Exemption: The government’s decision to exempt sales tax and customs duty on imported books is a time-bound fiscal incentive that the government can grant to boost private sector and economic growth.

Finance minister Namgay Dorji said this at a press conference yesterday, in response to the opposition’s accusation that the government’s decision was unconstitutional.

Lyonpo said that if such public interest based tax exemptions were to be acutely viewed as unconstitutional, then the entire public welfare schemes delivered through fiscal incentives of a standing government would tantamount to being unconstitutional.  Lyonpo said, it would have been unconstitutional only if the tax was abolished.

“They should do proper research before issuing a press release like that,” he said “It’s not child’s play.”

The government recently suspended taxation on books for a year to celebrate the national reading year.

“The government’s decision is very much constitutional and within the judgment of the first constitutional case of 2011,” lyonpo said.

The opposition last week accused the government of violating Article 14, Section 1 of the Constitution, which states “taxes, fees and other forms of levies shall not be imposed or altered except by law.” This was the same section on the basis of which the People’s Democratic Party (PDP) had sued the former government.

There is however, a difference between the constitutional case and the present issue. In the constitutional case, vehicles taxes were raised without the Parliament’s approval while in the present issue – tax was suspended for a year.

According to the finance ministry, the Supreme Court (SC) had found Section 4.2 (Chapter 3, part I), Section 6.1 (Chapter 4 Part II) and Section 4.1 (Chapter 3, Part III) of the Sales Tax, Customs and Excise Act 2000 to be inconsistent with the Constitution.  The first part of Section 21 of the Public Finance Act was also found inconsistent.

The government’s decision however, Lyonpo Namgay Dorji said was based on Chapter 2 Section 3.2 and Chapter 3, Section 5.2 of the Act, which was not mentioned as being inconsistent by the SC ruling. Chapter 2 Section 3.2 states, “On satisfaction and in the public interest, the finance ministry may exempt a person from payment of Bhutan Sales Tax and Customs Duty.”

Lyonpo said that during the constitutional case, the previous government had enquired with the SC on whether granting of fiscal incentives was unconstitutional. He said the SC then had replied that the government under Section 6 Article 14 of the Constitution has the responsibility of ensuring that the costs of recurrent expenditures is met from internal resources.

The SC ruling according to lyonpo, means that it was the government’s prerogative to declare and grant fiscal incentives or propose taxes to meet expenses of the government. “It was not the first time the government had granted fiscal incentives to boost private sector and economic growth,” he said.

Even following the constitutional case, lyonpo said that the last government had granted several tax exemptions and tax holidays.

Lyonpo said a large fiscal incentive package comprising tax exemptions for hotel industry was announced a month before the previous government left office in April 2013 on account of Fiscal Incentives 2010.

He said that many hotel constructions were enjoying tax exemptions granted by the previous government, which was estimated to cost Nu 1.367B (billion). “The same provisions of the tax laws (as cited by the present government) were quoted by the then government to grant these exemptions,” he said.

Figures with the finance ministry show that revenue forgone from April 2010 to December 2014 was Nu 6.6B.

Estimated revenue forgone on account of exemption on hotel construction from April 2013 to August 13 this year was Nu 225M (million). Bhutan Hotels Pvt Ltd alone enjoyed Nu 76M as tax exemptions from April 2013 to August 2015.

The Fiscal Incentives 2010 states that as part of support to the education sector, “sales tax and customs duty shall be exempted on import of foreign published books, journals, periodicals, teaching aid materials, library books and materials.” But the document does not mention if private books shops can be exempted.

Meanwhile, leader of opposition (Dr)Pema Gyamtsho said they cited the same law on the basis of which the PDP had sued the previous government. “It can’t be right if it was wrong then,” he said.

However the opposition leader clarified that they would not be taking the government to court. Instead, the Opposition will raise the issue for discussion in the winter session of the parliament. “If we take the government to court for this case, we will be doing that everyday,” he said.

MB Subba