Case stories on capacity development and sustainable results

hutan7BHUTAN – Building capacitiesto build revenuesContextEven in the land of Gross National Happiness,it is essential, as Bhutan’s Departmentof Revenue and Customs’ vision says,to ensure an effective revenue system thatcontributes to the nation building process.The Department has the mandate to collecttaxes and all other revenues accruingto the Royal Government of Bhutan. Itsmission is to “ensure that the tax and customsadministration has the capacity tocollect taxes effectively at minimum cost,through impartial and consistent enforcementof regulations, and to provide a convenientand honest service to taxpayers.”Development resultsBhutan is gradually moving away froma feudal system towards becoming amodern democratic state with operationalmarkets and a modern public sector.Since the first annual report in 1998,revenue performance has consistently improved,resulting directly in an increasedand more reliable revenue stream for thegovernment.As economic growth in Bhutan dependslargely on hydropower generation, collectionof revenues becomes critical. TheDepartment has been able to successfullybroaden the tax base and at least partiallyreduce reliance on revenues from hydroelectricpower by introducing personalincome tax and improving collection ofother direct taxes, particularly businesstax. Taxes made up 56 percent of total revenuein 2004-5, of which direct taxes contributed33 percent and 32 percent camefrom hydroelectric power sales.Enhanced performanceThe Department has achieved efficienciesthrough a range of approaches, includingdecentralization to regional offices, training,upgrading IT systems, and publiceducation on compliance.The Department of Revenue and Customswas created in 1986, following the restructuringand merger of two previously separatedepartments of revenue and customs.ResultsSince 1998, revenue performance hasconsistently improved, resulting in an increasedand more reliable revenue stream.The tax base has been broadened and relianceon revenues from hydroelectric power has beenreduced by introducing personal income tax andimproving collection of direct taxes.The cost per collection of Nu 100 is 1.9, astriking statistic that compares favorably in theinternational context.Taxpayer compliance has increased as a result ofan effective education programme.