Taxing job...

How not to raise taxes

Breaking News! Opposition Leader calls for Finance Minister’s resignation!

Actually, that’s yesterday’s news. That’s when the opposition leader called for the finance minister’s resignation, during the budget discussions in the National Assembly.

But, for some reason or the other, the news has still not reached the media. Bhutan Today, Kuensel, BBS and all the radio stations have been remarkably silent on the opposition leader’s demand.

The media may be uninterested. But you, I’m quite sure, want to know why I proposed such an audacious measure. Here’s the story.

Chapter 5 of the 2010-2011 National Budget is about the tax reforms and incentives that the government recently announced. When introducing it, the finance minister informed the National Assembly that the tax reforms – rationalization of sales tax and customs duty rates, and broadening the tax base – would “strengthen the government’s revenue base”. And that the fiscal incentives would “stimulate private sector growth and attract new investments.”

There’s no doubt that that would be the case. Except that I haven’t yet seen the details. The finance minister’s report was only an overview, and we, members of parliament, were not told which taxes were revised by how much. Like you, I also happen to know the increases in sales tax and customs duty for vehicles. But that’s only because the finance ministry is already implementing it!

The finance minister informed the National Assembly that the tax reforms and fiscal incentives have already been approved by the government. He explained that the government’s authority to approve the tax reforms comes from Part I, Chapter 3, Section 4.2 of the Sales Tax, Customs and Excise Act 2000 which states that:

The fixation of the rates of Sales Tax and any revision thereof … shall be approved by the Royal Government of Bhutan.

And Part II, Chapter 4, Section 6.1:

Customs Tariff and revisions thereof, shall be approved by the Royal Government of Bhutan.

Very good.

Except that the finance minister ignored the Public Finance Act 2007, Chapter III, Section 9 of which says that:

Raising of revenues through taxes shall be authorized by the Parliament.

And Chapter III, Section 14(b):

The Minister of Finance shall be responsible, inter alia, for: proposing taxation measures to the Parliament …

He also ignored that the government’s authority to approve taxes and customs duties according to the Sales Tax, Customs and Excise Act 2000 were repealed by the Public Finance Act, Chapter I Section 2 which states that the Act shall:

Supersede all laws, regulations, rules and notifications that are inconsistent with the provision of this Act …

But that’s not all. Important provisions of the Constitution were also blatantly overlooked. The government’s “tax reforms and fiscal incentives” should have been submitted to the National Assembly first, as according to Article 13.2:

Money Bills and financial bills shall originate only in the National Assembly …

According to Article 14.1 of the Constitution the Parliament’s approval is required to change the tax structure:

Taxes, fees and other forms of levies shall to be imposed or altered except by law.

And, Article 14.9 of the Constitution reinforces the National Assembly’s authority to approve taxes as government revenue:

Where the budget has not been approved by the National Assembly before the beginning of the fiscal year … Revenues shall be collected … in accordance with the law in force at the end of the preceding year …

Furthermore, the Constitution ensures that the government’s authority to approve taxes and customs duties according to the Sales Tax, Customs and Excise Act 2000 is repealed. Article 1.10:

… the provisions of any law, whether made before or after the coming into force of this Constitution, which are inconsistent with the Constitution, shall be null and void.

Taxes are important. They are the government’s principle means of generating revenue. But taxes are also dangerous. They can be misused to achieve corrupt or political ends. That’s why the laws of the land have checks and balances, and demands transparency whenever the government wishes to impose or revise taxes.

But that wasn’t the case. The finance minister ignored the Constitution and the Public Finance Act. And he bypassed the National Assembly.

That’s why I called for the resignation of the minister of finance.

Photo credit: Business Bhutan

UPDATE ( 30 June, 9:30 PM): I’ve just learned that BBS TV carried this story today.

UPDATE (1 July, 00:24): My apologies to Kuensel. They did run the story.

Increase civil service salaries...

