Everyone is talking about the Pay Commission’s report. And I too will gradually join the conversation. To start, I wish to discuss the Commission’s recommendation to increase fuel taxes.
Everyone would remember 2013.
The country was experiencing an economic crisis. In its efforts to address the critical shortage of Indian rupees, the central bank imposed a series of policies including restricting the supply of rupees; rationing rupees to Bhutanese traveling to India for business, studies, medical treatment or pilgrimage; closing bank accounts of Indian citizens; and suspending loans in several sectors. These policies did little to solve the rupee crisis. Instead, they fueled panic, prompting citizens to hoard Indian currency. The government also added to the panic by curtailing construction, banning the import of vehicles and furniture, and selling hundreds of millions of dollars from the country’s reserves.
The result was that Bhutanese were buying rupees at a premium, paying Nu 110 for every Rs 100 when in fact the two currencies were pegged at equal value. More importantly, the entire economy took a big hit, growing at just 2.14% in 2013, the lowest GDP growth in decades.
So, soon after assuming office in 2013, I worked closely with RMA and successfully addressed the rupee crisis. In addition, we gradually improved the economy by injecting liquidity in the banking system, investing in infrastructure (notably in widening the East-West Highway, building central schools, improving airports, blacktopping gewog roads, constructing farm roads, and expanding the electricity and telecom network), reducing interest rates, improving ease of doing business, waiving taxes for small businesses, establishing REDC, and providing unprecedented support to hydropower, tourism, agriculture, livestock and CSIs.
Our hard work paid off. GDP growth rates increased from a low of 2.15% in 2013 to 5.4% in 2014, 6.6% in 2015 and 8% in 2016. Additionally, GDP was forecast to grow by 8.4% in 2017 and 9.2% in 2018.
And to ensure that the economy continued to grow, fuel prices were reduced drastically in November of 2017. The idea was that lower fuel prices would drive down the cost of construction, traded goods and some other services. The idea was also to allow truck drivers and taxi drivers, most of whom own the vehicles they drive, to earn more money. And finally, the idea was to make travel cheaper in rural Bhutan where farmers are required to drive much longer distances to get to neighboring villages, gewog centers and dzongkhag headquarters.
That’s why I was alarmed to read the Pay Commission’s recommendation to increase taxes on fuel. Specifically, they recommended that “In order to promote the Polluter Pays Principle, it is timely to revise the green tax on fuel. For example, if the green tax is revised by 5%, there is opportunity to generate additional revenue of Nu.450 million per annum.”
If increased consumption of fuel is leading to increased pollution, I would support an increased “green tax”. But I would do so on condition that revenue from green tax should be used for climate change mitigation and adaptation measures, not to finance increases in salaries.
Otherwise, the so-called green tax must not be misused. In fact, the price of fuel should not be increased so soon after they were deliberately reduced. Doing so would affect the incomes of truck drivers, taxi drivers and farmers. But, and more importantly, raising taxes on fuel would risk undoing all the hard-earned gains we have made in the economy since 2013.
In this context, the government should remember 2013.