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.

Just shameful

Games people play

The government was caught off guard when the National Assembly passed the Tax Revision Bill last Wednesday. The Assembly threw out all but one of the proposed taxes. And before the government realized it, their proposals to raise taxes on petrol, diesel, kerosene and LPG; refrigerators, freezers and air conditioners; meat, fish and eggs; silk fabric, furniture and power chainsaws; and alcohol were emphatically rejected by the National Assembly.

The only tax to get through was the “green tax” on new vehicles. But that too suffered a huge setback: the proposed 40% green tax on vehicles (with engines equal to or bigger than 1800 cc) was reduced by half, to 20%; and a 5% green tax, which the government had not proposed, was slapped on small vehicles.

On Thursday, the day after the Bill was passed, the government informed the Assembly that, when they voted on the Bill, they had understood that their proposal to increase taxes on alcohol had been accepted. They were wrong. The only tax that the Assembly approved, it turns out, was the green tax on vehicles.

The government should be ashamed. They should be ashamed for not paying attention in the National Assembly. I had, in fact, tried to notify the Assembly that we had not discussed the Tax Revision Bill properly, in detail, and that, more importantly, we were not clear on what we were voting on. But the government, at that time, chose to remain silent. They chose to take the Assembly for granted. And they should be ashamed.

But the government should be ashamed for a bigger and much more important reason. They should be ashamed that the Assembly rejected almost every proposal in the Tax Revision Bill. Of the government’s many proposals, the Assembly passed just one – to levy a green tax on vehicles – and that too was watered down drastically.

The government has failed to persuade the National Assembly that the proposed taxes are necessary. And the government has failed to convince the Assembly that the proposed taxes are good for our country and good for our people. In other words, the government does not enjoy the confidence of the National Assembly. And that, for a government that commands an overwhelming majority in the National Assembly, is just shameful.

 

Photo credit: Kuensel

Public works

Thinley Lam

Thimphu’s main roads are fairly good. They are not necessarily beautiful, but, in spite of limited resources, they are, by and large, smooth, wide and well-managed.

The smaller roads, however, tell a different story. Many of them are narrow, riddled with pot holes, and have not seen any form of maintenance for years. Naturally, many local residents are frustrated. One such resident is Aum Thinley Lham. She lives in Taba and, for the longest time, has complained bitterly about the state of her road. But instead of continuing to grumble, she has decided to take matters into her own hands; she has decided to repair the road herself.

Last Sunday, I chanced upon Aum Thinley Lham repairing the road leading to upper Taba and to her property, Wangchuk Resort. She’d purchased several truckloads of concrete mix, and was using her own staff and her own vehicles to repair the road. Obviously, she couldn’t repair the entire road. But she felt lucky just to be able to patch up the biggest pot holes.

Most of us, who live in urban areas, take public property for granted. We want the best. But unlike our farmers, we do not contribute to building them. We don’t even contribute to their maintenance. This is not sustainable. If we want to enjoy good roads, good schools and good parks, we better learn, like Aum Thinley Lham, to contribute. Or we better be willing to pay our city corporation higher taxes.

Here’s a question: which, in your opinion, is the most beautiful road in Thimphu?

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.

Budget – taxes

Now really cheap

During his budget report last year, the finance minister informed the National Assembly that the government was implementing a range of measures to rationalize the sales tax and customs duty rates, and to broaden the sales tax base. The measures were expected to bring in additional revenue of Nu 450 million.

The government eventually withheld the implementation of all the increased taxes, except those that were imposed on vehicles. The taxes on vehicles were also lifted after the Supreme Court declared them to be unlawful.

This year, the government has submitted the Tax Revision Bill 2011 to the National Assembly along with their budget proposal. The Bill seeks to increase taxes according to the procedure outlined in the Constitution, the Public Finance Act and the orders of the Supreme Court.

Here are some features of the Tax Revision Bill that may interest you:

Taxes on vehicles. The increase in taxes proposed for vehicles is way below what the government tried to implement last year. Cars that have engine capacities of under 1.5L will be subject to 20% sales tax and 20% customs duty. Cars having engines between 1.5L and 2.5L will be subject to 20% sales tax and 25% customs duty. And cars that carry engines bigger than 2.5L will be subject to 20% sales tax and 30% customs duty.