Civil servants in Dorokha

The day before yesterday, during budget discussion, the seven reasons I reported on why it may be time to review civil service salaries:

1. Domestic revenue of the government, through tax and non-tax measures, has increased considerably since the last salary increase. In 2008-09 domestic revenues were projected to be Nu 11,932 million. In 2009-10 it was Nu 14,108 million. And in 2010-11 it is projected to be Nu 15,816 million. Domestic revenues have increased by a whopping 33% while civil service salaries have remained stagnant.
2. Between 2008-09 and 2010-11 budgets, the government’s overall outlay has increased by a considerable 41%. Of that, about half goes to finance recurrent costs. Recurrent costs in 2008-09 were budgeted at Nu 11,061 million, and for 2010-11 at Nu 15,154 million. That’s a 37% jump in current expenditure in the two years. Salaries form a big part of recurrent costs, yet civil service salaries have not benefited from the 37% increase in current costs.
3. Prices have increased. For the year 2009, the government has estimated a price increase of 10.74% for food items. For 2008, it estimated price increase of 11.75% for food items. That works out to a cumulative price increase of 23.75% over the last two years.
4. Taxes are increasing. The government is proposing a wide range of taxes aimed at increasing revenue by Nu 450 million.
5. Fuel prices have increased twice in the last six months. The last increase will drive up inflation even higher.
6. Most civil servants will now receive less money. Civil servants received a uniform pay increase of 35% in January 2009. However, the basic pay was not increased. Instead the 35% increase was given as an “allowance” so that the government would not have to increase their matching contributions to the provident fund. So after the 35% allowance is incorporated in the basic pay, civil servants will henceforth receive less money in the hand every month – provident fund contributions, health contribution, TDS and more will now be deducted from the 35% increase in salary.
7. The public expects a pay increase. In fact, the pay increase is a consolidation of the 35% allowance that civil servants have been receiving so far. So, in reality, they will receive less money from July onwards. But the public thinks that there is a pay increase. So prices will rise. And, in spite of the Tenancy Act, rents will, once again, increase.

I’ve suggested earlier – every year, in fact – that public service salaries should be revised every year taking into account the overall economic situation in the country. For simplicity, salary revision could be pegged to the price movements of a basket of goods and services, but one that is comprehensive and relevant.

That way, public servants wouldn’t expect a sudden hike in the salaries every now and then. And the government wouldn’t have to ponder about how best to extract political mileage when salaries are increased.

Suicide case...

During question hour today, I asked the minister for works and human settlement if and when wages for the National Workforce would be increased. This issue has already received considerable attention in the National Assembly.  Still, I went ahead, hoping to push the government to raise the wages of our workers. It didn’t work.

And during question hour today, I wanted to ask a second question, this one on an issue that we have not talked about at all in the National Assembly. I’d wanted point out the growing number of suicide cases in the country. And ask the minister of health if the government was responding to this terrible trend.

Unfortunately, I didn’t get to ask this question, as the Hon’ble Speaker did not allow it.

I’m worried that the number of suicide cases in our country is unusually high. And I’m worried that it is increasing.

In one month alone, in January 2009, 15 suicide cases were reported around the country. In January and February this year, 13 cases were reported.

According to police records, there were 53 suicide cases in 2008 and 49 cases in 2009. This year, as of April, the police have already recorded 25 suicide cases.

By any measure, these numbers should give cause for concern. But considering our small population, and our emphasis on GNH, these figures should be alarming.

25 suicides in 4 months. That, extrapolated, is 75 cases 12 months. That works out to 11.9 suicides per 100,000 people. And that would place us at number 34, if we were included in the list of countries by suicide rate.

Something is gravely wrong. And we – all of us, not just the government – need to do something about it.

Domestic air service...

"National" airline

The government has reassured us that domestic air services will begin by its October 1^st deadline. But, with barely three months left, the government is yet to decide who will run the domestic airline. On 16^th June, Kuensel reported that:

Four companies submitted proposals by the February 12 deadline. Two companies, national airline Drukair, and a UK based company, Route Network LLP, were identified on May 7, by an inter-ministerial committee. The final decision was then left to the cabinet.

Of the two proposals it appears that the government favours Route Network LLP. Kuensel, on 26^th June:

With Drukair being the national flag carrier, the cabinet does not want to risk adversely affecting its international “image” or standards with additional responsibilities, a senior government official said. Because of this concern, and an impending deadline of October 1, the government is considering additional demands by the other company to have been identified, Route Network LLP.

One proposal was submitted by Druk Air, a Bhutanese company, and one that has almost three decades of unblemished experience in the aviation business.

The other proposal was submitted by Route Network LLP, a foreign company, and one that we know virtually nothing about. (I can’t link to the company website, because I can’t even find one.)

