1. Introduction to taxation
Tax is defined as a compulsory levy payable by an economic unit to the government without any corresponding entitlement to receive a definite and direct quid pro quo from the government. It is levied as a general exaction on one or more criteria upon individuals, groups of individuals, or other legal entities.
Tax is even levied in the market sphere, under the name of corrective tax, to correct the market failure by internalizing the externality by making seller of the product to pay a fee equal to Marginal External Cost per unit of output sold.
Bhatia (2006) explains that funds are raised by the government to finance its activities from various sources of public receipts. Few important sources include taxes, income from currency, market borrowing, sale of public assets, income from public undertakings, fees, fines, gifts and donations, etc. The governments however practice dividing its receipts into two: revenue receipts that include routine and earned items like tax receipts, donations, grants, fees, and fines etc.; and capital receipts that cover those items which are non-repetitive and non-routine variety.
As bound by the questions, delving into revenue receipts, they are further divided into tax and non-tax revenue. Going on with tax revenue, it has three sections:
a. Taxes on income and expenditures: levied on receipts of income and expenditures such as corporation tax, income tax, expenditure tax, interest tax, and similar other taxes, if any, in force.
b. Taxes on property and capital transactions: levied on specific forms of wealth and its transfers such as estate duty, wealth tax, house tax, land revenue and stamps and registration fees, etc.
c. Taxes on commodities and services: levied on production, sale, purchase, transport, storage, and consumption of goods and services.
Taxation System therefore is the set of all taxes. The system is driven by motive to achieve certain objectives and towards this, it chooses and adheres to certain principles which become its characteristics.
This essay would study the taxation system of our country and its principles, on which it would be argued of its quality: good, bad or any other.
Bhutan underwent countable reforms to achieve current state of Taxation System. The taxation generates huge revenue for the country which finds use in state’s expenditures or depositing in the Consolidated Fund.
2. Taxation system of Bhutan
The preambles of tax acts of Bhutan focus to promote social justice, general welfare and the adoption of a tax system that is fair, uniform, equitable, efficient, and just, thereby securing equal distribution of wealth, financial sustainability, growth, progress and prosperity (Income tax act of the kingdom of Bhutan 2001; & Sales tax, Customs and excise act of the kingdom of Bhutan 2000).
Druk Gyalpo Jigme Wangchuck dedicated most of his time in studying the economic and political status of the country and realized that, the tax system was not...