Monetise vehicle quota: Pay Commission

Besides monetising the vehicle import quota for public servants, the fourth pay commission recommended quota entitlement for gups and thrompons.

The commission’s report submitted to the Cabinet on April 5, which was deliberated at the Cabinet meeting before the release of the report on social media yesterday, also recommends that the heads of departments and autonomous agencies be given a duty vehicle each.

Civil and public servants in P3 level and above are entitled for a vehicle quota, free of customs duty and sales tax exempted up to a ceiling of Nu 800,000 after every seven years of import. While the Cabinet Ministers and the Members of the Parliament are entitled for a one-time free of customs duty & sales tax exempted up to a ceiling of 3,000 cc per term.

The commission deemed it prudent to provide monetary compensation in lieu of the vehicle import quota given the huge revenue implication to the government without corresponding benefit to public servants.

“The monetisation will contribute to reducing imports, ease traffic congestion, and promote the use of public transport besides minimising tax leakages,” the report stated.

The Pay Commission recommended monetisation of vehicle import quota for the civil and public servants with a ceiling of Nu 0.800 million at Nu 0.250 million and the same to be extended to gups and thrompons.

On vehicle import quota entitlement of Members of Parliament, Cabinet Ministers and those holding equivalent position, an option of monetisation at Nu 1.5 million has been recommended. The same is to be extended to term-based appointments such as secretaries, justices of the Supreme and High Courts, constitutional post holders, RMA governor, and Attorney General.

Those individuals on term-based appointments today are only entitled to a quota with an exemption ceiling of Nu 800,000. This is recommended to be raised to Nu 1.5 million to a one time vehicle quota free of customs duty and sales tax up to 3,000cc.

The commission observed that most of the vehicle quotas are sold in the market even though it is not permitted as per the existing vehicle quota rules 2014.

The main reasons for such practice are that either the person has purchased vehicles prior to issueance of the vehicle quota or the lack of finance for purchase of vehicle.

The sale of vehicle quota has double impact: the quota seller buys a cheaper vehicle with the proceeds from the sale and the quota buyer imports a higher capacity vehicle from COTI (Countries other than India). “As a result, a single quota leads to import of two vehicles, which has corresponding increase in import of fuel and spare parts as well as additional environmental impacts.”

The commission report stated that there is further impact on the country’s limited foreign exchange reserves while also contributing to the pressure on road infrastructure and associated traffic issues due to the increasing number of vehicles.

Despite these consequences, the commission stated that doing away with the quota may not be practical or possible because the roles and responsibilities of public servants in certain categories need the entitlement while in service and even upon retirement.

Considering the importance of the roles and responsibilities, the Commission recommended designated vehicle for the Heads of Departments and Autonomous Agencies, in addition to those positions that have already been granted such privilege.

The provision of foreign vehicle quota began in the 1980s to facilitate the import of foreign vehicles for public servants and to minimise the pressure on limited number of government pool vehicles as public transport was none-existent.

 

Revenue implications

The commission analysed the revenue foregone from import of vehicles on quota based on the prevailing tax rates and the number of vehicle quotas issued.

A total of 1,724 vehicle quotas were issued in 2018 and imported from India, for which the minimum revenue foregone is estimated at Nu 620.6 million.

If vehicles are imported from COTI, the revenue foregone will be approximately two times higher on account of customs duty. In addition, the import of vehicles has resulted in depletion of foreign reserves and this impact would be much higher if accounted for import of fuel, accessories, and spare parts.

 

Savings

Considering the government gave 1,724 vehicle quota in 2018, with the monetisation of vehicle quota at Nu 250,000 a vehicle quota, the total financial implication is estimated at Nu 431 million. “Assuming that 70 percent of the 1,724 vehicles is imported, tax collected at minimum rate is estimated at Nu 521 million, which fully covers the vehicle quota monetisation cost.”

The net gain per vehicle, the commission found, was Nu 110,000 or Nu 189.6 million from the 1,724 vehicle quotas.

Tshering Palden

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