If both the proposals are more or less equal, the government should award the contract to Druk Air. After all, the government should actively support our own companies over foreign ones. If, for whatever reason, the government is not willing to do so, it should at least ensure that foreign companies are not given undue advantage.

So I’m concerned to learn that the government may be leaning towards Route Network LLP. So much so that they are willing to consider the “additional demands by the other company to have been identified, Route Network LLP”.

The banner, a photograph by Yeshey Dorji, is a reminder that Druk Air is able and willing to begin domestic operations. That would add to their “image”, not take away from it.

Why the government may be lazy...

We should be concerned that the government has been slow to implement the 7 billion Small Development Projects grant provided by the Indian government. The SDP grant is part of the 10^th Five Year Plan and is for:

implementing smaller, short-gestation and community-oriented projects in vital sectors of health, education, rural infrastructure (conference hall, farm roads, small bridges, etc), water supply, irrigation channels, Renewable Natural Resource (RNR) centres etc. It is expected that over 2000 such projects will be implemented all across 20 districts of Bhutan in five-years time.

Two years of the 10^th Plan is already over. And yesterday, the finance minister told the National Assembly that, so far, the government has used only Nu 195 million of the SDP funds. That works out to about 2.3% of Nu 7 billion grant.

Almost 50% of the 10^th Plan is over, and the government has implemented barely 2.3% of the total grant. So yes, we should be concerned – deeply concerned – at the government’s inability to deliver.

But we should be even more concerned at the government’s tardiness. Two years of the 10^th Plan are over. And for the third year, the government is targeting only Nu 1,643 million of the SDP grant. So most of the SDP grant will be available for the final two years of the 10^th Five Year Plan. And, most of that period will conveniently correspond to the eighteen months leading up to the 2013 general elections.

Why I’ve been lazy...

Three reasons why I’ve been less than diligent with my posts recently:

1. The National Assembly is in session;
2. The World Cup is on; and
3. My cough persists. It refuses to go away, and has kept me, and my family, awake for many frustrating nights. But, countless home remedies and two ill-advised rounds of antibiotics later, good sense eventually prevailed – I consulted a physician. The specialist ordered a sputum culture, identified the offending bacteria, prescribed the right antibiotic, and, just like that, I’m already feeling better.

Spect-actors...

Monkey business

I tried to avoid eye contact. And deliberately scanned the audience, desperately seeking the volunteer who would rescue me. But there was none. And, from the corner of my eye, I could see the emcee walking purposely towards me.

“We have a volunteer,” she announced, smiling yet staring firmly at me.

“Me?” I argued, and quickly looked left then right to my immediate neighbours, hopelessly expecting that she was addressing one of them.

But the emcee was already looming over me. “Yes,” she declared, and led me on to the stage. As I steadied my buckling knees, I scolded myself for getting into this fix.

The sticky situation had begun a week earlier, outside the Musk, when Xochitl Rodriguez, a volunteer with VAST, had asked me for a favour.

“It’ll depend, won’t it?” I had answered, pretending to be smart.

“It’s for the YDF foundation day,” Xochitl had implored, and started to describe the nature of her request. But I had cut her off, claiming that “If it’s for the YDF, I’ll do anything!”

When she eventually got to explain what the favour was, I had regretted that I’d been reckless. A group of young women and men calling themselves Happy Valley Entertainment were to stage a play during the YDF foundation day. The play would feature social messages. And in the tradition of forum theatre, the audience would be required to participate in the play as the plot unfolded.

Forum theatre, a form of drama developed and popularized in South America, requires members of the audience – referred to as “spect-actors” – to extemporaneously join an ongoing play, and change its plot to produce a favourable outcome, normally one that would mobilize the viewers to political and social action.

Xochitl wanted me to be a “spect-actor”! And I wanted otherwise. Not to worry, she had assured me, suddenly confident that the audience would produce many volunteers, and that I wouldn’t, after all, be needed. I felt sure that my services wouldn’t be needed too, convinced that a packed audience would produce at least one volunteer.

But a week later, in Nazhoen Pelri, on the night of the performance, no one volunteered. So Xochitl hauled me on to the stage, my heart pounding, and my mind in overdrive frantically seeking a new storyline for “Jabajasti Korean Monkey”, a play about material greed and misplaced values and priorities.