Vehicles imported from India are exempt from customs duties. And vehicles that were ordered before the Bill was introduced will pay taxes at earlier rates.

Electrical and hybrid vehicles will not be taxed at all. So expect a surge in the number of hybrid vehicles within a few years. Bicycles are also fully tax exempt. That will come as good news to people wishing to bike to work or for pleasure.

Taxes on alcohol. Excise on domestically produced spirits have been increased only slightly, from 20-60% to 30-75%. Higher excise rates will be applied to cheaper alcohol, while the lower rates will be applied to more expensive brands.

The sales tax on imported spirits and wines has doubled to 100%, while customs duty on imported spirits and wines remains the same at 100%.

Beer will now be subject to 100% sales tax (up from 50%). And another 100% in customs duty will be charged on imported beer.

Packaged juices. The sales tax on all fruit juices packaged in containers below 250ml will be doubled to 30%.

Spare parts. The customs duties and sales taxes on a wide range of spare parts have been increased. But for some reason, customs duties on spares for certain boilers, generators, turbines and pumps have been reduced drastically.

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.

Totally redundant

Yesterday, the National Assembly passed the Sales Tax, Customs and Excise (Amendment) Bill, and the Public Finance (Amendment) Bill. The two of us in the opposition party had argued that the bills would violate the Constitution, and, in the end, only the two of us voted against the bills.

The two amendments could allow the government to impose and raise taxes without having to seek the Parliament’s approval.

The bills will now be forwarded to the National Council, who will discuss them in the next session. If they pass the bills, the amendments will come into effect. If not, the bills will be submitted to a joint sitting of the Parliament.

Now here’s the strange part: the government’s legislative maneuvering is totally redundant.

Why? Because the Supreme Court will soon consider the first constitutional case, and rule whether or not the Constitution permits the government to impose taxes without fist passing it through the Parliament.

If the Supreme Court rules that the Constitution does, indeed, empower the government to impose and revise taxes without the Parliament’s approval, it would have been unnecessary to amend the existing laws in such a hurry.

But if the Supreme Court rules that, according to the Constitution, the government must seek Parliament’s approval before imposing and revising taxes, the amendments that the National Assembly passed yesterday would automatically become null and void.

The Supreme Court is the guardian of the Constitution and the final authority on its interpretation. We should have let them do their job, instead of jumping the gun, and becoming redundant.

Felicitating the Judiciary

The High Court has rendered judgment on Bhutan’s first constitutional case. The esteemed Court ruled that the taxes imposed by the government earlier this year are unlawful, and ordered the government to refund those taxes. The Court also issued an injunction preventing the government from raising taxes without the Parliament’s approval.

The High Court’s landmark verdict has been hailed as a victory for the opposition party. And the opposition has received numerous congratulatory messages.

We are duly humbled. And grateful for the good wishes.

But, the felicitations are misguided.

The Court’s verdict, in fact, is not a victory for the opposition party. Nor is it a loss for the government. We must see the verdict for what it is: the High Court’s interpretation (through considerable hard work and expertise, no doubt) of the Constitution. And that interpretation is not yet binding – it can still be appealed to the Supreme Court.

But regardless of whether the High Court’s verdict is eventually upheld, revised or reversed, and regardless of whether existing laws are amended or not, what will now emerge is a clear understanding of how taxes can be raised. And that understanding will be good for all the parties involved – the government, the ruling party, the opposition, the National Council, and, most importantly, the taxpayer.

At a broader level, the High Court’s verdict is being applauded as evidence of the Judiciary’s independence and, therefore, a healthy democracy. Obviously, the verdict is important for the case. But what’s much more important are the democratic checks and balances that were set in motion almost three months ago when the High Court accepted and started considering the Constitutional Case.

So regardless of the eventual verdict, felicitations are really due to the Judiciary.

Taking people for a ride

Bhutan Today has quoted MP Ugyen Wangdi, the National Assembly’s legislative committee chairman, of accusing the opposition leader of trying to “hoodwink the people of Bhutan” and taking “the people of Bhutan for a ride”. He was referring to my continuing protests over the government’s unlawful tax increases.

