Customs duty on doma retained at 50 percent
The two Houses of the Parliament have passed the Customs Bill 2021, which reduces the customs duty, an indirect tax levied on third-country imports, to a uniform rate of 10 percent.
The National Assembly (NA) during the re-deliberation of the Bill yesterday decided to retain the existing customs duty of 50 percent on doma (betel nut) although it had earlier reduced to 10 percent.
The NA reversed its earlier decision to encourage farmers to grow betel nut on the upper house’s recommendation.
According to the National Council (NC), the reduction of the duty on the agricultural product would impact farmers. Members also reasoned many advanced countries maintain tariff and provide subsidies to protect their local farmers.
The House also reduced the duty on electric fence energisers to zero percent from the existing rate of 10 percent as recommended by the NC.
Finance Minister Namgay Tshering said the materials were already enjoying a zero percent duty under the Fiscal Incentives Act.
NC members had stated that making electrical fencing items more accessible and cheaper would not only protect farmers’ crops from wildlife but also enhance agriculture productivity.
These were the only two of 12 recommendations from the NC that the NA accepted.
The Customs Bill covers more than 500 goods including medical equipment, agriculture and education-related products. But the customs duty on vehicles, alcohol, tobacco, gold and silver will remain unchanged.
In the case of goods imported within the South Asian Free Trade Area (SAFTA), the customs duty is levied based on the preferential tariff rates as agreed by the member countries.
The NC had also recommended retaining the existing duty of 10 percent on jalings, lingms, pipis, kongthas and dhoongs from the proposed rate of zero percent. The recommendation to retain the duty at 30 percent from the proposed rate of 10 percent on yathra, silk items like ‘kheze and kayra’ was also rejected.
The Member of Parliament (MP) from Khamaed-Lunana, Yeshey Dem, said that religious items were becoming unaffordable for the poor and that people should have access to affordable products to conduct religious activities.
She also said that although it was important for the government to support local industries, the access to affordable imported products would make local products competitive in terms of prices.
Opposition Leader Dorji Wangdi, however, criticized the government’s decision to reduce the customs duty, saying that the principle of the Customs Bill was wrong.
“Taxes are revised to bring about equity and increase the revenue when the government faces budget shortages. But the government’s objective of revising the customs duty is to make the collection of taxes easy, which is not in keeping with national objectives,” he said.
Bartsham-Shongphu MP Passang Dorji (PhD) reiterated that the reduction of the duty contradicted with the national goals of reducing dependence on imports, promotion of local industries and achieving food self-sufficiency.
He said that it would also affect the agriculture sector, which supports about 60 percent of the population.
Finance Minister Namgay Tshering said that the customs duty reform was brought after a proper study of its merits and demerits.
He also said that consumers should have the option of buying quality-imported products at affordable prices.
Chairperson of the House’s economic and finance committee, Kinley Wangchuk, said that it was not possible for a small country like Bhutan to substitute all goods by producing them locally.
“Having a sound economic policy doesn’t mean that we have to produce everything that’s imported. We have to see where we can achieve economies of scale,” he said, adding that even developed countries had not been able to achieve food self-sufficiency.
Members also said the reduction of the duty will make third-country imports cheaper and the main concerns are that the proposed duty will open floodgates for international goods that would kill local industries and worsen the trade deficit situation for the import-dependent economy.
The main arguments for reducing the duty is that such measures are favourable for an import-dependent country like Bhutan and most of the imports come from India, not third countries.
The reduction of the duty is likely to have a balancing effect on medium and large wood-based industries as the cost of raw materials from third countries is expected to make finished products more competitive in terms of prices.
The Bill, as per the law, comes into force from the day it is presented in the National Assembly by the finance minister. The Bill will be submitted to the Druk Gyalpo for Royal Assent.