Economy of Bhutan

The economy of Bhutan is based on agriculture and forestry, which provide the main livelihood for more than 60% of the population. Agriculture consists largely of subsistence farming and animal husbandry. Rugged mountains dominate the terrain and make the building of roads and other infrastructure difficult. Bhutan is among the richest by gross domestic product (nominal) per capita in South Asia, at $3,491 as of 2022, but it still places 153rd, and among the poorest in the world. The total gross domestic product is only $2,653 million, and 178th according to IMF.<br>Bhutan's economy is closely aligned with India's through strong trade and monetary links and dependence on India's financial assistance. Most production in the industrial sector is of the cottage industry type. Most development projects, such as road construction, rely on Indian migrant labor. Model education, social, and environment programs are underway with support from multilateral development organizations.<br>Each economic program takes into account the government's desire to protect the country's environment and cultural traditions. For example, the government, in its cautious expansion of the tourist sector, encourages visits by upscale, environmentally conscientious tourists. Detailed controls and uncertain policies in areas such as industrial licensing, trade, labor, and finance continue to hamper foreign investment. Hydropower exports to India have boosted Bhutan's overall growth, even though GDP fell in 2008 as a result of a slowdown in India, its predominant export market.

Top Sectors in Bhutan

Agriculture in Bhutan

Agriculture and forestry form the backbone of Bhutan's economy, providing livelihoods for more than 60% of the population. Subsistence farming and animal husbandry are predominant activities in this sector.

Hydropower in Bhutan

Bhutan's hydropower sector plays a significant role in its economy, with exports of hydroelectricity to India contributing to the country's overall growth and revenue generation.

Tourism in Bhutan

Bhutan has been cautiously expanding its tourism sector, focusing on attracting upscale, environmentally conscientious tourists. The tourism industry contributes to the country's foreign exchange earnings and economic development.

Cottage Industries in Bhutan

Most production in Bhutan's industrial sector consists of cottage industries, which produce goods for domestic consumption and export. These industries often rely on traditional methods and craftsmanship.

Environmental and Cultural Preservation in Bhutan

Bhutan places significant emphasis on preserving its environment and cultural heritage in economic development initiatives. This includes implementing model education, social, and environmental programs with support from multilateral development organizations.

Bhutan - Key Economic Indicators

Exports and Imports

Bhutan's exports primarily include electricity, minerals, and agricultural products, while imports consist of fuel, machinery, and consumer goods. In 2023, Bhutan's total exports were valued at approximately $725 million, representing around 27% of GDP, while imports totaled around $1.2 billion, constituting about 45% of GDP.

Infrastructure

Infrastructure development in Bhutan faces challenges due to its rugged terrain. The country has been investing in road networks and bridges to enhance connectivity, particularly between rural and urban areas. As of 2023, Bhutan has approximately 3,288 kilometers of roads, with ongoing efforts to expand and upgrade infrastructure to support economic activities.

Balance of Trade

Bhutan experiences a trade deficit, with imports surpassing exports. The trade deficit in 2023 amounted to approximately $475 million, highlighting the country's reliance on imported goods. Addressing this imbalance requires strategies to diversify exports, promote value-added industries, and reduce dependence on imports for essential goods and services.

Fiscal policy

Bhutan's fiscal policy focuses on government spending aimed at infrastructure development, social programs, and environmental conservation. In 2023, government expenditure amounted to around $1.5 billion, funded through domestic revenue sources and external assistance. Taxation plays a significant role in revenue generation, with a tax-to-GDP ratio of approximately 19%.

Monetary policy

The Royal Monetary Authority of Bhutan (RMA) oversees monetary policy in the country. The RMA manages interest rates, regulates the money supply, and supervises the financial system to maintain price stability and support sustainable economic growth. Inflation in Bhutan was around 6% in 2023, reflecting the effectiveness of monetary policy measures in controlling price levels.

Trade agreements

Bhutan engages in bilateral and multilateral trade agreements to facilitate international trade and economic cooperation. While the country is not a member of major trade blocs like NAFTA, it participates in regional initiatives and trade partnerships to expand market access and promote economic development.

Environmental regulations

Bhutan places significant emphasis on environmental conservation and sustainability in economic development initiatives. The government has implemented stringent environmental regulations to protect natural resources, biodiversity, and cultural heritage. These regulations aim to promote responsible and eco-friendly practices across sectors, ensuring long-term environmental resilience and economic viability.

Tax System in Bhutan

Capital Gains Tax:Bhutan imposes a capital gains tax on profits earned from investments, including the sale of stocks, bonds, real estate, and other assets. The tax rate on capital gains varies depending on the type of asset and the duration of ownership.
Corporate Tax Rate:The corporate tax rate in Bhutan is 30% on business profits for both domestic and foreign companies. However, certain industries and activities may be eligible for tax incentives or exemptions provided by the government to promote investment and economic growth.
Sales Tax:Bhutan has a value-added tax (VAT) system, known as the Sales Tax, which applies to goods and services at various stages of production and distribution. The standard rate of sales tax is 5%, but there are exemptions and reduced rates for essential goods and services.
Property Tax:Property tax in Bhutan is levied on real estate, including land, buildings, and other immovable properties. The tax is based on the assessed value of the property and is payable annually to the local government authority.
Payroll Tax:Bhutan imposes a payroll tax on wages and salaries, which is deducted at the source by employers and remitted to the government. This tax revenue is often used to fund social security programs and other welfare initiatives.
Tax Deductions and Credits:Bhutan offers various tax deductions and credits to individuals and businesses to reduce their tax liability. These deductions and credits may include expenses related to education, healthcare, charitable donations, and investments in certain sectors or regions.
Tax Compliance:Tax compliance in Bhutan refers to the efficiency of tax collection and enforcement mechanisms. The government has implemented measures to improve tax administration, including the use of technology and taxpayer education programs to enhance compliance levels.
Tax Burden:The overall tax burden in Bhutan represents the total amount of taxes paid by individuals and businesses relative to their income or profits. While Bhutan's tax rates may seem relatively high compared to some other countries, the tax burden is influenced by factors such as exemptions, deductions, compliance levels, and government spending priorities. Efforts to balance tax revenue generation with economic growth and social welfare objectives are ongoing.

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