A tax free country ?

Taxes of any sort are never welcome and generally if citizens can have their way then Bhutan probably would be a largely tax free country.

This is clear with MP’s voting to do away with or reduce most of the proposed taxes on fuel, non essential food, vehicles etc. Their predicament again is understandable with elections coming up in 2013 each MP will not want to displease voters in his or her constituency. In short no MP will want to support an unpopular move, and they all know that taxes are unpopular.

The Speaker’s unilateral and controversial move to not allow taxes on alcohol only adds to the feeling that parliamentarians in general will not support high taxes.

While all this may go down well with the masses it will have a long term impact on the exchequer and finances of the nation. The same masses celebrating the non passage of taxes may be protesting over lack of proper roads and services a few months down the line. Ironically these projects would have been shelved due to the lack of tax revenue.

The Ministry of Finance and the government as a whole will be more hard pressed than ever to find revenue and also deal with the rupee crunch.

In most countries taxes are handled by the executive government and announced or withdrawn by the Finance Ministry or the decision of the cabinet depending on the financial situation.

Due to the nature of our financial laws and the Supreme Court verdict the government is faced with a unique situation where National Assembly MPs make tax decisions that ministers normally take in other countries.

While this may be seen as the ultimate practice of democratic ideals but it is financially not a sound system.

The cabinet and the finance minister have the unique facility of being aware and responsible for the day to day functioning of the economy. They have to make quick and effective executive decisions at times to deal with financial problems. The ministers apart from their own experience are also advised by an array of bureaucrats, technocrats and financial experts on a timely basis.

Technically it would be more sound and efficient for the finance ministry or the cabinet to levy or remove taxes. This is becoming clearer with the recent events and confusion in the Parliament.

Ministers are in the unique position of being responsible and accountable to the nation on financial issues like taxes. Therefore they have to always make decisions keeping the big picture in mind.

MP’s though they form the government individually represent their constituency and therefore may not be able to appreciate the bigger picture like their ministerial colleagues.

Some may say that since the ministers are leaders of the party, they can force their MPs to take a particular line.

This may work for a while in a new democracy where political parties have not yet evolved a strong internal party democracy and a few can still call the shots. But, in the long run once MP’s become politically savvier, the top party leadership can face a virtual revolt if they don’t go along with the popular feeling among MPs.

Bhutan, may try the current tax system for a while but if it leads to virtually little or no taxation making it difficult for the current and future governments to get even critical revenue then our tax laws may merit a serious re-look.

Taxes are important, especially in a democracy where people have taken the onus of forming the government. It makes the government more accountable to the people and also makes ordinary citizens genuine stakeholders in the Bhutanese state.