The real reasons why the government hiked the SDF and the path ahead

As the Tourism Levy Bill 2022 that increases the Sustainable Development Fee from USD 65 to 200 was passed in the Parliament, a major question that people are still asking about is, why the reform, what is it actually and what will its impact be?

The reform is part of the 11 larger transformation exercises going on in various other areas with tourism now being a key area.

The tourism reforms arise from a sense of concern that Bhutan’s ‘High Value and Low Volume’ tourism is not really able to provide that high value due to massive undercutting; an inflexible Minimum Daily Package Rate system that limits potential; is not providing the jobs for the youth where they can make a good living; and the available benefits are not widely shared.

In the long term, the reform also aims to provide significant revenue to the government, to not only invest back in tourism, but also invest in reforms on social sectors, like education and health.

Removing MDPR and undercutting

Lyonchhen Dr Lotay Tshering said that the USD 65 SDF was instituted in 1991 and the MDPR of USD 250 a day was supposed to be the minimum package, but became the maximum package.

He said that there is a lot of undercutting where a USD 250 experience may become USU 120, USD 110 and even USD 70.

The PM said that while the MDPR rate was USD 250 one of the biggest complaints of tourists was on the hotel buffet meals. He said this happened because after undercutting, the tour operators would not be left with much money, and so even in three star hotels they would be forced to serve meals at Nu 350 to Nu 400 per head.

The PM said with such economics, it is no wonder that hotels can only pay staff Nu 7,000 to Nu 15,000 a month, when the aim should be to have staff who can be paid Nu 30,000 to Nu 50,000 a month.

The PM said that once there is high value tourism then the Ministry of Labour and Human Resources can ensure that staff are getting gratuity, pension, etc., and a decent pay.

The MDPR is being removed, which means that once the tourist pays the USD 200 SDF, they are free to stay and eat in their own choice of hotels, and it is not compulsory for them to come via tour operators.

The TCB Director General, Dorji Dhradhul, said around 90 percent of the dollar paying tourists coming to Bhutan are through Overseas Tour Operators, who take a major share of the revenue. He gave the example of the one of the first 34 tourists group coming to Bhutan, after the pandemic lockdown, and said there were some issues and the TCB had to do an investigation.

The DG said that the tourists had actually paid USD 450 a day for their trip to Bhutan, but only USD 250 had been transferred. The DG said that there are many cases where even from this USD 250, the local tour operators have to given an additional cut back to the overseas tour operators.

There are even reports of tourists paying up to USD 700 to 600 to foreign tour operators, but local tour operators get only USD 250 a day.

The DG said Bhutan is sold as a high value destination by these international operators, but when the tourists come here, their expectations are not met, as the infrastructure is poor due to this undercutting.

The DG said there is no innovation in the tourism system, and a lot of complacency and many tour operators are ‘briefcase tour operators,’ with no innovation and laziness, however, at the same time, there are those who are trying as all are not the same.

Bhutan becoming a budget and mass tourism destination

Lyonchhen Dr Lotay Tshering said, “If we really are a high-end destination then we should be getting repeat visitors of at least 50 to 60 percent, but this is not happening as visitors may not be finding it worth it. It is a bit late, but we must do something,” said the PM.

The PM said that the term ‘high value’ should mean value for both tourists and locals, and Bhutan should be able to justify itself as a high value destination. He said high value tourism should also leave behind benefits, in terms of education, infrastructure building, roads, better public toilets, etc.

Giving the current example of tourism, Lyonchhen took the example of village homestays, but he said TCB is not monitoring them.

“We are being sold as a budget destination. We have been selling ourselves as high-end to around 70,000 dollar paying tourists, and there are also 200,000 to 250,000 regional tourists,” said Lyonchhen.

He said the problem is a high-end destination with low end services.

“A high-end destination means we have to give high-end services so that both parties get value for the amount, and in the long run the country and ordinary Bhutanese are benefitted from this,” said the PM.

