ACC drops Le Meridien, Thimphu Fiscal Incentives case

ACC writes to the PM recommending need to institute a system of declaring Conflict of Interest in Cabinet meetings

The Anti Corruption Commission has dropped the ‘Le Meridian’ (Thimphu) Fiscal Incentives case finding no policy corruption against former Minister Lyonpo Dasho Yeshey Zimba.

The ACC said that 25 January 2018, the Commission received a complaint against Lyonpo Yeshey Zimba, former Minister for Ministry of Works and Human Settlement (MoWHS).

The complainant (which was the former government) alleged that former Minister was fully involved in processing and approving the ‘revised list of Fiscal Incentives (FI) for Tourist Standard Hotels-April 2013’.

It said this FI was approved in 156 Session of the Lhengye Zhungtshog (LZ) where former Lyonpo had chaired in absence of Prime Minister and its decision benefited most to his daughter’s entity called M/s Bhutan Hotels Pvt. Ltd (Le Meridien) amongst 92 hotels.

Therefore, the complainant alleged that there were elements of policy corruption, abuse of official power and functions, failure to declare obvious conflict of interest and official misconducts involved in granting the above cited FI.

The Commission assigned the case to a team on 31 July 2019 to prove or disprove the allegations.

Investigation Findings

The Revised Fiscal Incentives (FI) was initiated as per the Executive Order number on 13 November 2009. This order was issued to frame policies for supply up-gradation with appropriate incentives for all tourist hotels to upgrade to at least 3 Star.

Accordingly, the policy was framed. In 2010 the incentives got divided into general ones for new hotels and additional incetives for those upgrading their hotels.  However, Tourist Accommodation Providers and Hotel Developers and Hotel Association of Bhutan (HAB) were not satisfied with the policy as they wanted to merge the two for and appealed to various agencies and committees involving different stakeholders wherein varying decisions and recommendations were exchanged.

Later, working group with members from different agencies was formed to study the incentives for the hotel industry so as to rationalize and streamline and bring about a mechanism to support the growing tourism sector with adequate number of quality standard hotels. Upon completion, the working group submitted its report to the Ministry of Finance (MoF).

Thereafter, the MoF forwarded above cited report to the Department of Revenue and Customs (DRC) for further study and comments along with the directives to analyze the revenue forgone by way of delivering incentives.

Subsequently, the DRC submitted the report as a Note Sheet back to the Ministry along with its recommendation. The Ministry approve this Note Sheet as per the Sales Tax, Customs & Excise Act of the Kingdom of Bhutan 2000 which empowers MoF to exempt taxes in the public interest.

The entire content of the above Note Sheet was presented to 156th Cabinet Session on 2 April 2013 by Finance Secretary where Lyonpo Yeshey Zimba was present as one of the members. This Cabinet meeting had reconsidered the decision of the incentives for hotels and accordingly approved as recommended by the Working Group and later by MoF. During the time, the Prime Minister was away in Bangkok on a private visit.

Similarly, the 157th Cabinet Session dated 9 April 2013 had also reconsidered the decision of the incentives for hotels and decided to approve as recommended by the working committee. This session was presided by the Prime Minister.

As per data from MoF, total of 51 Tourist Standard Hotels had benefited from revised FI -April 2013. Amongst it, M/s Bhutan Hotels Pvt. Ltd (Le Meridien) availed highest incentives  Nu. 60.71 Million followed by M/s Himalayan Safaris Lodges Pvt  Ltd with Nu.7.50 Million and M/s Manidheepa- Mohsin Hotels and Resort Pvt Ltd (Le Meridien, Paro) with Nu.7.30 Million.

Basis for dropping the case

The ACC said the revised FI for Tourist Standard Hotels-April 2013 had moved through various committees involving different stakeholders where former Lyonpo Yeshey Zimba’s involvement was not seen at any level while processing. Therefore, the allegation of former Lyonpo being fully involved in the processing of FI list remains unfounded.

The effective date of implementation and the end date otiming of the revised FI (from April 2013 to December 2015) was as per the recommendation of DRC, MoF basing Section 3.7.2 (a) (sunset clause) of Rules and Regulations FI 2010. Thus, it was not perfectly designed for the benefit of hotels under active construction and readying to acquire those tax exempted items as alleged.

The former Lyonpo was involved in both the LZ Sessions (156 and 157) in approving the revised FI list April-2013 but investigation did not find any alteration on the FI list submitted by the working group through MoF.

It says there was a Conflict of Interest (CoI) with former Lyonpo’s participation in the meeting but the decision was not on a particular hotel instead it was for the whole hotel industry. Further, the revised list of FI introduced in April 2013 was not a new incentive in entirety as it was part of FI Rules and Regulations 2010. Therefore, former Lyonpo’s role in approving the revised FI was seen to have done as a Cabinet member.

The Commission has also noted that the decision was subsequently endorsed by the Prime Minister during the 157th LZ session on 9 April 2013. Therefore, even if Lyonpo Yeshey Zimba had abstained from presiding the meeting on 156th LZ on 2 April 2013, the eventual outcome of M/s Bhutan Hotel Pvt. Ltd (Le Meridien) benefiting from the policy itself could not have been different.

There was no established procedure whether or not to report the fiscal incentive agenda to the parliament. Therefore, the decision rested with the government of the day whether to put up to the parliament or not. It says, “Strictly speaking, the Section 3.2, Chapter 2 of Part I and Section 5.2 Chapter 3 of Part II of the Sales Tax, Customs and Excise Act of the Kingdom of Bhutan 2000 empowers MoF to exempt taxes in the public interest.”

In view of the investigation findings, the Commission did not find compelling evidence to pursue the case any further and therefore decided to drop the case.

However, the Commission is of the belief that both perceived as well as actual risk of policy corruption can still persist unless transparent and preventive mechanisms are considered and put in place. The Commission, therefore decided to formally write to the Prime Minister recommending the need to institute a system of declaring Conflict of Interest (CoI), if any in the LZ meetings.

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