MoF cites SC tax verdict and Nu 6.6 bn fiscal incentives of ex-govt to justify book tax exemption

The Ministry of Finance (MoF) in a pres s conference on Friday evening countered the Opposition Party’s assertion that the Tax exemption granted on books by the MoF was in violation of the Constitution and the Supreme Court’s tax verdict of 2011.

Finance Minister Lyonpo Namgay Dorji said that the Supreme Court in its verdict on the Constitutional Tax case had clearly said that, ‘It is the prerogative of the government to declare and grant fiscal incentives.’

The former DPT government in its appeal to the Supreme Court on the tax case in 2011 had argued that if it did not have the right to impose taxes then it would also have to withdraw all the fiscal incentives given to boost the private sector. Lyonpo said those incentives were the 2010 Fiscal Incentives or tax exemptions MoF cites SC tax verdict and Nu 6.6 bn fiscal incentives of ex-govt to justify book tax exemption granted under the Economic Development Policy (EDP).

The Minister sharing a copy of the 2011 Supreme Court verdict said that the court while saying that the National Assembly had the sole right to impose and alter taxes had also clarified that the government of the day can directly declare and grant tax incentives.

The former government based on this verdict had continued with its 2010 fiscal incentives which are worth Nu 6.603 bn in actual revenue foregone from April 2010 to December 2014. It had also given major new tax exemptions or fiscal incentives and one example was incentives given to Hotels in April 2013 one month before their term expired according to the minister.

A MoF release says that thetax exemption lead to Nu 225 mn in revenue foregone between 17th April 2013 and 13th August 2015. Of this, the release says as an example the Bhutan Hotels Private Limited did not have to pay Nu 76 mn in taxes after receiving the incentive.

Bhutan Hotels Private Limited is the company which constructed and is a partner in the five star Le Meriden Hotel in Thimphu. The release brought up the company as an example is it is owned by an immediate family member of former DPT cabinet minister Yeshey Zimba and current DPT MP from South Thimphu.

A senior MoF official said that when one of the DPT’s main leader’s family was a beneficiary of such incentives then how could it not know that the very minimal incentives given for books in the National Reading Year is legal. The official said that the Nu 76 mn exemption for Le Meriden, Thimphu is only a two year exemption figure but the actual revenue foregone would be much higher as Le Meriden had started construction many years before that enjoying several fiscal incentives which are a part of the total Nu 6.603 bn incentives or tax revenue foregone package between 2010-14.

Lyonpo Namgay Dorji said that while the Supreme Court verdict had declared certain sections of the Sales Tax, Customs and Excise Act 2007 and Public Finance Act 2007 to be inconsistent with the Constitution it had not mentioned any inconsistency in the legal provisions used by the current government to grant tax exemption or fiscal incentive to books.

The MoF used Chapter 2 section 3.2 and Chapter 3 section 5.2 of the Sales Tax, Customs and Excise Act which says “on the satisfaction and in the public interest, the MoF may exempt a person from payment of Bhutan Sales Tax and Customs Duty.”

Lyonpo pointed out that the very same above legal provisions had been used by the former government to grant tax breaks and fiscal incentives well after the Tax verdict.

He pointed out that when the current government was the Opposition party it did not raise any objections to the tax exemptions granted by the previous government even after the Constitutional case respecting the ruling of the Supreme Court.

A release said that the government in granting the tax exemption did not abolish the customs and sales tax on import of books in totality as incentives are time bound and public interest is targeted. The taxation on books has been suspended only for a year to commemorate the ‘National Reading Year 2015.”

The Finance Minister said that it was very surprising to find out that the Opposition party even after having known all the above facts still called it illegal.

He said while the former government gave billions in tax exemption under the same laws and the court verdict, it, as the opposition party, was now questioning a few hundred thousand Ngultrums in tax exemptions given to books in the general public interest. He said the Opposition party should do better research, give evidenced backed statements and not give false statements.

Lyonpo also pointed to another earlier press release issued by the Opposition party which said that Dzongkhag and Gewog budgets of the first two years of the 10th plan (2008-2010) was Nu 12.407 bn under the former government but that it was only Nu 4.376 bn in the first two years of the 11th plan (2013-2015) of the current government. He said the calculation done by the Opposition party was completely erroneous and missed out many heads as the actual figure for 2013-2015 was Nu 17.3 66 bn or 40 percent higher than that of 2008-2010.