The revised rendition still had Jabajasti as a misguided young man. But after a brush with the police, he receives YDF’s help, turns over a new leaf, and becomes a role model for his family and friends.

The beginning of my impromptu performance was clumsy. But, after a while, a new story emerged, effortlessly and naturally. And I realized that I was not making anything up – I actually believed in the new storyline. I believed that our youth were brimming with potential, but were inflicted by a growing malaise, one caused by a lack of meaning and purpose in their lives. I believed that they were crying for help. And I believed that the YDF was responding.

From leadership to counseling, education to sponsorships, sports to music, training to employment, and rehabilitation to employment, the YDF provides a complete range of activities for youth throughout the country.

But what the YDF does is not enough. And what they do will never be enough as long as we, adults, choose to be spectators – seeing the unemployment, the drug abuse, the suicides, the prostitution, the burglary, the gang fights, and the desperation, but deliberately not acting on what we see.

And that night, as we celebrated YDF’s eleventh anniversary, I realized that like the powerful forum theatre, the YDF also needed “spect-actors” – leaders who would stand up and join the YDF in its mission of providing “a better today, a brighter tomorrow for the youth of Bhutan.”

Photo credit: Xochitl Rodriguez

Corrupt quotas...

The government’s decision to increase taxes on vehicles has caused a bit of stir.

Many people I’ve spoken with agree with the progressive taxes based on engine capacity. But most, like I, doubt if simply increasing taxes will help achieve the government’s goal of controlling the growing number of vehicles in Bhutan.

Why? Because public transport, in Thimphu and elsewhere, is still inadequate. And, in the absence of a reliable public transport system, we will continue to buy cars, even at relatively higher prices. A real reduction in traffic volume will be possible mainly by improving the public transport system to provide adequate coverage, and to make the service cheap, punctual, comfortable and, most importantly, popular.

But there’s another reason why increased taxes will not affect sales of imported cars: allotment of foreign vehicles, commonly called “quotas”, to public servants. Civil servants in Grade 6 and above are entitled to a quota once every seven years. And senior officers in the armed forces also enjoy a similar entitlement. Last year, some 380 quotas were issued. The year before that, many more, as every MP also received a quota.

Obviously, some public servants use their quotas as intended, that is to purchase vehicles for themselves. But many quotas find their way into the black market – they are sold, illegally and at hefty prices, to buyers who can then avoid paying duties and taxes.

So ordinary quotas – those that exempt taxes and duties on Nu 800,000 of a vehicle’s cost – were selling for about Nu 45,000 before the government’s announcement. Today, they already cost Nu 100,000.

The price for “Prado quotas” – those that exempt all taxes and duties for Toyota Prados – has also doubled. They are only a few of them left, and they were selling for Nu 200,000 until the day before yesterday. Today’s price is a whopping Nu 400,000!

The allotment of foreign vehicles to senior public servants costs the exchequer dearly. But worse still, it causes rampant corruption. So it should be discontinued. And in its place, monetized entitlements should be provided.

Improve public transport. And discontinue quotas. Only then, will the government be able to control the growing number of vehicles.

Laurence of Taba...

Too good!

The road between Langjophakha and Dechhenchholing is being expanded. Good.

Traffic on the single-lane road that connects the upper precincts of Thimphu valley with the town had become heavy and dangerous. So it was time to widen the road to accommodate the growing number of vehicles.

The government is executing the work departmentally. And they’re doing a pretty good job. It’s been barely 3 weeks since starting the project in Langjophakha and they’ve already reached the Dechhenchholing bridge area. Impressive.

But some people have complained. Sonam commented that commuting has become difficult and unpredictable. And Laurence set me this email, which, incidentally, has not been published by the newspapers.  Read the rest of this entry »

Unrestrained Truth...

Two readers – Truth and Linda – went “off topic” on a recent post. “Truth” raised an issue that was totally unrelated to the post. “Linda” suggested that we should have a way of allowing readers to initiate new topics for discussion. And I agreed.

I’ve thought about it. And rather than incorporating an online forum in this blog – we already have Kuenselonline and Bhutantimes.com for that – I suggest that you send, by email, a short written account of the topic that you’d like to draw our attention to.

But please permit me to review your contribution before posting it as a separate entry.