Govt. dismisses Fiscal Incentives accusations

Challenges the Opposition and the DNT to sue the government

Prime Minister Tshering Tobgay  has dismissed the allegations of the government violating the Constitution by granting fiscal incentives to the private sector without the parliament’s approval in January 2016.

At the Meet The Press session in Thimphu yesterday, the prime minister said the fiscal incentives it granted are legal and constitutional both by law and precedence. The reason: alteration of taxes and granting of fiscal incentives are two different things.

Explaining the government’s interpretation of the law and the first constitutional case’s verdict of 2011, the prime minister said that while only the parliament can impose or revise taxes, it is the government’s prerogative to grant fiscal incentives.

Should the prime minister’s argument be valid, the question over reclamation of taxes forgone as fiscal incentives would not arise.

The Druk Nyamrup Tshogpa (DNT) had asserted that the fiscal incentives granted were unconstitutional, while the National Council has stated that taxes forgone without the parliament’s approval should be collected.

“The Supreme Court had made it very, very clear that changes in tax rates and imposition of new taxes must go to Parliament,” the prime minister said.

However, the he defended the government’s stand, saying that fiscal incentives need not have to go to the parliament. “That is our interpretation, and therefore, the government is allowed to declare fiscal incentives. That was our position and that it also the precedence,” he said.

Between January 1, 2016 and May 7, 2017, the amount of taxes forgone was Nu 42.36 million.

Legality of Fiscal Incentives

The Supreme Court verdict, the prime minister said, stated that only the imposition of taxes by the former government was illegal, not the fiscal incentives that the former government had declared in 2010.

“The verdict also said that the imposition of taxes without parliament’s approval is illegal; the same verdict also said it is the prerogative of the government to decide and declare fiscal incentives or propose taxes,” he said. “It didn’t say it is the prerogative of the government to propose fiscal incentives and propose taxes.”

If the DNT or the Opposition insists that the fiscal incentives are illegal, the prime minister challenged them to take the government to court. “DNT called it unconstitutional because they want to be heard,” he said.

The National Council voted on the Fiscal Incentives Bill 2017 and rejected it. “It is a money bill and I don’t know why they even voted on it,” he said. “Their job is to provide recommendations on the money and financial bills. But they actually voted on a money bill. That was very improper.”

The prime minister added: “For the Deputy Chair to go to the media and announce it as illegal shows a lack of understanding of the law and perhaps, a lack of emphasis on the provisions of the law and even absence of work to understand what had occurred in the last 10 years regarding money bills, taxation and fiscal incentives.”

The former government had argued that if the vehicle taxes illegal, even the fiscal incentives that it had granted in 2010 were unconstitutional and had to be reclaimed.

The former government had stated to the court: “Not only has the government imposed taxes and duties on vehicles, the government also has provided fiscal incentives to boost the private sector and economic growth as per the power granted by the Sales Tax Act and the Income Tax Act. Since all these fall under the category of ‘money’, are these not unconstitutional as well?”

Prime Minister Tshering Tobgay said the Supreme Court has clarified that some provisions in the Sales Tax, Customs and Excise Act 2000 and the Income Tax Act 2001 were inconsistent with the Constitution and had to be amended.

The inconsistent provisions he said were Section 4.2, Chapter 3, Part I of the Sales Tax, Customs and Excise Act 2000, which states that: “The fixation of the rates of Sales Tax and any revision thereof, and the range of commodities and services under the Sales Tax Schedule shall be approved by the Royal Government of Bhutan.”

He also cited Section 6.1, Chapter 4 Part 2 of the Sales Tax, Customs and Excise Act 2000, which provided customs tariff and revision thereof shall be approved by the government, as inconsistent with the Constitution. He said Section 4.1 Chapter 3, Part 3 of the Sales Tax, Customs and Excise Act 2000, which provides that the rates of excise duty on excisable goods shall be fixed by the government, was also inconsistent.

On the former government’s argument that if the vehicle taxes were unconstitutional the fiscal incentives should be unconstitutional as well, the Supreme Court stated, “The power of taxation is indispensably necessary to constitute an efficient government. Therefore, it is the prerogative of the National Assembly to impose taxes and the duty of the citizens to pay taxes.”

The verdict added that the government under Section 6 Article 14 of the Constitution has the responsibility of ensuring that the cost of recurrent expenditures is met from internal resources of the country, “it is the prerogative of the government to declare and grant fiscal incentives or to propose taxes to meet expenses of the government.”

While the Supreme Court had pointed out the provisions that were inconsistent with the Constitution and ordered amendment, the prime minister said that the provisions that empower the government to grant fiscal incentives were retained.

He cited the provisions that the Supreme Court did not order the government to amend and are still in force. Chapter 3, Section 9, Part II, of the Income Tax Act 2001, which states that on satisfaction and in the public interest, the ministry may grant exemptions and tax holidays to certain businesses.

“These provision were not amended and are in force. These provisions grant the government the power to grant fiscal incentives without parliament’s approval,” he said.

He also cited the recently passed Customs Bill, which states, “The ministry may exempt a person from payment of customs duty.” “Considering the provisions of the Sales tax, Customs and Excise Act, the Customs Bill 2017, and the Income Tax Act, the government has the authority to decide, declare and grant fiscal incentives,” he said.

“If it weren’t so, the Supreme Court would have ordered changes in the provisions of the Acts (I have cited to justify the declaration of the fiscal incentives),” the Prime Minister said. “The court ruled that only three provisions were inconsistent with the Constitution and ordered changes,” he said.

He said the Fiscal Incentives 2010 was continued in 2011 since the court did not rule them illegal. The court, he said ruled that the fiscal incentives, which was not passed through the parliament, were constitutional.

Predecence

Similarly, the previous government issued fiscal incentives notice in 2013. There is no precedence that fiscal incentives were discussed and passed in the parliament.

The fact that the government agreed to put the fiscal incentives 2016 as a money bill was to do with the principle, the prime minister said.  The finance committee reported that it was a money bill and the Speaker also accepted it as a money bill.

“We accepted to introduce the fiscal incentives as money bill not because we thought it would be illegal if we did not introduce it as a money bill. But we also believe that it should be a money bill, although it need not be introduced as a money bill by law. And hence forth, it should be a money bill,” he said.

The prime minister said that if fiscal incentives powers are left with the government, a corrupt government could give fiscal incentives based on vested interests to interest groups, not on national interest. “Therefore, we believe it should be a money bill. Otherwise, the authority is with the government,” he said.

If the authority to grant fiscal incentives are to be vested fully on the government, the prime minister said, it could be a cause of corruption in the long run. “For instance, the previous government declared fiscal incentives just two months before they resigned,” he said.

MB Subba

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