The task force to study the reasons behind the rupee shortage and suggest solutions was formed by the government on 12 January 2012. The report was submitted on 5 March 2012 to the cabinet.
One of the main higlights of the report is the co-relation between the import of vehicles and the rupee outflow. A reliable source talked to the paper on this aspect of the still secret report on the condition of anonymity.
Abolish Civil Service Vehicle Quota
“The rupee shortage task force has found that from 2002-2011 the government lost Nu 900 mn in potential revenue due to the civil servants vehicle quota,” said the source.
The total number of vehicles imported under the quota scheme from 2002 to 2011 was 3,121 vehicles worth Nu. 2.596 billion.
“The task force recommended the quota be abolished as it found that there is a relationship between the outflows of Rupee against the import of vehicles under the quota scheme,” he said.
“The task force report found that quota has a huge impact through fuel imports as well as in the form of double imports. Double import occurs as the quota buyer purchases a third country imported vehicle of a higher capacity and the civil servant uses the profit from selling his or her quota to purchase a smaller vehicle along with a bank loan,” he added.
This would affect both Bhutan’s convertible currency reserves and also its rupee reserves.
According to the Road Safety and Transport Authority (RSTA) ))data, there are as many as 1,206 Bhutanese individuals owning more than two vehicles in their names as of February, 2012.
40% car and five percent vehicle tax
The source also told this paper that the task force report had recommended a 40% green tax on all vehicle imports and a green tax of five percent be imposed on all fuel imports.
This information comes in the back drop of Lyonpo Wangdi Norbu and Lyonpo Yeshey Zimba announcing that the government will be imposing taxes on vehicles without specifying the exact amount.
“The task force report found that five percent vehicle tax increase especially on Indian vehicles had little impact on the import of vehicles,” said the source.
He said that in 2011, of the 6,893 vehicles imported from India, 4,254 vehicles (61%) were imported after the tax revision of 20 June, 2011. Though many of the vehicles were ordered before the new tax rates became effective, there were reasons to suggest that based on the past 6 months’ assessment, the tax revision had little impact on the import of vehicles.
The task force said that import duty and sales tax in Bhutan for vehicle imports are the lowest in the region.
“Since vehicle imports are a large component of Bhutan’s imports with corresponding increase in fuel consumption and Rupee outflows, the task force recommended that the Government consider imposing a 40% green tax on all vehicle imports,” said the source.
“The report however recommended that this should be implemented simultaneously with the abolition of the tax-free vehicle quota system,” he said.
It has also been recommended that vehicles should not be allowed to be given for sports tournaments and other promotional activities.
“The task force report also recommends that heavy earth-moving equipment be imposed with custom duty and sales tax,” he said.
The task force has recommended a five percent green tax on fuel imports equivalent to the current sales tax as it was one of the top ten imports and caused a significant rupee outflow.
“The report has also asked the government to review the pool vehicle system in line with the recommendations of the Committee of Secretaries,” said the source.
The Finance Minister Lyonpo Wangdi Norbu announced this month that the government is significantly cutting down on the purchase of new government vehicles.
Total Import of fuel and vehicles
The task force found that the total value of vehicle imports from 2002 to 2011 was Rs 7.90 billion in rupee outflow for Indian cars and another 110 million dollars (Nu 5bn) for third country imported vehicles. Of the total vehicle imports during 2002-2011, 83.4% were from India.
The total number of vehicles imported from India was 1,103 (Nu. 309.83 million) in 2002, which has increased to 6,893 (Nu. 3.6 billion) in 2011. “The report says that the high volume of vehicle imports from India was driven by easy access to credit and lower tax,” said the source.
Credit for transport loans have also grown steadily. It was 1.3 bn in 2008, 1.7 bn in 2009, 3.1 bn in 2010, and 4.3bn in 2011.
The import of fuel (petrol and diesel) increased from 42.76 million liters (Rs 720.89 million) in 2002 to 111 million liters (Rs 4.25 billion) in 2011 becoming one of the top ten imports from India. From 2002 to 2011, Rs 21.84 bn was spent on the import of fuel.
The task force found that import of heavy earth-moving equipment (excavators, bulldozers, angle-dozers, etc) had increased from four in 2002 to 331 in 2011 mainly in the construction sector. During 2011, such imports from India resulted in an outflow of Rs 1.38 billion. The total number of heavy earth-moving equipment imported from India during 2002-2011 was 598 and the Rupee outflow during this period was about Rs 1.7 billion. In addition to this, another 924 heavy earth-moving vehicles were imported from third countries using dollar reserves.