Rising vehicle prices have become a bone of contention, sparking debates on the vehicle taxation policy. Paradoxically, this controversy unfolds alongside growing concerns over the increasing number of vehicles and depletion of foreign currency reserves.
With over 128,000 vehicles nationwide, Bhutan averages one car for every six people. However, this statistic warrants deeper consideration when shaping vehicle taxation policy, as it masks significant inequities. For example, 55% of vehicles are concentrated in Thimphu, and an overwhelming 93% are located in Thimphu, Phuntsholing, Samdrupjongkhar, and Mongar. This indicates that vehicle ownership in Bhutan, as in many other countries, is heavily skewed toward middle and higher-income groups. In reality, many households in Bhutan still do not own a car, yet it is increasingly common for families in middle and high-income groups to own multiple vehicles. For example, in urban centers like Thimphu, it is not unusual for each family member to have their own car, and this trend is expected to continue.
The increasing number of vehicles has prompted the government to introduce the Tax Amendment Bill 2022, which significantly increased vehicle prices, along with proposals to raise vehicle registration fees and other related charges. However, this blanket approach, though seemingly a quick fix to control imports and safeguard foreign reserves, disproportionately affects the first-time car buyers, who are unfairly burdened by policies targeting a trend they did not contribute to.
Current policy practises often overlook the specific details of each situation, leading to recurrent policy failures highlighting a lack of clear, well-defined objectives. For instance, the Tobacco Control Act (2010), which initially led to the imprisonment of several individuals and underwent multiple amendments, ultimately culminated in the legalization of tobacco sales. Similarly, the Tourism Levy Bill of Bhutan 2022 remains in limbo, with government now planning to provide an airfare subsidy to SDF paying tourist at an estimated cost of Nu 96 million for the fiscal year 2024-25. Another example is the civil service reform, which resulted in an attrition rate of 16%. These examples illustrate a pattern of hasty decision-making, marked by a lack of careful consideration for complexities, long-term implications, and the importance of public engagement in policymaking.
As a GNH nation, it is imperative to prioritize equity in policy design. In the context of vehicle taxation, introducing a policy that distinguishes between first-time buyers, repeat buyers, and luxury vehicles is recommended. This could help curb excessive vehicle ownership among the affluent while reducing the financial burden on first-time car buyers. With the existing centralized civil registration system with biometric data, and the launch of the digital ID, implementing a progressive ownership taxation system alongside current measures is both practical and achievable.
Lower tax rates for first-time buyers: Families or individuals purchasing their first car could benefit from reduced taxes, making vehicle ownership more accessible to those with genuine need.
Incrementally higher taxes for additional vehicles: Taxes could increase with the number of vehicles owned by family members listed under the same census thus promoting shared use of resources.
Tiered registration fees: Registration fees could be structured to increase with the vehicle’s value and the total number of vehicles registered under a single census, ensuring that luxury and surplus ownership are taxed proportionally.
Such an equity-driven vehicle taxation policy applied universally –including to quota holders– would support current efforts to manage tax evasion, control rising vehicle numbers, curb foreign reserves depletion, and promote fairness, while still allowing individuals the freedom to buy a car without disadvantaging those in need of basic mobility.
Contributed by Gyambo Sithey (PhD) Consultant