Taxes in Bhutan applies to all residents and non-residents. The tax system is governed by the federal government and assisted by its subsidiary local governments. All tax deductions are carried out, implemented, and overseen by the department of revenue and customs under the ministry of finance. The taxation policy in the country is derived from its legislation. In accordance with the tax acts, the department enforces and subjects citizens in the state to various taxes. Bhutan operates a highly decentralized tax system. The taxes collected and accrued by the local government are paid directly to the national government. There are various forms of taxes here and they apply to certain cases. Tax deducted over the years is used to provide amenities and a standard of living for the Bhutanese.
Types of Tax
Bhutanese law provides for individual and corporate taxation based on income, sales, imports, and movable and immovable property. There are four main kinds of taxes under the tax scheme which are a) Business Income Tax (BIT) with a 30 percent rate on net profit, b) Corporate Income Tax (CIT) applied @ 30 % on net profit, c)Personal Income Tax (PIT), and d) Property Transfer Tax at 5 percent.
Business Income Tax
BIT is a non-corporate business tax. It is charged at 30 percent on all gross profit made. This tax is paid by all unincorporated business establishments. However, they must own a trade license or registration certificate issued by the Ministry of Economic Affairs (MoEA).
Corporate income tax
CIT applies to corporations. It is deducted from gross profits at a 30 percent rate. Legal firms duly registered under the Company’s Act of the Kingdom of Bhutan pay this. A business or company has to register with the Regional Revenue & Customs Office (RRCO) where the trade license or permit is to be issued or the location of the Head office, within 3 months from the date of acquiring the license.
Personal income tax
PIT is taxed on the personal income of a person from any or more of the following sources such as salary income, rental income, dividend income, cash crop income, interest income, and income from other sources that as hire of privately owned vehicles, plants, and machinery and from intellectual property rights. Native citizens, residents, and other persons who earn income locally from the sources listed above will be subject to paying PIT. the Department of Revenue and Customs charges no taxes on the first Nu.100,000 of income; 10 percent for Nu.250,000, 15 percent for up to Nu.500,000, 20 percent for up to Nu.1,000,000, 25 percent for Nu.1,000,001 and above.
Sales Tax and Customs Excise
Citizens must pay sales tax and excise on certain goods and services sold within the country as well as customs on imports. These taxes are charged according to the rates published by the Ministry of Finance.
Property Transfer Tax
The tax act levies property transfers at a 5 percent rate. Rural taxes are also imposed on land, houses, and cattle.
Tax Return Filing
All businesses, entities, or corporations have to file their tax returns, FORM BIT-2 for BIT payers and FORM CIT-2 for CIT payers, on an annual basis to the RRCO where they registered, on or before 31st March after the end of an income year.
All citizens above 18 years of age and residents having personal income from one or more of the six sources during an income year must register by filling out the registration FORM PIT-1. The filled registration form has to be presented to the RRCO of the taxpayer’s choice. Married couples must share the same RRCO during registration.
