Taxing issues

The National Assembly passed the Tax Revision Bill last week. The Bill is now with the National Council. The Council will discuss the Bill, but, because it is a “money bill”, the Council can only make suggestions and recommendations that the National Assembly may, or may not, chose to accept.

(Last year, the Assembly did not accept any of the Council’s recommendations on the budget and tax revision bills. In fact, the Assembly just skimmed through the recommendations, barely discussing them.)

The National Assembly has passed the Tax Revision Bill. But, we didn’t discuss it properly. After the Bill was introduced, the members made general comments. But the specifics of the Bill, including the individual taxes were not discussed, and just one item – Green Taxes on vehicles – was put to the vote.

I’m happy that the National Assembly didn’t approve most of the taxation measures. In fact, in my humble opinion, even the reduced green tax should not have been approved, given that the government failed to make a strong enough argument justifying the tax.

Still, we should have discussed the bill properly. The government should have justified each and every tax raise that they had proposed. And the Assembly should have debated the proposals thoroughly before deciding to approve or reject them.

Here are some of the issues I’d hoped to raise:

Justification to raise taxes. The Tax Revision Bill proposed introducing a Green Tax (for vehicles, fuels, lubricants, kerosene, LPG, refrigerators, freezers and air conditioners); raising the Excise Duty (on alcohol, domestic and imported); and raising the Sales Tax (on meat, fish and eggs, silk fabrics, furniture, and power chainsaws).

The government informed the Assembly that the proposed taxes would help address the ongoing rupee shortage. But we didn’t get to discuss how, and by how much, the taxes would reduce imports from India, or enhance overall exports.

I’m all for raising taxes. But only if the government can justify, with numbers, why the taxes need to be raised and how the increased revenue will be spent. The government would also have to prove that the increased taxes would not overburden the people, directly or indirectly, and that they would not make doing business any more difficult.

In this case – if taxes are being raised to address the rupee shortage – I also wanted to know that the government would not spend the extra revenue generated. Spending that money would just add to the rupee problem, not solve it, as almost all of the government’s expenditure ultimately goes to finance imports of goods and services, mostly from India.

Green tax. All taxes must have a legal basis. The Income Tax Act authorizes the imposition of PIT, BIT and CIT. The Sales Tax, Customs and Excise Act authorizes sales tax, customs duty and excise. The Land Act legitimizes land tax. The Local Government Act authorizes the collection of land tax, building, cattle, grazing, entertainment, advertisement and other taxes. And so on…

The so-called “green tax” is a new tax. As such, the Parliament should have first discussed the need for this tax, and then amended the relevant laws to permit the government to impose this new tax. Then, and only then, either as part of an amended law or as part of the Tax Revision Bill, should the government have proposed to levy the tax.

But I had several other questions on the Green Tax. One, why levy a green tax if the real objective is to reduce the rupee deficit? The purpose of a green tax should be to protect the environment, not to reduce the rupee deficit, and the proceeds from tax should go to programs that solve environmental problems.

But, two, do we have major environmental problems, and, more importantly, would the proposed green tax result in positive and meaningful contributions to the environment?

Three, wouldn’t taxing kerosene increase the cost of living for our poor? They are the ones who are the most dependent on kerosene for cooking and lighting. And wouldn’t taxing fuel increase the cost of transport, and therefore, the cost of goods? Would the general population be able to afford the resulting increase in the price of goods and services?

And four, do we really want to tax refrigerators and air conditioners? Would the taxes result in a decrease in the number of refrigerators, and if so, would that make a meaningful contribution to the environment? On the other hand, shouldn’t we be encouraging our people to enjoy the immediate health benefits and the conveniences of refrigerators?

Excise on alcohol. Alcohol is a real and growing menace in Bhutan. We need to act now, before we lose more people, especially our youth, to this scourge. But taxes alone will not prevent our people from drinking excessively. We need a holistic strategy, which includes taxes, but only as a part of bigger, more comprehensive action plan.

