens had access to information about their tax obligations and that they could pay their taxes easily and efficiently. To achieve this goal, the government invested heavily in technology, including electronic filing systems and online payment platforms. The result was a significant reduction in tax evasion and corruption. The government also made efforts to simplify the tax code, reducing the complexity and burden on taxpayers. By doing so, it aimed to promote fairness and equity among all citizens. The government further sought to support sustainable development by using tax revenues to fund projects that promoted economic growth and environmental protection. The government also aligned its fiscal policy with national happiness, aiming to create a more equitable society where everyone had access to basic necessities like food, shelter, and healthcare. The government's tax reform journey has been marked by several milestones, including the alignment of customs regulations with international standards in 2017, the implementation of e-filing, automation, and online payments in 2020, and the revision of customs, sales, and green taxes in 2022. Recent reforms introduced in 2025 have further simplified the tax code, replacing sales and excise taxes with a 5% Goods and Services Tax, and increasing deductions for certain expenses. These measures have collectively contributed to the overall impact of Bhutan's tax reform journey..