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Building capacities to build revenues
Even in the land of Gross National Happiness, it is essential, as Bhutan’s Department of Revenue and Customs’ vision says, to ensure an effective revenue system that contributes to the nation building process. The Department has the mandate to collect taxes and all other revenues accruing to the Royal Government of Bhutan. Its mission is to “ensure that the tax and customs administration has the capacity to collect taxes effectively at minimum cost, through impartial and consistent enforcement of regulations, and to provide a convenient and honest service to taxpayers.”
Bhutan is gradually moving away from a feudal system towards becoming a modern democratic state with operational markets and a modern public sector. Since the first annual report in 1998, revenue performance has consistently improved, resulting directly in an increased and more reliable revenue stream for the government.
As economic growth in Bhutan depends largely on hydropower generation, collection of revenues becomes critical. The Department has been able to successfully broaden the tax base and at least partially reduce reliance on revenues from hydroelectric power by introducing personal income tax and improving collection of other direct taxes, particularly business tax. Taxes made up 56 percent of total revenue in 2004-5, of which direct taxes contributed 33 percent and 32 percent came from hydroelectric power sales.
The Department has achieved efficiencies through a range of approaches, including decentralization to regional offices, training, upgrading IT systems, and public education on compliance.
The Department of Revenue and Customs was created in 1986, following the restructuring and merger of two previously separate departments of revenue and customs. The management structure has become more decentralized, now comprising six regional offices. This allows tax authorities to be close to their clients, which has increased awareness and compliance. The intensive use of training and professional development in revenue administration and IT has enhanced the Department’s capacity and has made its performance indicators particularly encouraging. The main indicator used for efficiency of tax collection is the cost of collection ratio. The average cost of collection of 100 Nu (Bhutanese currency) is 1.9, a striking statistic that compares favorably in the international context. (The figure for the USA is 0.39, while it stands at 0.73 in Denmark.)
The Institutional Capacity Programme has strengthened the skills of staff of the Department of Revenue and Customs through in-country training programmes. A 2003 IMF report noted that the Department of Revenue and Customs’ has relatively few staff – around one per 250 taxpayers – but that their capabilities are impressive. The introduction of a new IT system for tax and customs has improved tax administration and enhanced monitoring, evaluation, and reporting.
Another significant achievement is the increased compliance of the general public (taxpayers) as a result of an effective education programme which included training, workshops, and awareness campaigns.
Support to the capacity development process
The Department of Revenue and Customs has enjoyed strong and stable leadership with strategic vision. The awareness among the senior management of the main challenges facing the Department has led directly to requests for capacity development support.
Between 2001 and 2006, the Government supported the Department’s budget to the tune of around 90 percent. The professionalization of revenue management has been a long but successful process involving training, the introduction of an information management system, the decentralisation of tax administration and a public education campaign.
The Department of Revenue and Customs has supported the development of its staff capacity through in-country training and study visits. Significant investments in training and professional development have been made: between 1997 and 2004 around 500 participants attended training courses at the Royal Institute of Management. Significant investments were also made in new IT systems. Supported by technical assistance, this has led to improved consistency of data.
Development partners’ support
The Department of Revenue and Customs has driven the reform process of the national tax administration function with support from Danida. Between 2001 and 2006, Danida provided financial support to the Department’s Institutional Capacity Programme, worth approximately 10 percent of the total budget. The effectiveness of the Danish capacity development support has been due to the flexibility of its approach in aligning with the aims and mission of the Department’s strategy. Technical assistance to support the drafting of complex legislation and the introduction of the new IT systems have also contributed significantly to developing the Department’s institutional capacity.
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Year of publication:2011
Collection:LenCD "Capacity: Results"
Themes and sectors:Public administration
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