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Businesses may have to refund billions if NA can’t resolve Fiscal Incentives issue

A heated debate was expected on Thursday over the Local Government pay hike, but instead the real action took place with the preceding discussion on the Finance Committee’s report on Fiscal Incentives.

There was uproar in the National Assembly (NA) when in response to a question from the Bumdeling-Jamkhar MP Dubtho, the Chairman of the Finance Committee MP Karma Tenzin from Wamrong said that according to the Finance Committee the bill was for endorsement and not information, meaning that it is a money bill.

After that the Speaker Tshogpon Jigme Zangpo and some Opposition MPs all pointed out that the Fiscal Incentives 2016 is actually a Money Bill and cannot be treated as the prerogative of the government without approval from the NA.

The discussion on Thursday saw the NA resolving that the Fiscal Incentives as being a money bill.

The problem for the government is that these incentives are already being implemented from January 2016 and the Fiscal Incentives (FI) 2016 which was launched in April 2017 was supposed to apply retroactively from January 2016.

Since the FI has been recognized as a money bill it means that all the incentives granted in the last seventeen months would have to be refunded by a host of private companies in an array of sectors, as it was not passed by the Parliament.

These sectors are industry, Tourism, mines, education, transport, cottage etc.

An even bigger potential problem is that if the 2016 fiscal incentives cannot be applied retroactively from January 2016 then it would also put a question mark on the Fiscal incentives issued in 2013 and 2010 by the former government, coming to more than Nu 7 bn.

This was stated as such by both the Finance and Foreign Ministers who said if the FI cannot be backdated from January 2016 then it would also mean that the 2010 and 2013 FI granted by the former government would also have to relooked at.

From 2010 to 2014 alone Nu 6.603 bn in fiscal incentives was granted. In April 2013 a month before the former government’s term expired they granted Nu 250 mn in tax exemptions to hotels.

The speaker clarifying the legal position pointed out section 14.1 of the Constitution dealing with Finance, Trade and Commerce which says ‘Taxes, fees and other forms of levies shall not be imposed or altered except by law.’

He also made reference to the February 2011 Supreme Court’s judgment in the tax case asserting that it clearly points to FIs as a money Bill. The speaker also pointed out the Public Finance Act of Bhutan 2012 Amendment where section 46 (A) defines a money Bill AS one dealing with ‘imposition or increase of any tax or abolition, reduction or remission of any existing tax.’

The intervention and position of the Speaker in addition to the position of the Finance Committee was decisive as the Public Finance Act  says that if any question arises whether a bill is a money bill or not, the decision of the Speaker will be final.

The Speaker early on stated his opinion that going by the various Constitutional and legal provisions the FI is a money bill.

The Opposition also charged in pointing out similar legal clauses. The Panbang MP Dorji Wangdi said that when the ruling government was in the Opposition it was they who dragged the former government to the Supreme Court over a similar issue of taxes on vehicles.

There was scramble by the ruling party lead mainly by the Finance Minister Lyonpo Namgay Dorji and the Foreign Minister Lyonpo Damcho Dorji to insist that the FI is not a money bill.

Both of them pointed to a passage in the Supreme Court verdict which says, “The government under section 6 article 14 of the Constitution has the responsibility of ensuring that the cost of the recurrent expenditure is met from the internal resources of the country, it is the prerogative of the government to declare and grant fiscal incentives or to propose taxes to meet expenses of the government.”

Both ministers said that the Supreme Court verdict had given them the right to ‘declare and grant’ fiscal incentives and that it had been done so in 2010 by the former government

However, this reading of the verdict was not accepted by the Speaker and also members of the Opposition. A member of the Finance Committee pointed out that lower below the verdict clearly says that the power to alter the rate of taxes by the government is a usurpation of power not granted by the Constitution.

Dorji Wangdi pointed out the same verdict says that ‘imposing and altering of taxes must be decided by the elected representatives of the people in its entirety and not just a subgroup represented by the executive. According to Constitutional provisions it must be approved and passed by the Parliament.”

During the lunch break both ruling and opposition MPs consulted their respective party members and also talked to each other excitedly in the corridors of the Parliament as the realization increasingly dawned about the gravity of the situation.

After the lunch break members of the Opposition led by the Opposition Leader and few others demanded that since the FI is a money bill it should be implemented effective from 8th May 2017 when it was introduced in the NA.

They said that the necessary fines and penalties under the Public Finance Act should also be applied for changing taxes without brining it through Parliament. The Opposition also stressed on the point that the Constitution had been violated and now things must be done as per the law.

The Foreign Minister made that case that since the Supreme Court verdict came out in February 2011 the former government by the same standards should have also withdrawn the 2010 incentives and re-introduced it as a money bill which did not happen.

Here, the Speaker observed that as per practice when a money bill is brought in the rule is that it applies from the day of its presentation in the NA which is 8th May 2017. Based on voting and his special prerogative he resolved the FI to be a money bill.

On Friday morning the issue cropped up again. The Finance Minister made a request to the house that since the house determined the FI to be a money bill it should be made retroactively applicable from January 2016 in the interest of the private sector and the business community. He also said that despite the NA’s resolution the government was of the view that the FI is not a money bill.

Both he and the Foreign Minister once again stressed that if the FI cannot be applied retroactively from January 2016 then the 2010 and 2013 incentives granted by the former government may also fall under the same legal category.

The Opposition leader, Panbang MP and Drametse-Ngatshang MP Ugyen Wangdi all three insisted that the bill is applicable from 8th May 2017 as per NA laws. The Opposition also said that the bringing up 2010 and 2013 was of no point as it had already happened in the past and is over as it was not challenged then.

The Finance Minister requested for some time from the NA to post pone discussion on the FI so that the minister could consult more stakeholders on trying to apply the FI retroactively. The Speaker took a vote from the house which agreed to the time extension after which the Speaker asked the Minister to give a written application on the basis of which he could give some time to resolve the date of application of the FI. The speaker said that the authority to decide on the matter lay with the NA.

The effort now will be to try and find a compromise between the ruling and opposition party to treat this as a first and last case by which the incentives can be applied retroactively. While the Opposition is keen to dig in its heels on the issue especially before the elections the ruling party has the advantage of telling the Opposition that any strong stand could also threaten the 2010 and 2013 incentives.

The path ahead, however, looks difficult and unclear and a lot will depend on the meetings within the NA.

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