Law needed on owning assets abroad: NC

NC: The National Council (NC) yesterday approved the motion for framing a law to govern Bhutanese owning undisclosed income and assets outside the country.

“To prevent tax evasion and chances of funding illegal activities, the house approved the motion for enacting a law to govern Bhutanese owning undisclosed income and assets abroad,” NC deputy chairperson, Tshering Dorji said.

“The council will ask the National Assembly to present the bill in the next session,” he said.

The house approved the motion in light of its economic affairs committee submitting a report with sufficient anecdotal evidence of Bhutanese business entities and citizens having accounts and assets abroad.

This is in contravention to Possession of Assets and Properties outside Bhutan by Bhutanese Citizens 1993, regulation.

“The existing regulations are flouted and not being followed,” NC’s economic affairs committee chairperson Sonam Dorji said. He cautioned that inaction could compromise the security of the economy with a few controlling the nation’s wealth.

Sonam Dorji also pointed out that there is blatant disregard of the existing regulation since neither the Ministry of Finance nor the Royal Monetary Authority (RMA) have received any  applications to own assets and accounts abroad. “The authorities have also neither investigated nor taken initiatives to implement the regulations,” Sonam Dorji said.

As per section 1 and 2 of the regulation, except for students, diplomats and trainees, Bhutanese citizens should seek permission of the RMA and finance ministry to open accounts abroad. The regulation also mandates Bhutanese individuals and companies to seek the finance ministry’s approval to own immovable properties and open businesses abroad.

Even to invest in foreign securities permission must be sought from RMA. The Foreign Exchange Rules and Regulations also bars maintaining a bank account outside the country with exception to diplomatic and consular missions, authorised banks, Bhutanese stationed outside the country for studies, training, those employed abroad, and government approved corporations and trust funds.

The report submitted by the committee also reiterated that the need to address this issue has become critical since growth in illicit funds is considered a major challenge globally.

The need to address this issue stems from a number of reasons like prevalence of large-scale non-repatriation of export earnings in 2006 and 2007, fronting in the border towns and Rupee shortage.

Illicit transfer of funds from Bhutan to other countries and audit reports of ingrained corporate corruption in the mining sector are some of the other compelling reasons to push for a motion to frame a proper Act to address these issues immediately.

“There is high potential for the problem to assume more complex dimensions if not addressed on time,” the report stated.

As per the committee, for a small economy with limited export earnings, even a small amount of unrecorded export earnings could have a major impact on macroeconomic management. During the economic crisis in 2012, it was also surmised that the Bhutanese exporters were not repatriating the earnings back to the country.

“This leads to the belief that they may be stashing such funds in accounts abroad,” the report stated.

The reports also pointed out that though there is no evidence, a joint report by RMA, finance ministry and economic affairs ministry found that in 2006, 10 industries did not repatriate Nu 2.1 billion (B) of the total exports of Nu 4.98B excluding hydropower.

In 2007, Nu 1.68B was also not repatriated amounting to 5 percent of the Gross Domestic Product that year.

“Therefore, it is critical that legal measures are in place to ensure that export proceeds are repatriated back to Bhutan and not invested in accounts outside the country,” the committee’s report stated.

The report also expressed doubt about exports earnings being stashed in foreign accounts through transfer mis-pricing. The fundamental principle of transfer pricing is to keep the price similar to the price that would be charged if the product were sold outside.

“However, in the real world of business the principle is often ignored by using transfer mis-pricing to evade tax, minimising dividend payouts to maximise profits for the parent company by deliberately hiding, disguising or accumulating money in another account often in a foreign jurisdiction,” it is stated in the report.

“This windfall gain received by the private entity has not benefitted legitimate Bhutanese shareholders and also escaped the jurisdiction of Bhutanese tax authorities.”

The committee also raised concerns about international records showing huge outflows of funds from the country. For instance, outflow of funds stood at USD 101 million (M) in 2007, USD 44M in 2011 and in 2012, USD 168M.

“The illicit outflows are probably saved in accounts abroad,” the report stated.

Tempa Wangdi

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