Table1. General Government Revenue, FY2016-17

|Revenue 2016-17|Amount<br>(Nu.<br>Million)|% Total<br>Revenue|Amount<br>BLSS<br>(Nu.<br>Million)|Total<br>amount<br>BLSS /<br>national<br>accounts<sup>4</sup>|Total<br>amount<br>national<br>accounts/<br>national<br>accounts<br>private<br>consumption|Total<br>amount<br>BLSS/BLSS<br>private<br>consumption|
|---|---|---|---|---|---|---|
|Tax Revenue|21564.465||||||
|Direct Tax|12345.794|57.25%|||||
|Corporate Income Tax|8170.299|37.89%|||||
|Business Income Tax|1276.903|5.92%|||||
|Personal Income Tax|957.313|4.44%|1332.3|139.17%|1.10%|2.40%|
|Other Direct Tax|39.342|0.18%|||||
|Royalties|1901.937|8.82%|||||
|Indirect Tax|9218.67|42.75%|||||
|Bhutan Sales Tax|3800.12|17.62%|2677|70.45%|4.37%|4.80%|
|Excise Duty|3579.663|16.60%|253.2|7.07%|4.12%|0.50%|
|<br>Import Duty|562.563|2.61%|1265.3|224.92%|0.65%|2.30%|
|<br>Other Indirect Tax|366.673|1.70%|||||
|Green Tax|909.652|4.22%|774|85.09%|1.05%|1.40%|

_Source:_ Annual Financial Statement of the Royal Government of Bhutan, FY2016-2017. Ministry of Finance.

Key features of taxes and contributions in Bhutan are briefly presented next. The description in this section includes features of the prevailing fiscal system as of 2017 which is the year of the last household survey on which the analysis is based. Changes to the system after 2020 are discussed in section 5 along with results from a simulation exercise that estimates the ex-ante distributional impact of those reforms.

# **_Direct and indirect taxes_**<sup>**_5_**</sup>

- Personal income tax (PIT): All citizens and residents that earn more than Nu. 200,000 per year are liable to pay PIT. Income sources that are subject to the PIT include income from salary, property, dividends, interests, income from cash crops, income from hire of privately-owned vehicles; plant and machinery and from intellectual property rights.<sup>6</sup>

4 The ratio of total consumption in the survey to expenditure of households and nonprofit institutions serving households (NPISHs) in the national accounts is 76%.

5 Bhutan implemented the Sales tax, Customs and Excise Rules in 2001 and amended it several times, most recently in 2014. As of 2017, the sales tax was levied on the following items: alcohol; packaged fruit juices; spare parts; glass and glassware; articles of iron and steel; nuclear reactors, boilers machinery and mechanical appliances and parts thereof; electrical machinery and equipment and parts thereof; sound recorders and reproducers; precious metal; vehicles other than railway or tramway and parts thereof; bicycles; petrol, gas, and diesel; telecom services; hotels whose basic room rate is not less than Nu. 100 per night or hotels and restaurants catering to mid-/high-income Bhutanese nationals, foreign residents and tourists; and entertainment services. Items exempted from the sales tax include: the electrically operated or hybrid vehicles; parts of bicycles; plant and machinery related to manufacture of products; raw materials used by a manufacturing unit; foreign diplomatic missions, international organizations and their personnel; Bhutanese organizations and agencies, purchase/import trade made by an exempt organization. The sales tax rate ranges from 5% up to 100%, with alcohol, juice, and vehicles subject to the highest tax rates.

6 The Income Tax Act of the Kingdom of Bhutan 2001 (ITAB) defines the legal framework for the personal income tax.

4