Although new fiscal incentive has already become an Act by way of treating it as a money Bill, the Lhengye Zhungtshog has requested the Speaker to consider seeking the Supreme Court’s interpretation on fiscal incentives granted before May 8.
The Cabinet has decided to submit the proposal to amend Income Tax Act of the Kingdom of Bhutan 2001, Sales Tax, Customs and Excise Act 2000 and Customs Act 2017 as urgent Bills in the 10th session of the Parliament.
The government’s stand was that the fiscal incentive was granted in keeping with the precedent.
Ministry of Finance stated that with the submission of the Fiscal Incentives 2017 as money bill, the government has paved the way for a Parliamentary debate in deciding the fiscal incentives.
“In view of the importance attached to the fiscal incentives, the Lhengye Zhungtshog decided that fiscal incentives must be processed as money Bill to ensure that all laws are consistent with the decision,” it stated.
“This is expected to ensure that fiscal incentives are provided in the priority sectors where there is potential for private sector growth, while eliminating potentials for vested interest and policy corruption,” the press release stated.
While the Supreme Court’s verdict of the first Constitutional case cleared the air with regard to alteration of taxes and money Bill, the government’s prerogative to grant exemptions on sales tax, income tax, customs and excise duty still remained intact in the laws.
Finance secretary Nim Dorji said that most of these laws came before the Constitution and that the government found the need to align these legislations as per the Constitutional mandate.
The amendment, he said, pertains to the three Acts and that the Office of Attorney General is yet to come up with a new money Bill which will empower the government to grant exemptions in the public interest and on satisfactory justifications.
Chapter 3, Section 8, Part I and Chapter 3, Section 9, Part II of the Income Tax Act states that the finance ministry may grant exemption and tax holidays to certain companies and businesses on satisfactory justification and in public interest. The same clause applies to the Sales Tax, Customs and Excise Act 2000 giving the finance ministry the authority to exempt a person from paying sales tax and Customs duty.
The Customs Act 2017 also states that the ministry may exempt a person from the payment of Customs Duty in accordance with international law, convention, covenants ratified by the Parliament, in addition to its relevance on social, environmental, and economic policies of the government.
This means all these provisions will form a separate legislation empowering the government to grant exemptions as per the need of the hour. For instance, government pool vehicles are exempted from all taxes except the green tax. If these clauses are wiped off, to import one government pool vehicle the Parliament has to come into the play. Having a new legislation would mean that the government will have some authority over tax exemptions.
During the deliberation at the last parliament session, the Speaker contemplated seeking the Supreme Court’s direction to resolve the issue.
However, the Constitution states “Where a question of law or fact is of such a nature and of such public importance that it is expedient to obtain the opinion of the Supreme Court, the Druk Gyalpo may refer the question to the Supreme Court for its consideration, which shall hear the reference and submit its opinion to Him.”
But the same Constitution also grants every person the right to approach courts in matters arising out of the Constitution. The Supreme Court and the High Court also may issue such declarations, orders, directions or writs as may be appropriate in the circumstances of each case.
FIs of the past
Finance ministry announced the first set of fiscal incentive in the form of Tax incentives in September 2002 to stimulate private sector growth and generate employment.
Tax holidays were available for business units starting commercial operation between January 1, 2003 and June 30, 2007. Besides, indirect tax exemptions on plant and machinery and raw materials were also provided.
Based on the Economic Development Policy 2010, Fiscal Incentives 2010 was announced on April 2, 2010. The press release stated that this was submitted to the 5th Session of the 1st Parliament on June 25, 2010 by way of information together with the National Budget Report for fiscal year 2010-2011.
Additional list of items for exemption for hotel industry was approved in April 2013. Fiscal Incentives 2010 provided 56 incentives, of which 20 incentives expired as of December 2015 and 36 incentives are being continued under FI 2016.
Total estimated revenue forgone through the implementation of the Fiscal Incentives 2010 for 2010 to 2015 was around Nu 4.9B. This also includes Nu 186.59M on account of ST and CD exemption for hotel industries granted from April 17, 2013 and December 31, 2015.
Total estimated revenue foregone from January 1, 2016 to May 7, 2017 through Sales Tax and Customs Duty exemptions on plant and machinery, raw materials, primary packaging materials and adventure tourism equipment, which is valid until December 31, 2019 as per Fiscal Incentives 2010, is around Nu 1.10B.
Meanwhile, 76 hotels have already contributed Nu 581M in terms of Sales Tax on sales of food, beverages, room and other hotel services for 2010 to 2015. Under direct tax, a total of 116 taxpayers availed tax holidays and under indirect tax, 545 entities representing different sectors availed ST and CD exemptions under FI 2010 between 2010 and 2015. Total employment generated as of December 31, 2015 was 5649 jobs.