Bhutan Unanimously Passes Income Tax Bill 2025, Introducing Sweeping Tax Reforms

Strategic Insights -

The National Assembly of Bhutan unanimously passed the Income Tax Bill 2025 on 17 June, introducing major reforms aimed at modernizing the country's tax system. The new bill replaces the existing Income Tax Act of 2001 and seeks to create a more efficient and progressive taxation structure by overhauling personal and corporate income tax rates, introducing taxes on certain forms of passive income, and integrating business income tax under the personal income tax framework.

Key Takeaways:

  • The new Income Tax Bill of Bhutan 2025 expands the personal income tax (PIT) brackets from six to seven, with lower tax rates for middle-income groups and an increased exemption limit for lower-income earners. The updated PIT structure exempts income up to Nu 300,000 from taxation.
  • Taxpayers earning between Nu 300,001 and Nu 500,000 will pay a reduced tax rate of 5 percent, down from the previous 10 percent. Those in the Nu 500,001 to Nu 700,000 range will now pay Nu 10,000 plus 10 percent of their income above the threshold.
  • The bill also introduces a 10 percent tax on interest earned from fixed deposit accounts and dividends, with an exemption threshold of Nu 300,000. The government had initially proposed a broader application, but the Economic and Finance Committee recommended a higher exemption limit.
  • The Corporate Income Tax (CIT) rate was reduced from 30 percent to 22 percent, with the government cautioning against further reduction, citing the expected revenue loss of Nu 6 billion.
  • The reform merges the Business Income Tax (BIT) into the Personal Income Tax, effectively streamlining the taxation system for individual entrepreneurs and small business operators. This change will exempt around 34,397 individual taxpayers, reducing the total number of registered taxpayers from 120,496 to 106,629.
  • According to Loday Tsheten, Member of Parliament (MP) for GangzurMinjey, the revised tax structure effectively reduces the tax burden for middle-income groups by as much as 50 percent in certain cases.
  • The bill will now be reviewed by the National Council for further scrutiny, and if approved, it will be enacted as law, bringing into effect one of the most comprehensive tax reforms in Bhutan's recent history.

Statistics:

  • The new personal income tax (PIT) brackets will tax income as follows:

+ 0- Nu 300,000: 0%

+ Nu 300,001 - 500,000: 5%

+ Nu 500,001 - 700,000: Nu 10,000 + 10%

+ Nu 700,001 - 1.2 million: Nu 35,000 + 15%

+ Nu 1.2 million - 2 million: Nu 102,500 + 20%

+ Nu 2 million - 3.5 million: Nu 262,500 + 25%

+ Nu 3.5 million and above: Nu 637,500 + 30%

  • The number of exempted taxpayers will increase by around 34,397, reducing the total number of registered taxpayers from 120,496 to 106,629.
  • The expected revenue loss due to the reduction in Corporate Income Tax (CIT) rate from 30 percent to 22 percent is Nu 6 billion.
  • The proposed exemption limit for fixed deposit interest and dividends has been set at Nu 500,000.

Sources:

  • "Income Tax Bill of Bhutan 2025" (National Assembly)
  • "Economic and Finance Committee (EFC) Recommendations" (National Assembly)
  • "Lyonpo Lekey Dorji's Statement" (Finance Minister, National Assembly)
  • "Loday Tsheten's Statement" (Member of Parliament, National Assembly)
  • "Naiten Wangchuk's Statement" (Member of Parliament, National Assembly)