The fiscal incentives provided to the hotel sector have brought immense value to the entire economy and is attributed to the growth in the hotel sector according to a hotel and restaurant association of Bhutan’s (HRAB) report.
Debunking the myth that fiscal incentives for hotels have led to revenue forgone for the government, the report states that the fiscal incentives is a driver for the tourism sector, which helps the industry to grow at the rate of about 17 percent annually.
“The hotel sector has grown by over 124 percent in the past six years with a compound annual growth rate of over 14 percent during this same period,” the report stated. “It is not able to keep in pace with the growth of tourist arrival growing at an average annual rate of about 17 percent.”
The association states that the increase in the hotel growth has also benefitted government through BST contribution, employment generation and convertible currency earnings, which would not be possible if new hotels were not established.
“However, sadly, these benefits are not monetised, not quantified and not mentioned,” the report claims. “It is imperative that the government come up with appropriate benchmarks and targets to be achieved when any incentives are provided.”
For instance, based on a case study for a typical three star hotel that brings benefits to the economy, the report stated that although the government loses Nu 1.075 million (M) on an average annually through tax holiday, the hotel creates a value of over Nu 125.553M, among other benefits.
As of September 2018, there were a total of 276 hotels offering 5,868 rooms and 11,195 beds.
However, although fiscal incentives have resulted in an increase in the number of hotels and tourism growth, the occupancy rate has dropped to 36 percent in 2018. The decrease in the occupancy has led to difficulty in paying loans and selling rooms at lower costs.
The hotel sector today stands second in the loan portfolio at Nu 28 billion (B), almost double of Nu 15B in 2013.
About Nu 28 billion (over USD 400M) have been invested in the hotel sector and it is estimated that another Nu 3B (over USD 42M) are currently underway according to the report.
About 24 percent of all credit in the country today has been extended to the service and tourism sector, of which a large majority is in the hotel sector. The hotel sector currently provides about 4,958 direct jobs excluding non-star rated hotels and restaurants. The report states that the hotel industry provides about 10,000 jobs directly.
It is estimated that over 1,000 more jobs would be created once the under construction hotels are completed and if average occupancy of the hotels increases in the future.
Prime Minister Dr Lotay Tshering at the Friday Meet yesterday said the defect in the new policy is that it requires a long term and follow up plan. Lyonchhen said incentives were provided because of shortages of tourist arrival due to lack of tourist standard hotel.
“Now it is going unchecked and uncontrolled and everybody wants to invest in hotel and even converting private houses into hotels,” Lyonchhen said. “But we cannot come up with a dictatorial approach to stop the construction of new hotels,” he said.
Lyonchhen said this has possibly resulted mainly from the fiscal incentives given to hotels and service sectors where everybody wanted to construct hotels, but businessmen should be clever and look beyond the four walls.
“Let the market force decide and let them decide what they want. The government is reviewing the tourism sector to give it a facelift.”
The government has directed the economic affairs ministry to form a board, which would advise the government and the people where to invest based on market forces and potential changes in government policies. “We’ve also requested RMA to look into how we should pay the interest on the loan provided by the government including hotels.”
Economic affairs minister Loknath Sharma said that most have invested in high-end hotels where it was projected that Bhutan would grow as a regional and international tourism destination.
“With such growth it was foreseen that accommodation would not be enough, which led to construction of many hotels,” he said. “They projected the demand but not on the supply and if there is no solution, it would lead to an economic crisis.”
Yangchen C Rinzin