Law banning quota sale in place since 2000 but with little effect

Though sale of vehicle quotas have been banned for both MPs and civil servants since 2000 with the ‘Sales Tax, Customs and Excise 2000’, there has been little or no effect on the sale of vehicle quotas.

The same Act which was amended as recently as 2012 even made it more specific saying that all quota items cannot be sold or transferred.

This will mean that though legally not permissible under this little known Act, the sale of quotas could continue unabated.

The Finance Minister Lyonpo Namgay Dorji said, “The law is there but it will be difficult for the government to monitor and prove unless one of the two parties or both parties bring the matters to the attention of the government in the form of some written agreement.”

In an effort to further strengthen the law civil servants have to now sign a legal document with the Ministry of Finance stating that if they sell the quota, then they will not get any more quotas, and the person holding the quota will attract all taxes.

With the MP’s Entitlement Act silent on the issue the MoF has so far not been able to come up with a similar legal agreement for MPs that threatens to dispossess them of their quotas.

The Sales Tax, Customs and Excise 2000 under section 33.1 said, “Sale or transfer of vehicles imported under exempt basis by persons shall be liable to pay Customs duty, taxes, fees and charges.”

This same section was amended in 2012 to make it more inclusive and said, ““The sale or transfer of duty/tax exempted goods either by an exempted person or imported or purchased on exempt basis, including those purchased through public auction or tender, the buyer if not a person entitled to exemption, shall pay the customs duty, taxes, fees and charges”.

The above basically means that if anyone sells or transfers a quota vehicle then that vehicle should attract all taxes. However, over the years, implementation of these clauses has been next to impossible.

The popular modus operand has been too keep the vehicle registered in the name of the civil servants or MPs quota though it is physically with the real owner for a period of around five years after which it can be legally changed to the real owner.

This will mean that even the new legal agreement for civil servants prohibiting quota will be difficult to monitor for the same reasons and loopholes. Also governments in the past and present have not been very enthusiastic to go after civil servants on a quota change.

This legal loophole of sorts if not contained could have long term implications on the country’s economy and the rupee situation.

In the light of the rupee shortage a special government task force report pointed out that between 2002-2011 the government gave up Nu 900 mn in tax revenue through vehicle quotas.

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.

According to the Road Safety and Transport Authority (RSTA) data, there were as many as 1,206 Bhutanese individuals owning more than two vehicles in their names as of February, 2012.

The report found that the quota had 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.

The Finance Minister said that given the impact of quotas especially on double imports the MoF had originally recommended doing away with the quota and giving the lump sum amount. He explained that this was also why the RSTA had earlier given a deadline to transfer the names of car owners without attracting any Customs Duty and Full Sales taxes to make a clean start, but now with quotas back even this would be difficult.

Both the Pay Commission Report and the Government’s Pay Revision report did away with the quota and instead gave Nu 160,000 for both civil servants and MPs.

However, with the Parliament deciding to give MPs back their vehicle quota based on the Entitlement Act and also impose heavy vehicle taxes, the government also came under intense pressure to allow civil service to also have their vehicle quotas which was eventually allowed.

Under the current scenario where both MPs and civil servants benefit the country may have to bear the eventual economic cost as made clear in the 2012 Rupee report.

With higher vehicle taxes of 55 to 180 percent on vehicles the Nu 800,000 limit quotas of civil servants have become more valuable than ever before which could lead to temptation to sell them for handsome profits and encourage more second vehicle imports.

The biggest beneficiaries would be in the case of MPs with no ceiling limit on vehicle quotas and super high taxes on luxury vehicles, which will mean that their quotas are worth millions. In the case of a Land Cruiser the quota can save up to Nu 8.47 mn in savings while for a Prado it would be around Nu 4.25 mn in savings.

It was observed that even the marginal increase in vehicle taxes in 2010 saw an overnight doubling in the re-sale value of vehicle quotas for civil servants and MPs.

With no way to implement laws banning quota sales, no matter how tough they are, vehicle quotas sales are expected to pick up, both in terms of profitability and numbers.

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