In 2021 RRCO in Thimphu, Mongar, and Samdrup Jongkhar raised additional revenue of Nu 5.439-million from understated rental incomes
LHAKPA TSHERING | Thimphu
In one of the most unhealthy developments relating to tax evasion and fraud, 324 landlords in Thimphu Thromde were imposed penalties for filing incorrect income tax returns. They had declared false rental incomes while filing the annual tax which amounted to Nu 3.9-million in 2021 alone.
The Regional Revenue and Customs Office (RRCO) in Thimphu collected a non-filing penalty of Nu 0.772-million, concealment penalty of Nu 2.350-million and levied 24 percent penal interest amounting to Nu 0.305-million on additional tax raised from underpaid rental income.
RRCO also uncovered 85 cases in Mongar where landlords failed to declare a total income of Nu 0.487-million and 167 cases, pertaining to the year 2019, in Samdrup Jongkhar and raised additional tax revenue of Nu 1.45-million. This takes the total amount of additional tax collected from three regional offices to Nu 5.439-million.
Given that most of the defaulters have filed their tax returns for the first time, RRCO collected the fines after 75 percent was waived-off for Thimphu tax evaders. In addition, the office also waived the non-filing penalty and concealment penalties for Mongar and SamdrupJongkhar. However, the office levied 24 percent penal interest on additional tax collected.
Finance minister Namgay Tshering said they uncovered the cases following the physical verification of the real properties under these RRCOs. “The other RRCOs have already planned similar exercises and will be carried out anytime soon,” he said.
“Through this exercise, the RRCOs could confirm the rent amount paid by each tenant and could also build a database for the future reference,” he said, adding it is one of the upfront mechanisms implemented to tackle tax evasion issues.
If the department detects any inconsistency or under-declaration in rental income, Lyonpo said, either the taxpayer is called to the office to provide explanations or the department deputes field officers for verification, and accordingly issue the assessment order including the evasion fines.
He added, “We do compare and cross-check the rental income declaration annually and often compare with the similar taxpayer in the vicinity.”
In addition, Lyonpo said they also collaborate with concerned agencies for information sharing. “The tax deducted at source (TDS) record and TDS audit also helps the RRCOs in verifying the genuineness of the rental income declared,” he said.
Besides, he said that the department of revenue and customs (DRC) works closely with the relevant stakeholders such as the thromde and the dzongkhag land record office to get information on properties – the name of the owner, location of the building, number of units for residential/commercial.
“Based on the information the department verifies each property owner’s registration in our system (RAMIS). If found not registered, property owners are called to the office and made to file their tax returns from the year they earned rental income,” he said, adding that the department also receives information from concerned tenants on the actual rents they pay.
Further, after the filing season is over, Lyonpo Namgay Tshering said, RRCOs will carry out a thorough assessment of rental income earners.
“The department has collected information on the property owners from concerned agencies, tenants and the same will be used to crosscheck the declaration,” he added. “The ministry will reinforce and strengthen the physical verification as well.”
If the taxpayers are found to have concealed rental income, then a concealment penalty equivalent to twice the tax amount sought to be evaded in addition to tax due shall be imposed.
Lyonpo went on to say that the taxpayer could also face prosecution for concealment, a willful act to deduct TDS, file income tax return, produce books of accounts, evade tax, make false statements or accounts and abet or attempt to abet any offense.
Meanwhile, a notification issued recently by the finance minister has warned property owners against trying to underpay tax by indulging in these malpractices and pointed out that these instances would be dealt as per law.
Call for cooperation
Despite the revenue and customs department making it mandatory for landlords to give tenants a receipt for rent payments in 2019, landlords were still found not abiding by the rules while tenants do not even bother about demanding one.
Many landlords insist on their tenants to under-declare and even manipulate the amount paid and then submit to the revenue and custom as proof of tax paid.
Finance minister Namgay Tshering said that if both tenants and owners collude in the act, the ministry and the RRCOs might not be able to verify and prove instances of tax evasion.
“It is difficult for the ministry to uncover such manipulation or practices without full support and cooperation from the tenants,” he said. “The only documentary proof to validate the authenticity of the rent paid is through the money receipts issued by the landlords.”
Urging all tenants to insist on the money receipt for the actual rent amount paid and maintaining it to assist the RRCO with future verification, Lyonpo said each tenant can play a big role in helping the ministry and the government in levying the right amount of tax to the property owners.
He said while the RRCOs always insist on the duplicate copies of the money receipts issued to the tenants whenever the tax assessment is undertaken, it is a costly affair for the RRCO if they have to monitor every landlord whether they are issuing money receipts.
“The main challenge for the department is to make our citizens take ownership for tax payment, and as such, the department has been conducting aggressive advocacy to educate taxpayers,” he said.
To tackle this issue, Lyonpo said, the department has been working in collaboration with the relevant stakeholders to make a mandatory requirement of tax clearance certificate and TPN from DRC while paying annual land and house tax at thromde and dzongkhag, and opening bank accounts among others.
He also shared that the department is also reviewing the Income Tax Act and Rules and necessary provisions will be inserted to curb tax evasions and penalize the defaulters with no concession.
“One of the best strategies to curb tax evasion from rental income could be considering monthly rental payment as a tax-deductible expense under PIT like in the case of BIT and CIT,” he said.
“However, the ministry needs to conduct a deeper analysis on this to ensure that the whole initiative does not result in loss of revenue especially at this time around when the country is faced with a huge revenue crunch.”