Business owners in the country are facing an unexpected rise in their Business Income Tax (BIT) this year. Many are struggling to meet their tax obligations. Small and medium-sized businesses claimed the tax burden has increased suddenly, leaving them unprepared. However, the Department of Revenue and Customs explained that the spike is largely due to business owners using their Current Deposit (CD) accounts for personal transactions, inflating their taxable income.
Among those affected is Nanda Lal Pradhan, a small retail shop owner in Thimphu town.
He was surprised when he had to pay more than 70,000 ngultrum as tax this year.
Unprepared for the increase, he had to request an installment plan to meet his tax obligations.
“In 2023, my tax was estimated based on my CD account, and I paid around Nu 6,000. This year, they used the same method, but my tax has increased more than tenfold. Many other shop owners are also unhappy about this.”
Like him, other small and medium-sized business owners also reported similar concerns, stating that they were caught off guard by the steep rise in their tax liabilities.
Meena Kumari, shop owner said “We asked the department for an explanation. They told us that last year, they did not use our CD accounts to estimate our taxes. We even offered to pay double of last year’s tax, but they refused, saying our tax is determined by the amount transferred into our CD accounts.”
Tula Maya Ghalley, another shop owner said “Last year, I paid Nu 1,500 as tax, but this year, I have to pay more than Nu 10,000. When I asked the DRC about it, they said we have no choice but to pay.”
Business owners argue that maintaining strict business transactions in their CD accounts has been challenging, as customers often use them to get some cash.
Additionally, they said sometimes, they have to transfer personal funds into CD accounts to restock their shops when they do not have enough amount in their CD accounts.
However, the department of revenue and customs clarified that tax estimates are based on financial transactions recorded in business or CD accounts. Businesses were mandated to open CD accounts a few years ago so that there is no tax evasion.
To avoid unnecessary high taxes, the department said they have informed business owners to keep personal and CD accounts transactions seperate.
Sonam Jamtsho, Director-General of the Department of Revenue and Customs said “Even though all shopkeepers use the CD account, one challenge that we face is that they often use the account for personal expenses as well, causing a mix-up between business and personal transactions. Since we rely on this account to estimate taxes, it becomes difficult to accurately calculate their tax liabilities.”
While the department maintains its stance on accurate tax assessments, it assures business owners that it is open to reviewing cases where tax calculations may have been affected by unavoidable personal transactions.
The Director-General said “According to the rules, businesses are required to pay around 30 per cent of their profits as Business Income Tax. However, in the absence of proper accounting records, the rule allows for taxes to be levied based on estimation.”
This year’s Business Income Tax season serves as a reminder for businesses to maintain clear financial separation to avoid unexpected tax burdens in the future.
Karma Samten Wangda
Edited by Tshering Zam
