𝐎𝐏𝐈𝐍𝐈𝐎𝐍- 𝐑𝐞𝐭𝐡𝐢𝐧𝐤𝐢𝐧𝐠 𝐓𝐚𝐱𝐚𝐭𝐢𝐨𝐧 𝐢𝐧 𝐁𝐡𝐮𝐭𝐚𝐧: 𝐁𝐫𝐢𝐝𝐠𝐢𝐧𝐠 𝐭𝐡𝐞 𝐃𝐢𝐯𝐢𝐝𝐞 𝐁𝐞𝐭𝐰𝐞𝐞𝐧 𝐇𝐚𝐯𝐞𝐬 𝐚𝐧𝐝 𝐇𝐚𝐯𝐞-𝐍𝐨𝐭𝐬

In Bhutan, taxation policies have traditionally supported the nation’s unique model of development, grounded in the concept of Gross National Happiness (GNH). Recently, however, the government has increased taxes to boost revenue for funding public goods and services, including infrastructure. While this move aims to benefit the country, it has also raised concerns about exacerbating the divide between the haves and have-nots. To address these concerns, it is essential to relook at Bhutan’s taxation policy through a lens of equity and inclusivity, ensuring that it aligns with the principles of GNH and fosters social cohesion.

The fundamental principle guiding taxation should be its ability to foster social cohesion and economic justice. Yet, the recent tax increases in Bhutan, particularly on land, have sparked worries about encouraging a system where only the wealthy can own property, pushing others into perpetual renting. For instance, a small piece of land in urban areas now incurs a tax of over 7,000 Ngultrum, which places a significant burden on middle and lower income families. This scenario risks creating a society where property ownership is concentrated among the affluent, widening the socioeconomic divide.

A key solution to this issue lies in adopting a progressive taxation system. Progressive taxation, where higher-income individuals pay a larger percentage of their income in taxes, can help bridge the gap between different economic classes. By easing the tax burden on lower-income earners and increasing it for those who can afford more, Bhutan can ensure a fairer distribution of resources. This system is already practiced successfully in countries like Sweden and Denmark, where progressive taxes have contributed to lower levels of income inequality.

Additionally, the current tax structure in Bhutan should consider the specific context of land ownership and usage. For many Bhutanese, land is not merely a financial asset but a source of livelihood and cultural significance. Therefore, taxation should account for the income generated from the land. For small landholders who derive minimal income from their property, a heavy tax burden is not justifiable. Instead, tax policies should differentiate between large commercial landholdings and small, subsistence plots. Implementing income based taxation for land can ensure that those with minimal income are not unduly burdened, while wealthier landowners contribute their fair share.

Moreover, the government should consider providing tax exemptions or reductions for the underprivileged. Allocating a minimum plot of land free of tax to citizens who own nothing could significantly improve their living standards and reduce inequality. Such measures would align with Bhutan’s GNH philosophy, ensuring that economic policies contribute to the overall happiness and well-being of all citizens.

To complement domestic reforms, Bhutan can draw on global best practices to enhance its tax policy. For instance, countries like Norway have successfully implemented environmental taxes, which could serve as a model for Bhutan. Environmental taxes can generate revenue while promoting sustainable practices, aligning with Bhutan’s commitment to environmental conservation.

Furthermore, addressing tax evasion and ensuring transparency in taxation is crucial. Illicit financial flows and tax evasion deprive the government of much-needed revenue. Strengthening tax enforcement mechanisms and fostering international cooperation to curb these practices can help ensure that everyone pays their fair share, enhancing the effectiveness of the tax system.

In addition to structural reforms, recognizing the contributions of heavy taxpayers can foster a sense of civic duty and pride. Acknowledging and appreciating those who contribute significantly to the national coffers can encourage compliance and enhance the legitimacy of the tax system.

For a truly equitable tax policy, the government must also consider the financial capacity of individuals. Many property owners, especially those with limited rental income, struggle to meet tax obligations. In such cases, the government could introduce measures to alleviate their burden, such as phased tax payments or temporary relief during financial hardships.

Rethinking Bhutan’s taxation policy is both a moral imperative and a pragmatic necessity to maintain the country’s unique development model and social harmony. By adopting a progressive taxation system, differentiating tax rates based on income, and providing exemptions for the underprivileged, Bhutan can bridge the gap between the haves and have-nots. Drawing from global best practices and emphasizing transparency and fairness, the government can ensure that its tax policy aligns with the principles of Gross National Happiness, fostering a more just and inclusive society for all.

Tshering Tshering
Thimphu