Learning through mistakes

Tough economic decisions are never popular in any country, but what can make it palatable is good communication that point out the benefits of such decisions, both in the short term and the long term.

The government came up with a controversial Tax Bill in response to the depressed economy, popular demands to lift import bans while still controlling imports, and also to raise revenue.

The Tax Bill imposes heavy taxes on vehicle imports and also places tax on Bhutan’s biggest import item, which is fuel.

Given how transportation has become central to the economy and the Bhutanese way of life, the tax decisions were bound to generate backlash and invite controversy.

The government missed a few key tricks – mainly revolving around good communication and strategy. First of all, the timing of the surprise Tax Bill – right after an even more controversial Pay Hike report, could not have been worse. More fuel was added to this roaring fire when the MPs decided that they would not pay vehicle taxes.

The government should have released the Pay Commission’s original report to the public for comments, feedback and reaction and then have considered its final view, like the former government, which avoided controversy on the issue. Keeping it top secret till the last moment, and then releasing it, suddenly on the public provoked much confusion and anger.

It was no surprise then that the Tax Bill that emerged immediately after this episode worked like a ‘one- two’ punch to knock the government off its feet.

While taxes are universally unpopular – there are ways to make it more palatable. In Bhutan’s case, the government failed to even communicate the contents of the Tax Bill properly.

The Tax Bill, itself, showed that small vehicles that most people drive would be taxed up to 115 percent – without explaining that customs duty would be exempt on it since most of them were imported from India, bringing the actual tax to around 55 percent up from the existing 25 percent. A lot of the initial public reaction was on the misunderstood 115 percent figure for small and medium vehicles imported for India that is used by the Bhutanese masses.

The government also failed to highlight positive aspect of the Tax Bill, like the fact that fixed deposits would no longer be taxed with Personal Income Tax – to encourage a savings culture and facilitate liquidity in the banks. Another aspect was that small businesses in rural areas would be exempt from Business Income Tax from 2014 onwards.

A lot of the controversy around the Tax Bill could have been tempered if the government of the day had announced that strong fiscal measures like this would not only lead to lifting of import bans but also a lifting of credit freeze imposed by the RMA in housing, car and consumer loans since 2012.

It is now becoming clear that in light of the strong fiscal measures the RMA is on the verge of allowing banks to give the loans again, albeit with some conditions.

If decisions were taken with more feedback, and issues had been thought through more thoroughly then the big story of the year could have been the government bringing the economy back on track by strong fiscal measures, but at the same time, lifting import bans, raising revenue and relaxing the so far tough monetary policies.

Unfortunately, some monumental economic steps and policies that will have far reaching implications on Bhutan’s economy have been hidden and clouded over due to lack of transparency, feedback and also political miscalculation.

The government of the day may not be happy with the critical coverage in the media, the tough stand of the NC, strong statements by political parties and ordinary people’s feedback, but there is no denying that it created and landed itself in this pickle. Various institutions were forced to take a stand by the virtue of the sheer weight of public opinion and the government’s own erroneous steps.

There is no point in retreating into a corner or going into an almighty sulk – as politics, in this day and age, is not suited for the survival of the thin-skinned or the sensitive. The government of the day has to learn valuable lessons from this episode and pick itself up and make sure it does much better in the future.

At the end of the day – everybody makes mistakes, but everybody also gets a chance to improve on them. It is only those who choose to repeat them that are doomed for failure. The government has four more years to ensure that it does not repeat its past mistakes and only grows wiser and stronger from them. The country and people’s future, at this critical moment in Bhutan’s history, depends on it.

“Good judgment comes from experience, and experience comes from bad judgment.”

Rita Mae Brown