Taxation in Bhutan is conducted by the national government and by its subsidiary local governments. All taxation is ultimately overseen by the Bhutan Ministry of Finance, Department of Revenue and Customs, which is part of the executive Lhengye Zhungtshog (cabinet). The modern legal basis for taxation in Bhutan derives from legislation. Several acts provide for taxation and enforcement only germane to their subject matter and at various levels of government, while a smaller number provide more comprehensive substantive tax law. As a result, the tax scheme of Bhutan is highly decentralised.
The duty to pay taxes is affirmed by the Constitution of 2008 individually, as well as in commerce. The Constitution also confirms the ability of local governments to raise taxes in accordance to laws passed by Parliament. Under the Constitution, taxation is specifically disqualified as the subject of national referenda, leaving tax laws within the exclusive purview of Parliament.
Personal & Business Taxation
Bhutanese law generally provides for individual and corporate taxation based on income, sales, imports, and movable and immovable property.
Bhutan has regulated corporations since 1989, most recently under the Companies Act of 2000. These regulations include taxation of corporate income. As of 2011, Bhutan's Corporate Income Tax rate was 30% on net profits; in addition, the Business Income Tax was another 30% on net profits.
In 2000, Bhutan enacted its Sales Tax and Customs Excise Act. The Act sets forth the duty to pay sales tax and excises on goods and services within Bhutan as well as customs on imports according to rates and schedules published by the Ministry of Finance. The Act also provides Department of Revenue and Customs agents broad authority to inspect, confiscate, demand accounting, and to detain, fine, and prosecute those who contravene the tax laws. The Act also sets forth a procedural framework for resolving disputes, which may be appealed to the Royal Court of Justice.
The Income Tax Act of 2001 represents the first modern, comprehensive Act on income taxation in Bhutan, for both individuals and companies. The Act also provides for sales tax, bankruptcy, and administrative processes for hearing disputes. As of 2011, the Department of Revenue and Customs imposes no taxes on the first Nu100,000 of income; taxes up to Nu250,000 at 10%; up to Nu500,000 at 15%; up to Nu1,000,000 at 20%; and Nu1,000,001 and above at 25%. In addition, property transfers are taxed at 5%. Rural taxes are also imposed on land, houses, and cattle. Other direct duties includes the motor vehicle tax, foreign travel tax, royalties, business and professional licenses, health contribution taxes and municipal taxes.
As part of Bhutan's program of decentralisation, local governments and municipalities – including dzongkhags, gewogs and thromdes, have been authorised to collect property, services, and transactional taxes since at least 1991. Notably, the Local Government Act of 2009 allows thromdes (municipalities) to levy a separate tax on vacancy and underdevelopment.
Other legislation authorises or imposes taxes against particular subject matter. For example, the Tobacco Control Act of 2010 requires persons importing tobacco to pay a tax and to furnish proof of payment upon demand. Like many such laws, the Tobacco Control Act defines a set of offences and penalties for contravening its taxation provisions.
Under the Constitution of Bhutan, the Royal Family receives annuities set by Parliament and is exempted from taxation.
Registered civil society organisations ("CSOs") are exempt from tax on income or other gains earned as a result of investing endowed property or other funds in accordance with regulations promulgated by the Department of Revenue and Customs. The two types of CSO, Public Benefit and Mutual Benefit Organisations, may be granted exemptions from customs duties or other taxes besides income taxes on a case by case basis under sets of regulations and procedures issued jointly by the Civil Society Organisations Authority and the Department of Revenue and Customs.
No customs or duties are levied on goods imported into Bhutan from India, as per the nations' Agreement on Trade and Commerce.
Foreign diplomatic missions, international organisations, and government agencies are generally exempted from paying customs duties and sales tax. Under the Sales Tax Act, the Ministry of Finance may also exempt any other person from sales, customs, and excise taxes at its discretion. However, organisations exempt from customs duties must still pay sales tax when importing goods into Bhutan.