Lyonchhen asked for a country getting around 70,000 dollar paying tourists, how many tour operators, guides, etc., can it sustain?

The DG admitted that Bhutan got derailed from its original high value and low volume tourism over the years, sacrificing long-term gain for short-term benefits, and so started to go into mass tourism and low-end tourism. He said Bhutan in 2019 had been overwhelmed by low-end tourism.

The DG, to illustrate, said that between 2018 and 2019 the numbers of arrivals jumped by 15 percent, but the gross earnings went up by only 3.67 percent. He said overall this means that just within one year, the average per capita (per person) revenue decreased by 9.9 percent despite higher numbers every year.

Lyonchhen said the current state of affairs in part due to the systemic failure of the Tourism Council of Bhutan (TCB), as an institution, though it is not fair to blame the current DG.

Why USD 200 and why now?

The Prime Minister said that there are two main questions raised on the USD 200 SDF. The first is that the USD 200 rate is too expensive, and if it can be first increased to USD 100 and then slowly upwards. The second is on the timing, on why is this is being done when the effort is to revive the economy.

On the rate, the PM said that as per the inflation rate of Bhutan the USD 65 of 1991 should actually be more than USD 700 today. He said there was some debate on making the SDF USD 500 or USD 250, and finally it was settled for USD 200.

On the timing aspect, the PM said that this is the right time, given the low global tourism numbers, there will anyhow not be many tourists coming, and such a reform will be doubly difficult years later when the numbers pick up.

What about regional tourists?

On the Nu 1,200 per day SDF for regional tourists, the PM said that while the law was passed in 2020 it was never implemented, and the government wants to see the impact before touching the rate.

The PM said that if regional tourists still come in very large numbers then the rate can be revised upwards a couple of years down the line.

He said that the same applies to the USD 200 SDF for dollar paying tourists.

Lyonchhen said that the rise in budget hotels is a policy creation, and the term called regional tourist, itself, is a mistake.

Ensuring better paying jobs for the youth

The TCB DG threw more insight on why the transformation exercise was being carried out.

He said, “To develop Bhutan, we have to make it a high-income nation and raise standards. Right now, people working in the hotels mostly get a maximum around Nu 10,000 to 15,000. For high- income earning, a transformation needs to take place in tourism, which is one of the 11 streams of transformation.”

Giving his own example, the DG said that even as someone in the second tier of the civil service his pay is around Nu 50,000 a month, which is hand-to-mouth. The DG asked if we want a hand- to-mouth salary situation for our children, and it will even become worse in our lifetime, if nothing is done.

He said the other challenge is that tourism is seen as a low hanging fruit with people seeing it as an interesting and good paying job, like guides, but the reality is that people are barely surviving and it is not good enough.

The DG said this can be seen from the fact that during the pandemic around 12,000 people working in the tourism sector was getting Royal Kidu, as they had no savings and they would otherwise starve.

The DG said that a lot of people are joining the tourism sector, but it does not require so much people. He said there are around 3,500 tour operators and 4,000 guides and hotels in Thimphu, Paro and Punakha are in oversupply.

He said that by international standards, actually around 1,000 guides are more than enough for even 300,000 tourists. He said slowly everyone is getting into tourism, but it is a low-paying job and the money is not enough.

The DG said that the Bhutanese youth are going to Kuwait and the Middle East to earn Nu 30,000 a month of which they save Nu 15,000. He said the youth should be getting the well paid jobs here.

In terms of the numbers of tourists, the sharing of the numbers is also not found to be equal as around half the tourists in Bhutan are brought in by 20 top tour operators, while the other 50 percent are brought in by the remaining 3,000 plus registered tour operators.

The DG said the actual benefits are going to only a small group. He said as the Gasa Dzongda he tried to sell the local produce to high end hotels in Thimphu, but it was tough to negotiate with the hotels who did not have much of a margin to buy local food produce. The Dzongkhag had to provide transportation subsidy and still sale was not easy.

