May 28, 2025
THIMPHU – Finance Minister Lekey Dorji introduced the Income Tax Bill 2025 in the National Assembly yesterday, outlining a bold restructuring of the tax system that could cost the government up to Nu 5.57 billion annually in lost revenue.
The new Bill introduces a series of reforms, including a revised personal income tax slab, lower corporate tax rates, merger of business income under individual tax, and measures to modernise tax administration.
If passed, the Bill will replace the Income Tax Act of the Kingdom of Bhutan 2001, which was amended in 2020.
“As the country’s economy evolves, regional integration deepens, and digital commerce expands, modernising the tax system is essential to ensure equity, transparency, and sustained economic growth,” Lyonpo Lekey Dorji said.
He said that the proposed reform has been carefully designed drawing on international best practices, while being tailored to the unique socio-economic and administrative context of Bhutan.
Under the Income Tax (Amendment) Act 2020, individuals were taxed through six progressive slabs, while the new tax regime introduces a graduated system with seven income brackets, designed to ensure a fairer and more progressive distribution of the tax burden. Individuals with a net taxable income of up to Nu 300,000 annually will remain fully exempt from income tax, maintaining the current threshold for tax-free income.
Those earning between Nu 300,001 and Nu 500,000 will be taxed at a reduced rate of 5 percent, down from the existing 10 percent, offering significant relief to lower-income households.
Taxpayers earning between Nu 500,001 and Nu 700,000 will pay 10 percent, while those with incomes ranging from Nu 700,001 to Nu 1.2 million will be taxed at 15 percent.
For income between Nu 1.2 million and Nu 2 million, the proposed tax rate is 20 percent.
Income from Nu 2 million to Nu 3.5 million will be taxed 25 percent, while those earning above Nu 3.5 million annually will face a 30 percent tax rate, the highest in the new structure.
Lyonpo Lekey Dorji said that the Income Tax Bill 2025 is projected to result in a net revenue loss ranging from Nu 4.37 billion to Nu 5.57 billion.
The merger of BIT under PIT and rate rationalisation is expected to reduce government revenue by Nu 252.43 million. This will exempt 34,397 individual taxpayers, reducing the number of registered taxpayers from 120,496 to 106,629.
In addition to changes in personal taxation, the bill proposes a uniform corporate tax rate of 22 percent, a reduction from the current 30 percent rate for state-owned enterprises and 25 percent for other companies. The government also plans to eliminate taxes on inter-corporate dividend payments.
The bill introduces a 10 percent final withholding tax on dividend and interest income for individuals, while increasing the withholding tax on non-resident businesses from 3 percent to 5 percent.
The government could lose around Nu 2.95 billion in revenue from 39 companies due to the proposed removal of taxes on inter-corporate dividend payments. However, this loss may be partly recovered through increased dividend payouts from Druk Holding and Investments, which would be counted as non-tax revenue.
The biggest revenue impact is expected from the reduction in the corporate income tax rate, which could result in a loss of Nu 1.68 billion to Nu 2.51 billion from 554 companies. A large share of this impact comes from state-owned enterprises, which benefit the most from the cut.
On the other hand, increasing the withholding tax on non-resident businesses is expected to raise Nu 249 million in revenue.
These changes are part of the government’s broader plan to prepare for the introduction of the Goods and Services Tax (GST) in 2025, and to make Bhutan’s tax system more efficient and business-friendly.
The bill also introduces the deductions for housing loan interest for first-time homeowners and introduction of a Parenthood Tax Deduction to support larger families is expected to create a conducive environment for productivity.
The finance minister tabled the Excise Tax Bill 2025 to maintain excise duties on specific goods, including tobacco, alcohol, supari, and vehicles. This move comes after the removal of the Excise Equalisation Tax from the GST Act and is intended to streamline the tax system and enhance domestic revenue.
The Economic and Finance Committee is scheduled to present its report on the Excise Tax Bill on June 9 2025 and the Income Tax Bill on 12 June 2025.