Goods sold to public without quota to still include tax
SOE: In an effort to separate the perception of similarities between duty free shops and alcohol and beverage outlets in the country, the finance ministry has formed a new state owned enterprise (SoE), Bhutan Duty Free Limited, a 100 percent government owned company.
The company, finance minister Namgay Dorji said, would look beyond alcohol and explore a whole range of high value luxury items such as electronics and cosmetics to change the perception of the people. “Duty free shop in Bhutan is perceived as an outlet for alcohol and alcoholic beverages,” he said.
However, the mode of sales would remain as usual with privileged individuals and diplomats enjoying concession on the duties while goods sold to common buyers are inclusive of taxes.
Lyonpo Namgay Dorji said the decision to corporatize was also in the interest of enhancing revenue for the government and improving the efficiency of the shop. He said the recently concluded OD exercise carried out by the Royal Civil Service Commission has recommended delinking the duty free shop from the civil service in the view of the commercial nature of the activities.
This means that less than a dozen civil servants managing and operating the duty free shop will have to resign from the civil service to continue with the company. A chief executive officer and other employees would be hired soon.
The company has already been incorporated under the companies Act. The director of revenue and customs department has been appointed as the chairman of the board.
The company will have exclusive rights to operate duty free shops in the country, including at the airport. Drukair who runs the current duty free shop at Paro International airport will surrender the shop to Bhutan Duty Free Limited by the end of the year. Plans to expand the outlet across the country are also readied. By January next year, Phuentsholing can expect a duty free outlet.
Lyonpo Namgay Dorji said this exclusive right given to the company and the nature of ownership would make it easier for the government to monitor and regulate imports and sale of duty free items in the country.
“Corporatizing the duty free shops will not affect the private sector because no private traders deals with high-end items,” Lyonpo said.
Even the national airlines will not be affected much when their duty free outlet is taken over, according to the minister. Drukair is a subsidiary of Druk Holding and Investments (DHI), which is the investment arm of the government. So it is just an adjustment of dividend and remittance from one pocket to another for the government.
Corporatizing the duty free shop is also in keeping with public finance Act, 2007, that states, “if a budgetary body manufactures and/or delivers goods and services in a commercial environment, unless there are compelling reasons to do otherwise, the government shall establish a state enterprise… or transfer those activities to an existing state enterprise.”
The duty free shops under the government surveillance contribute about Nu 94M from sales a year. As of June this year, the duty free shop division under Department of Revenue and Customs has Nu 186.94M in liquid asset, or those assets, which could be easily converted into cash. Including the fixed and current assets, the value comes to Nu 260M. This would be the government equity in the company, which is again expected to increase with expansion and implementation of new ideas.
Should the assumptions on business expansion planned by the government materialize, the company’s revenue is expected grow by 40 percent on an average.
Projections are such that in the first year of operation, the company earns about Nu 110M, Nu 350M in the second year and Nu 440M in the third year of operation. In the fourth year, Bhutan Duty Free Limited is expected to earn Nu 550M from sales.