Small and medium-sized business owners are grappling with an unexpected surge in Business Income Tax (BIT) this year. Many find themselves struggling to meet their tax obligations, having been caught off guard by a sharp increase in their tax liabilities. The Department of Revenue and Customs (DRC) attributes this rise to business owners using their Current Deposit (CD) accounts for personal transactions, which has inflated their taxable income.
While the DRC’s rationale may hold some validity, the sudden increase in tax assessments has left many businesses in a precarious position. For instance, a shop owner who paid Nu 6,000 in taxes last year was shocked to find that his tax bill had jumped to over Nu 70,000 this year. Unable to pay the full amount upfront, he had to request an installment plan—something many other small business owners are also resorting to.
Many businessmen have raised concerns about the abrupt tax hikes. They claim that the DRC did not use their CD account transactions to assess taxes last year, making this year’s assessments a sudden and unmanageable burden. When they sought clarification, they were informed that taxes are now being determined based on the amount transferred into their CD accounts, with little room for negotiation.
The fundamental issue lies in how businesses use their CD accounts. Many small business owners argue that keeping strict financial separation between business and personal transactions is difficult. Customers often request cash withdrawals from shopkeepers’ CD accounts, and business owners sometimes transfer personal funds into these accounts to restock inventory when their business funds run low. These practical challenges make it almost impossible to maintain a completely separate business account.
The DRC, on the other hand, insists that tax assessments are based on financial transactions recorded in CD accounts. The requirement to maintain CD accounts was introduced to ensure transparency and reduce tax evasion. However, the department acknowledges that many shopkeepers continue to mix personal and business transactions, leading to inflated tax assessments.
Director-General of the DRC, Sonam Jamtsho has urged business owners to keep their personal and business transactions separate to avoid unnecessary tax burdens in the future. He also pointed out that, under the existing rules, businesses are required to pay around 30% of their profits as BIT. However, in cases where proper accounting records are unavailable, taxes are levied based on estimated income—making CD account transactions a crucial reference point for tax calculations.
While the DRC maintains that its tax policies are based on fair and accurate assessments, the sudden imposition of significantly higher taxes has put many small business owners in financial distress. If businesses had been informed well in advance about the new approach to tax estimation, they could have taken steps to adjust their financial practices accordingly.
The solution lies in better communication and collaboration between tax authorities and business owners. The DRC must ensure that businesses fully understand tax policies and provide adequate time to adjust their financial practices. At the same time, business owners must take responsibility for maintaining proper records and ensuring financial transparency.
Opinion By Kinley Yonten