If the government must tax alcohol, tax those products that are the most dangerous. Last year’s tax increase avoided them; ditto this year.

Meat, fish and eggs. Taxing these items will, supposedly, lead to lower consumption, which, in turn, will lead to lower imports. Good. But what about domestic production? Wouldn’t the increased taxes also hinder domestic production of meat, fish and eggs?

Furniture. Tax imported furniture. But please, please, don’t make domestic production any more difficult than it already is.

Silk fabric. I have no idea how imposing a 10% sales tax and 50% customs duty on silk fabric will improve the rupee situation. But if it does, I’m for it. Otherwise, we need to rethink our strategy.

Power chainsaw. What’s the big idea of slapping a 20% sales tax and 30% customs on power chainsaws? If it is the environment, strengthen and enforce existing regulations. But, please, let’s not arbitrarily increase the price of labour saving devices.

The rupee crisis. The government must apply fiscal policy to address on-going and growing rupee shortage. One way is to increase taxes. But I’m not convinced that the proposed taxes would have had a meaningful effect, especially if the government were to spend the increased revenue from the increased taxes.

A better and more effective way to control the rupee crisis would be to reign in government expenditure. But that’s not what’s been happening. The government’s current expenditure for 2010-11 was Nu 17, 735 million. It jumped to Nu 17, 185 million in 2011-12. And just last week, the Assembly approved a current budget of Nu 18,262 million for 2012-13.

 

Facebook Comments:

Comments

  1. Dear OL,

    Just a short note…
    1) On the tax on poultry and meat items…the main purpose of the tax proposal was to reduce import so that domestic production can be enhanced…self-reliance???
    2) Furniture: Again the purpose was to reduce import so that domestic industry could grow….don’t see anything wrong with that.

    The motive and intention is very clean and clear…perhaps in the mad world of politics, politicians chose to ignore or have blatant disregard for common sense.

  2. what a cheap way of politicking to get support in 2013 at the cost of nation …..i don’t think ministers or government will gain anything by raising tax…it is being done for the people of this country!

  3. Thinlay says:

    Government who do not tax and citizens who do not pay tax is doomed. We need to tax and pay tax but with proper rational and justification.

    I think it is high time that bureaucrats with expertise in economics and money matters take their responsibilities seriously. Leaving serious issues of country’s economy in the hands of politicians is simply inviting more serious trouble, for their immediate concern is vote bank politics;

    From the present tax revisions on various items i can only say that our MPs do not take hard decisions; they play with popular sentiments, which is very dangerous for the country in the long run.

  4. The funny thing is excavators, trucks are tax free if they are bought by rich contractors and MPs. Where is the justice there?

  5. tsewang dorji says:

    * domestic production can be enhanced and made self-reliant through better policies and programs and NOT by forcing people to pay!!!!

    * will make very interesting news item if someone can get a list of heavy machinery like earth movers, trucks, etc owned by our MPS………..no wonder green/carbon tax is exempted for such items………..

  6. Taxing issues discussed by the MPs were totally unrealistic. they were just trying to avoid the taxes on the huge machinaries they own. other than that they had no ideas of taxes and its effects and repurcusions.

  7. “To all my Patang dangling Parliamentarians”

    Let me first applaud the government for proposing additional tax on alcohol products and high end vehicles. Sadly, the Hon’ble Speaker took unilateral decision and sought parliament’s consent after deleting the alcohol tax.

    However, I have strong reservation in the manner in which the proposal on taxation and other financial related matters are presented and deliberated in the present parliament session. My case is further strengthened when the Parliamentarians deliberated on their wishful suggestion of having pension plans for themselves and of course, not forgetting the cynical views of few Parliamentarians on the tasks of Anti-Corruption Commission.

