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.

Our drinking problem

Not funny

We have a drinking problem.

We reportedly consume 7.5 liters of alcohol per person per year. Much of that is served in the more than 3,000 licensed bars that we have. That works out to one bar for every 250 people. And that does not take into consideration the large-scale production, sale and consumption of home brewed alcohol throughout our country.

That’s why alcohol abuse is a leading cause of non-communicable diseases. That’s why alcohol-related diseases make up a whopping 27% of all hospital inpatients. That’s why they account for a staggering 58% of all inpatient mortality. That’s why alcohol was the top killer in 2010.

We have a drinking problem. And the government realizes it. So in order to discourage the habit, they recently increased taxes on alcohol.

Total taxes on beer produced domestically or imported from India have doubled from 50% to 100%

And total taxes on beer imported from other countries have increased from 150% to 200%

The increases in beer prices will, no doubt, discourage us from drinking beer. But that, ironically, may encourage us to drink more locally produced hard liquor.

Why? Because taxes on the more popular locally produced liquors have not gone up proportionately. In fact, taxes on Special Courier, Black Mountain Whisky and Changta Whisky have not increased at all – not even by 1%. And taxes on Rock Bee Brandy and Sonfy Liquor have only marginally increased by 10% and 15% respectively.

So expect our people to drink less beer, a beverage that generally has less than 6% of alcohol by volume. And expect our people to drink more whisky, brandy and Sonfy all of which typically contain about 40% of alcohol.

We have a drinking problem. And it’s about to get worse.

Thimphu’s lifestyle

In 2007 the Ministry of Health conducted a survey in Thimphu to assess the state of non-communicable diseases in the capital. The results showed that we live dangerously. For example:

  • One out of every five adults consumed tobacco – they either smoked or used smokeless tobacco.
  • One third of the adult population consumed alcohol regularly. One third of them were associated with hazardous drinking and binging.
  • Most adults did not exercise to meet minimum health requirement. More than three-fourths of adults did not get any exercise at all during their free time.
  • Two thirds of the adult population did not eat adequate fruits and vegetables.

The results also showed that our sedentary and indulgent lifestyles were already causing needless suffering. For instance:

  • One out of every ten adults was receiving treatment for hypertension. One fifth of the adult population had raised blood pressure.
  • One tenth of the adult population was either diabetic or suffered immediate risk of developing diabetes.
  • Over half of the adults were overweight.

That was the story back in 2007. I wonder how it would look like today. It’s time for another survey, the results of which will probably force us to take non-communicable diseases seriously.

But some data is already available. The following table, prepared by Dr Gampo Dorji of the Department of Public Health, shows a disturbing trend.

License to kill

It’s good that the government will rake in an extra 10 million bucks from the auction of alcohol vendor licenses in Southern Bhutan. The bids were exceptionally high. Many of them sold for twice, thrice and even five-times the earlier amount. And one of them – the license to sell wholesale liqueur in Kuchidaina, Samtse – saw a whopping 2020% jump.

That the government will make that extra money is good news. But we should also be concerned. Our readiness to pay huge license fees means that the alcohol business is thriving. And that just confirms that the government is doing too little to address the abuse of alcohol in this country.

But there’s another reason for concern. The government has auctioned the alcohol vendor licenses just before they submit their annual budget proposal to the National Assembly. The budget report will include proposals to increase taxes. And if taxes on alcohol are raised, the winning vendors could find themselves facing loses that they hadn’t bargained for.