He said that the stakeholders of tourism are not only the hotels, tour operators and guides but all Bhutanese citizens, and tourism is a national strategic asset which must also be protected for future generations.

Lyonchhen admitted that widespread stakeholder consultation had not been done with Association of Bhutanese Tour Operators, Hotel and Restaurant Association of Bhutan, Guides Association of Bhutan and Handicraft Association of Bhutan. He said the issue is not consultation, but the fact that they would not want these reforms to happen, if there was consultation.

The PM also clarified that the actual number of people directly involved in the Tourism Industry is not 50,000, as said before, but around 13,000.

The benefits and preparation for high value

The PM said that the benefits of high value tourism will be reaped by the ordinary Bhutanese who can use the same high-end toilets or even enjoy a safe Norzin Lam late at night.

The PM said one issue raised by tour operators was on the need to have dollar accounts to get and send dollars, and this is being looked into. The PM said that the TCB website is quite dead, and that will also be revamped to make it more user friendly. Lyonchhen also hinted that TCB, itself, maybe revamped.

He said that in the current system, the local tour operators are more like the ground handlers, and so the government will do an international-level branding, and part of this will be hiring a top-level international Chief Marketing Officer and Public Relations and Communications will also be looked at.

Lyonchhen said that tour operators will also have to play their part to sell the tours directly and derive the full benefit.

The PM said there should be TCB approved vehicles, and guides should be experienced and specialized. Under the new system, to make it easy for tourists, they can get their visas processed directly through immigration, and the TCB is working to improve its payment platforms.

The DG said things would be ready by end of July. He said the hotels have also requested for a few months’ time to prepare for reopening.

The PM said there maybe short-term losses and pain. He said if those budget hotels that cater only to regional tourists refuse to upgrade then there may be no other way than for them to close.

He also said that the infrastructure is not there, and so there has to be investments in good roads, public toilets, better hotel eateries, good bars and karaoke, etc.

Around 12,000 of the applicants for Kidu are from the tourism background. Many of the youth joining the DeSuung program are also from the tourism background. Many had only class 10 and 12 backgrounds, and they had nothing else to fall back on. The DeSuung skilling program is now training these youth with various skills from culinary to courses on guiding.

Lyonchhen said that the government is ready to take the political bullet for this, as they are taking decisions that will benefit their children and grandchildren.

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One comment

  1. Bishnulal Gurung

    I understand the change for the future generations, for the youth and it is going to b tries and tested for further adjustments. I was not aware of the international tour operators were charging so high beside taking commission from the local tour operators. If the upcoming system is going to be direct booking perhaps this will be eliminating the middlemen costs. In that case the Bhutanese stakeholders in the tourism industry must play vigorous role to market itself to the world. It is ok for some time even if the arrivals fall until the pandemic is completely gone. But if the high TDF is going to affect the arrivals for long then it can impact the economy adversely. The high value low volume policy was introduced in the earlier stages of tourism as we have minimum capacity in terms of infrastructure. Now we have many hotels including high end hotels with FDI and even budget hotels are rising. If we add all regions of the country by developing the infrastructure high value low volume policy could only limit the earnings from the industry and some of the potential infrastructures will become redundant. Some of the rural lots will never see the benefits.

    If we start charging SDF to regional tourist, Bhutanese travellers might face the consequences.

    Regarding the income for the youth and the Bhutanese who survive with hand to mouth income. This is very true despite several revisions of the salaries of the civils services, public private sectors. When we look at the Nation work force whose WFP benefits were withdrawn some two decades ago without any compensating benefits are just receiving a daily wage of Nu.215 per day(hardly Nu.5,500 per month if they work for 24 days). This is not fair by any means. If I, as a private resident like to hire a worker it will not be possible for less than Nu.500 plus lunch and refreshments. I wonder how the National Workforce are surviving. There were issues raised by every elected government but not credible action was taken. Can there be justice in this area too.

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