    While the government may have best of intentions for proposing taxes on meat, eggs and petroleum products, but I as an individual citizen have the rights to know, be convinced and to seek answers to the following questions:

    a.Are these tax imposed on essential or luxury goods? How will tax impact the elasticity of demand for these goods?

    b.Which categories of people are going to impact (positive/negative) by these taxes?

    c.Any alternatives to these taxes?

    d.How these fiscal measures are aligned with the various monetary measures already in place?

    e.Was the timing appropriate to levy taxes on these products when the economy is caught with high inflation?

    f.Impact of this tax proposal on the economy and to the tax administration?

    In short, I want to know the “basis, analysis, fiscal and macroeconomic dynamics and implications” of levying taxes on these products.

    Without appropriate and convincing justifications from government’s side, I have serious doubt that the government is taking unilateral and piecemeal decisions without appropriately reasoning the future course of action.

    I get more disturbed and cynical when the Parliamentarians sought pension plans for themselves after having enjoyed generous salary, perks and other benefits within the short five years term in the office. It clearly shows how blatant, irrational and low they can stoop down. These people, who should be more concerned on the sustainability of pension system and economic growth wants to destroy the very system with their selfish motives.

    Such irrational discourse by the Parliamentarians makes me to rewind and review few other “not convincing” and “debatable” financial related issues and directives of the government. For example:

    1.The government’s rupee report has meticulously calculated the tax revenue forgone due to vehicle quota entitlements to civil servants tune to Nu. 2.5 billion from 2002 to 2011. However, the report fell short and forgot to mention any tax foregone from the “Duty Free Alcohol Quota” enjoyed by high level government executives and Parliamentarians. Needless to mention the possibility of abolishing this quota.

    2.The same report did not make attempts to provide government’s consolidated fiscal position by including mega hydro power projects to determine the overall fiscal impact on the rupee. Instead, it found reasonable to prove private sector credit to be one of the main cause of rupee shortage.

    3.Ad-hoc tax exemptions to certain individuals/organisations when they are supposedly pronounced bankrupt, insolvent and other related claims.

    4.Parliamentarian proposing the sale of government lease land to businessman who has not paid lease rent for many years.

    5.One of the government directive stated that “retired Patang dangling officials and their immediate family” will get 50% discount on the hospital cabin charges in Thimphu JDWNRH hospital.

    I must admit that the above examples may not be sufficient or appropriate for justifying my point, but nonetheless, I want the government’s decision makers to assess the financial related issues (taxations, perks & exemptions) in a holistic manner.

    You cannot go on punching big holes in the pockets of one section of society by imposing tax and also at the cost of providing perks, privileges and exemptions to another section of society.

    The present tax proposal (now endorsed) of the government may be one of the fiscal measures taken to address rupee shortage but in doing so, the government needs to educate and convince its people with adequate and reliable basis instead of disclosing piecemeal information only. Here, I must remind the government that Bhutanese people are the ones you considered “wise” when they elected you to the government and they should not be considered “dumb” when it comes to public policy discourse.

    The rupee shortage problem reminds me of Joyce Banda, the present President of Malwai who discarded her presidential jet and luxury car fleet, and had the courage to devalue her country’s currency to make structural changes in the economy. She boldly stated in one of the media that her country wants to move from “AID” to “Trade”. It made me reflect and ponder that there was not a single parliamentarian or top government executive in our country who had guts to come in the limelight to convince our people that it is time to stop depending on “AID” and stop catching flights to south to solve all our economic problems. Perhaps, they may have been too scared to lose their expensive chauffer driven SUVs, grand dinners, travels, housing and Chadis; all at the cost of government treasury.

    The 11th FYP guidelines have been drawn with good intention to achieve “self reliance by end of the plan period” but it falls short of quantifying the means to achieving it. I feel that it should provide appropriate time-line and quantify government’s intentions to stop “AID Dependency”. We boost of having many widely travelled and wise top executives amongst the 25,000+ odd government personnel in the country and they should provide relevant in-house solutions and not suffer from “mental blockade” as in the case of rupee shortage. It is also appropriate to increasingly involve our private sector, civil societies and others in the policy making processes. On the government’s part, it has to seriously assess whether it’s internal policy making process is an inclusive one and not dictated by few Patang dangling executives.

