On fiscal incentives again

The issue ​of the legality of fiscal incentives has resurfaced.

The Cabinet has decided to propose the amendment of all laws that empower the government to grant fiscal incentives. It also requests the Speaker to consider seeking the Supreme Court’s interpretation on the issue of fiscal incentives granted before May 8 2017, the day the bill was tabled in the Parliament.

This move by the Cabinet raises many questions.

For throughout the Parliament session and even after, the government has maintained that it has the prerogative to grant fiscal incentives. Citing the Supreme Court’s judgment on the constitutional case, the government had remained convinced that it had the power to grant fiscal incentives. That it is now seeking to propose amendments of laws to empower the government to grant fiscal incentives suggests that perhaps for whatever reasons, it had, stretched its prerogative a bit too far.

It is​, however, the request it has made to the Speaker that is troubling. While confusions persist on the status of tax incentives the private sector has already received before May 8, the Cabinet has overlooked the Constitution.

Article 21, Section 8 of the Constitution states, “Where a question of law or fact is of such a nature and of such public importance that it is expedient to obtain the opinion of the Supreme Court, the Druk Gyalpo may refer the question to the Supreme Court for its consideration, which shall hear the reference and submit its opinion to Him.”

This means, the prerogative to obtain the opinion of the Supreme Court rests with the Druk Gyalpo. The Speaker does not have the authority to seek the Supreme Court’s directive on issues that are not resolved in the Parliament. Should the House agree to seek the Supreme Court’s interpretation, the Speaker submits the resolution to Druk Gyalpo and not directly to the Supreme Court.

The Cabinet must be reminded that the National Assembly, the National Council and the Druk Gyalpo make up the Parliament. For its empowerment, the government’s decisions must not be repugnant to the Constitution. Doing so violates the principle of separation of powers that is enshrined in the Constitution.

Seeking legal advisory without due process and outside the legal dispute-resolution process by an elected government gives the court almost a legislative role. When the Supreme Court passed its judgement on SP+, the legislature called it a usurpation of the Parliament’s power. Now we have the executive, which is also in the legislative eager to seek the Court’s interpretation.

At a time when the Cabinet is proposing to amend laws to make the incentives worth Nu 1.10 billion legal and the government’s prerogative to grant them, legitimate, it cannot risk circumventing laws. Not when it takes pride in setting the highest standard for granting fiscal incentives as a money bill in future. The Cabinet must respect the principle of judicial restraint that the courts exercise.

We understood that fiscal incentives are catalytic in boosting private sector growth and creating employment. While questions have been raised on the intent of granting them, the potential of fiscal incentives to stimulate economic development is rarely disputed. But in doing so, the government must ensure that laws are not bro

1 reply
  1. irfan
    irfan says:

    Keeping aside the main issue of legality of the fiscal incentives as in the case here; fiscal incentive has been subject of interesting debates where we discuss unemployment in the economy and economic growth expected to be delivered by a democratically elected government in a parliamentary setup.

    As it’s mentioned, fiscal incentives work as drivers for economic growth. The generation of job opportunities is on many a occasion just a by product of the original developments planned. With well defined annual to five year plans in place, the separation of power between executive and legislature probably has its role to play in getting the incentives planned.

    Good fiscal incentives given can even bring investment opportunities to any economy including foreign investments. Many sectors in an economy even demand direct investments on many occasions. Incentives offered to financial sector against non financial sector is another matter to consider.

    Moreover, we usually only consider the revenue forgone through incentives offered. What escapes unnoticed is the operating costs or running costs getting added to businesses with the given incentives. In other words, what I mean here is that incentives given are always not necessarily generation savings on costs incurred by the economy. That’s usually a bigger drain on the economy than revenue getting lost directly.

    In any economy, the sectors or industries are always well linked. The businesses are dependent on one another for generating more trade and commerce opportunities. And an incentive offered to one sector may also lead to increasing operating costs in another sector within or outside a given industry. Even that needs some attention when any government comes up with incentive plans to drive economic growth and try to address unemployment challenges.

    Otherwise, with a parliamentary democratic process and with political parties contesting in the election process; incentives offered and that legality issue with such incentives have always remained good subjects for enriching debates. Even in this matter, it’s a political party outside the parliament taking a serious concern with the recent developments.

    You always expect that for a healthy democracy. Even the economy demands excellent health. May be that’s where fiscal incentives have always played the winning formula in governance, especially where there is clear non-political separation of power between legislature and executive. The judiciary is there usually to defend the rule of laws. Even fiscal incentives are economic rules on their own defined by the laws.

    That’s in my personal opinion and one probably expects to see corrections in that process that defines.

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