Obviously, Dasho Ugyen is entitled to his views. And, yes, I’ll defend his right to express them. But I’m surprised at his views. After all, he’s the very MP who tabled the motion in Parliament to amend the provisions of the Sales Tax, Customs and Excise Act 2000 that he considered to be inconsistent with the Constitution.

Here’s his Notice of Motion:

Amendment of the Sales Tax, Customs and Excise Act of the Kingdom of Bhutan, 2000.

As per Part I, Chapter 3, Section 4.2 of the Sales Tax, Customs and Excise Act of the Kingdom which was passed by the then National Assembly of Bhutan, the Royal Government is given the power to approve the fixation of the rates of Sales Tax and any revision thereof, and the range of commodities and services under the Sales Tax Schedule. On the other hand, Article 14, (1) of the Constitution states that taxes, fees and other forms of levies shall not be imposed or altered except by law. As such, any change in sales tax and customs duty needs to be done in concurrence with the Parliament.

In accordance with Article 1(10) of the Constitution, the undersigned would like to propose to the House that the relevant agency shall be directed to make necessary amendments to the Sales Tax, Customs an Excise Act of the Kingdom of Bhutan, 2000 and submit it to the National Assembly for amendment.

In his motion, Dasho Ugyen refers to Article 14, Section 1 of the Constitution and concludes that, “As such, any change in sales tax and customs duty needs to be done in concurrence with the Parliament.” And that’s exactly what I’ve been saying: only Parliament can raise taxes, not the government.

Dasho Ugyen also refers to Article 1, Section 10: “All laws in force in the territory of Bhutan at the time of adopting this Constitution shall continue until altered, repealed or amended by Parliament. However, the provisions of any law, whether made before or after the coming into force of this Constitution, which are inconsistent with this Constitution, shall be null and void.” Again, exactly what I’ve been saying: the provisions of the Sales Tax, Customs and Excise Act 2000 that gave the government the authority to raise taxes are now “null and void”.

So I really don’t understand why Dasho Ugyen is so upset that I’m continuing to challenge the tax increases imposed by the government.

Perhaps it’s because I did not, as he put it, raise my voice at all on this issue in the House when he tabled the motion. He’s correct: I did not take the floor then. But I did not speak for a very simple reason: I supported the motion. In fact, every member of the National Assembly supported the motion!

Taxing explanation

The prime minister devoted a substantial part of his State of the Nation address to justify the government’s recent tax hikes. And to discredit the “vocal few” who challenged the government’s ill-conceived tax policies. The prime minister:

Much has been said of the fiscal incentives and tax increases in certain areas. It has been alleged that the government is being insensitive to the difficulties that these will cause to our poor and ordinary businesspeople and that they will suffer the most. However, one should not allow oneself to be influenced without seeing the full picture. One needs to be also mindful that such opinions could be planted to influence public opinion in order to protect the interest of those who are in positions of power and influence. As this is a serious matter, I would like to explain it in some detail.

And so he explained, in great detail, that we enjoy some of the lowest tax rates in the world; that we must replace external development assistance with internal revenue; that the policies are pro-poor; that the tax hikes are not aimed at generating government revenue; that taxes were being increased for the public good in spite of the political risks; that doing what is popular would be unpatriotic; that the opposition to tax increases benefits the rich and influential; that ministers did not take a pay raise; that increasing taxes will prevent widening economic disparities and social ills; that taxes lead to environment friendly development; that the tax measures would develop a tax paying culture; and, finally, that paying taxes is about democracy.

Indeed, we may need to increase taxes. So taxes, per se, is not what I’m concerned about. Not at this time, at least.

What I am concerned about – and what the public outcry is generally about – is that the government did not follow the law, particularly the Constitution, when it recently revised the tax structure.

The debate is not about if taxes should be revised. It’s about how taxes should be revised.

In order to deflect the debate, the prime minister used the State of the Nation address to explain, at great length, why taxes had to be increased.

But that won’t do. I’ve already reported the matter in the National Assembly. And if the government refuses to review its decision, I may be compelled to report it to the Supreme Court.