Taxing times

Much has been said about the civil service pay hike which included the huge pay hike for politicians. There has been understandable public outrage given the potent symbolism of such a move in the economically tough times made worse by a complicated hike that many still don’t understand.

The only two silver lining, of sorts, is the NC taking an independent stand and Prime Minister declining his additional hike of Nu 50,000 over ministers which will be given to charity. There are those who feel the PM should have ensured his colleagues also follow suit, but at the same time, his colleagues can also take the moral cue and follow suit.

However, at the end of the day around 25,000 civil servants and politicians are better off than most people, especially in relation to the private and agricultural sectors. The civil service hike inclusive of the house rent comes to around 24 percent going up to 40 percent for lower levels.

This will mean that the rest of the country not falling in the privileged elite of 25,000 will face higher inflation on account of the hike and also bear the brunt of any other economic implications like tax , etc.

In the disproportionately civil service dominated media and social media, it has been made out that the unfair pay hike is the be all and end all of the current economic debate. While the hike has been symbolically unfair and politicians have not given a good account of themselves, the question to also ask would be the impact of such a hike in such economically unstable times.

However, the real issue that will really affect the vast majority of the Bhutanese economy including the private sector, unorganized sector and farmers is the Tax Bill.

Perhaps one of the worst economic policies of our times is the idea of taxing fuel with a five percent green tax. Though the tax, in terms of numbers, may seem miniscule it will push up inflation overnight making even basic commodities more expensive.

This is because most of our basic goods have to be transported over long distances in trucks and other vehicles. The moment the fuel tax comes into effect, the transportation charges go up, the cost of which is passed onto the shopkeepers who then pass it on to the consumers.

This is also in the context of Bhutan having historically higher inflation rates than even India on the account of transportation charges. It is also comes at a time when the Indian government is rapidly doing away with price controls and subsidies on fuel by letting the market decide.

Another major taxation blunder, in terms of the high 100 percent to 180 percent rates, is for vehicles. This move is driven in large part by the MPs, exempt from vehicle tax, who spend their time in a traffic heavy Thimphu with limited parking space. The Bhutan Living Standard Survey 2012 has detailed and accurate survey data on vehicle ownership up to the point when the vehicle ban was applied in the same year.

The data essentially shows that only 19 percent of Bhutanese families own a family car which is well below the popular perception that there are too many cars in Bhutan.

The taxes will in effect deny the remaining 81 percent of Bhutanese families, many of them outside Thimphu, the opportunity to own their own family cars. The high car taxes will also bear implications in terms of farm roads and rural prosperity as most farmers will opt out of buying vehicles to efficiently transport their agricultural products.

There should definitely be vehicle taxes to control imports and generate revenue but not to the extent that it becomes a disguised ban.

There is an emerging consensus in some circles of the government that public memory is short and they will forget about the hike issue by 2018. This is a debatable point, but even if they do forget and forgive, which currently looks unlikely, they would most certainly hold the government accountable for the abnormally high taxes including the inflationary fuel tax.

Both the pay revision report of the government and the Tax Bill show signs that they have not been thought out properly, and the decision makers who gave the final go ahead were not adequately aware of the ground realities and the blowbacks.

At the end of the day the two privileged classes of Bhutan, politicians and bureaucrats, have to remember that their salaries and benefits are funded by tax payers who so far have little to be satisfied or confident about.

“The power to tax is the power to destroy.”

John Marshall

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