Majority of parliamentarians voted to reduce the corporate income tax rate to 20%. The decision followed a tight vote between two proposals: the government’s suggested rate of 22% and the Economic and Finance Committee’s 20%. In the end, 22 members supported the lower rate, while 21 backed the government’s proposal.
Currently, Income Tax Act 2001 which has remained unchanged for the past 24 years divides taxable activities into three separate regimes: Personal Income Tax, Business Income Tax, and Corporate Income Tax.
CIT rate ranges from 25 to 30 %. Now, the assembly decided to bring down the rate to 20%.
Supporting the cut, Economic and Finance Committee member Naiten Wangchuk argued that lower corporate taxes would stimulate private sector investment.
“If the tax is reduced and companies have more disposable income from profits, they might invest more in inputs, which could eventually lead to higher output,” he said.
Another committee member, Loday Tsheten, emphasised the potential to attract and retain talent. “There is a pool of talented people we can retain in the private sector by offering better salaries. The same applies to corporations. With the tax reduction, we can also expect an increase in foreign direct investment.”
However, Finance Minister Lekey Dorji cautioned against reducing the tax rate further. He warned that the additional 2% cut could lead to an estimated revenue loss of Nu 850 M.
“It’s okay to reduce the tax rate from 20% to even 15%, but we must think about our future,” said the Minister. “On one hand, government expenditure is rising, and to meet that, we need income, either through taxes or external grants.”
Under the current regime, PIT ranges from 0 to 30%, with a 10% surcharge on annual tax liabilities exceeding Nu 1 M. CIT rate ranges from 25 to 30 %. BIT is taxed at 30% on assessed net profits for unincorporated businesses.
In total, BIT and CIT revenues amount to more than Nu 3bn.
Samten Dolkar
Edited by Tandin Phuntsho