    I appeal to the government to show us good intent and examples. We walked…… when you directed us to walk and it showed the Bhutanese strength and spirit of brotherhood. Such spirits will continue to define Bhutanese characters. Likewise, we were happy with an Indian Jeep until you started riding in a Toyota Land cruiser. We were conscious of civic sense until we saw your children throwing papers from the car’s window. We were building our own house until we saw you employing non-national workers. We use to wait for our turns to meet doctors in hospital until you started to ignore yours.

    Once again, I sincerely appeal to the government and top executives to show good intent and listen to the pulse of common people. Next time, we don’t expect you to prevent us from driving privately owned bicycle while you continue to take free ride in government SUVs. Let us all work hand in hand.

    In the similar line, the government should be congratulating the tasks carried out by the Anti-Corruption Commission despite having to work under various challenges and limitations. They are pivotal when the government cannot find solutions for ordinary people’s plights but can propose ideas and alternatives on land cases involving big business individuals. The drive towards corruption free society will mean that the present financial loss of approximately Nu. 5,000 million or about 5% of country’s GDP from corrupt activities as stated in the Anti-corruption report could be reduced and it will help in rapid economic growth.

    I also urge the government not to get too emotional on the media and opposition’s criticisms; otherwise, you will continue to be on defensive mode and will lose focus in doing the right things.

    In concluding my thoughts, I want to reiterate the need for the government to provide adequate and reasonable justifications, avoid disclosing piecemeal information, seek consensus from greater sections of the society and take holistic approach to address public policy issues. It is all in the interest of “inclusive sustainable economic growth in the long run”

    After more than four years in the government, the parliamentarians should be behaving like statesmen and not politicians. I want you all to lead and show us the light at the end of the tunnel because I have hope when I see my leaders visiting remote villages, walking to office and cultivating paddy. I have hope when my little niece beats me in her educational toy game. I have hope when I see my father voting for PDP and my brother for DPT. Therefore, show us the LIGHT.

  8. Well said kinga!!!
    I am 100% in agreement with your views.

    But sadly, our leaders in blue and orange do not have the basic knowledge in economics. If they have, we would not be hearing all these rubbish from these leaders all these 4+ years.

    Few take advantage of their fluent dzongkha and old idioms and speak in length without any substance. Some keep mute because of their inability to speak dzongkha and others simply cannot understand the basic of demand and supply.
    So for now we have to bear with them and laugh at their stupidity and curse ourselves for choosing them…

  9. Wow Kinga…whoever you are, reading through your comment brought tears to my eyes.
    I can only hope and pray that we have leaders who would care genuinely and feel deeply what you are calling for.

    We sure have a huge leadership vacuum at all levels right now

  10. Concerned Citizen says:

    Kinga I support your statement in saying that we need full evidence and evaluation, before any sort of policy is implemented.

  11. tax payer says:

    I am not happy when I see the deductions from my salary. But it only for few days. OL you have rightly raised the issue. As a OL I do not think you should oppose 100% of what government does. Please take note that there are thousands of Bhutanese who understand the reasons why tax should be paid. How can we get all FREE if we do not pay tax? How long can the government continue to go round with the begging bowl? I think it is time to think about sustainability of our free services. So taxation is a good idea. People will feel the pinch but it is for our future generations. Just because OL questions the govt on tax I think it does not mean that people will vote for him. Fight for the right cause and not just for the sake of argument. In this case although tax will burden we know that it is a right decision and all those wise people will vote for the decision irrespective of the individual benefits. I will vote for the government that imposes tax based on logic. Please do not wrongly judge that I am a DPT supporter. I can supporter of any party that makes meaningful laws.

  12. tax payer says:

    Kinga, reading your points made me think deeper. I think you deserve a place in the parliament. Your words can certainly win the hearts of many people. But my only hope that you will also not fight for your allowances once you have your pata hanging. This skepticism is based on our current experience.

Leave a Reply