Crunch time

A severe rupee shortage threatens to cause an economic crisis. But the government is in denial. As recently as last week, the finance minister blamed the media for blowing up the issue.

On the other hand, the RMA governor has declared that, “we have no money.” And he has already stopped issuing rupees to commercial banks. He has also warned that we can no longer sell our foreign reserves to buy rupees.

The RMA has had to borrow rupees to allow for the import fuel and other essential items. But traders are already complaining that they cannot do business. And industrialists worry that they won’t be able to import raw material.

Ordinary people are also being affected by the rupee crunch. Mr Vinod Kumar, for example, sent me this self-explanatory email, which I’m reproducing here with his permission.

Sir,

I am a teacher working in Rangjung HSS. I am an Indian working in this kingdom for the last 7 years. I am sending this mail to draw your kind attention to a serious issue that we are facing. This month when we (expatriate teachers) went to the BOB Trashigang to send money to India, BOB officials told us that sending money to India is not as easy as before. They told us that the RMA has put some restrictions to send money to India. They told us that we need to register first and after 7 days if it is approved by RMA, then we can send money. We are here leaving our family behind to support this country and make a good future for us. If we are not able to send our hard earned money to our beloved ones, it is a disheartening thing. On them other hand, BNB so far did not get this type of circular from RMA. So please look in to the matter and if sir could make the money transfer of the civil servant as before we will be grateful to you sir.

Thanking you

Rupee questions

Powerful

Last Tuesday, during question hour, I asked the Prime Minister to explain the rupee crisis: what has caused it, what the government is doing about it, and when we can expect it to be over. I directed the question to the PM as I had assumed that our head of government would be the most concerned and, as such, would be happy to reassure the nation that he has contained the crisis, and that the rupee deficit will not spiral out of control.

Too bad then, that the PM made the Finance Minister answer on his behalf. Too bad also, that I had to remind the Finance Minister that his response did not satisfactorily answer my question. And too bad, that several MPs felt compelled to snap at me that it’s easy to raise questions, but difficult to come up with solutions.

Notwithstanding the fact that it is the government’s responsibility is to identify and address problems of national significance, and notwithstanding the fact that ruling party MPs should show more confidence in their government, I offered my services to help address the growing rupee crisis.

The government has not contacted me. Nor have they given me a written response to my question. I had asked an “unstarred” question. So they are required to provide a written answer.

Now some of you, our readers, have asked for my views. Naturally, I’ll be very happy to share them, especially since we must generate more discussion on this important issue. But first, by way on introduction, here’s what I wrote about the rupee deficit in February 2009. Here’s what I wrote six months later. And here’s what I wrote last month.

I’ll post my thoughts sometime next week, after we conclude this session of the Parliament. In the meantime, please share your views here: what, in your opinion, has caused the rupee crisis, and how, do you think, we can get ourselves out of this predicament?

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.