With 92,008 vehicles as of December 31, there is a car for every seven people in the country today.
Two years ago, statistics with the Road Transport and Safety Authority (RSTA) showed that there is a car for every 10 individuals. Over the last decade, the number of vehicles has increased by two folds.
Almost half of the total vehicles are concentrated in the capital and rough estimates show that every two Thimphu residents own a car.
Based on the recent Bhutan living standard survey, which shows an average household size of 4.2 persons, it can be deduced that every household in the capital has two cars.
This is happening despite the fact that Thimphu has the highest number of public transport buses. The Bhutan info-com and transport statistics, 2017 states that there are 52 buses operating on 15 routes and with limited frequencies. Ridership is high during morning and evening rush hours but comparatively low during daytime.
Thimphu also saw its taxi fleet grow by almost seven percent between 2015 and 2016, while Phuentsholing and Gelephu saw a decline in growth of taxis.
While the country experienced an 11 percent average annual growth rate in the number of vehicles from 1997 to 2012, a temporary pause on import of vehicles following the rupee crises in 2012 caused the growth rate to drop to 0.7 percent in 2013 and 2.5 percent in 2014.
In absolute terms, during the course of the import ban between 2012 and 2013, 477 vehicles were imported. After revising the taxes, import ban was lifted on July 1, 2014. This resulted in an increase of vehicles from 67,926 in 2013 to 69,602 in 2014. The following year, the number of vehicles increased by 5,588. This nearly doubled in 2016, when 9,107 new vehicles were bought within a year.
Figures reveal that more than 750 new vehicles hit the Bhutanese road every month in 2016, implicating that 25 new vehicles are imported every day. In 2001, Bhutan had only 22,527 vehicles.
Growing number of vehicles, particularly in Thimphu is putting significant stress on the city’s road infrastructure, according to a study conducted by the Asian Development Bank (ADB).
Based on the demand projected using the GDP growth (8.4 percent between 2015 and 2020) and traffic survey conducted last year, the ADB estimates that about 2,092 vehicles had ply the Thromde roads every day. This is projected to increase to more than 8,000 in 2040.
Between 2015 and 2016, the number of light vehicles grew by 13.5 percent, medium vehicles by 8.3 percent and heavy vehicles by 10.7 percent.
Increasing number of vehicle is also directly proportional to increasing import of petroleum products, according to trade statistics. In 2016, Diesel was the top import item valued at Nu 5.77B. Petrol and diesel combined amounted to Nu 7.53B in fuel expenses last year alone and should the loan repayment be excluded, the entire revenue from hydropower is eroded in importing fuel.
In 2016, import of vehicles amounted to Nu 6.94B outflow of INR. Bhutan trade statistics show that Nu 547M worth of vehicles were imported in 2013, which shot up to more than Nu 2B in 2014, of which Nu 1.6B were imported from India.
According to the latest revenue report, major commodities imported from India were essential items, construction materials, petroleum products, chemicals, base metals, and vehicles. Import of fossil fuel alone constituted 13.6 percent of the total imports.
While the indication is such that lifting of import ban and subsequently revising the sales tax and customs duty helped little to achieve the desired outcome of curbing vehicle import, a local economist said that things will settle down.
He said that because of the import ban, aggregate demand for vehicle has grown and suddenly when the ban is lifted, there will be huge import. “But things will have to settle down because the absorptive capacity is limited,” he said.
The revenue report for 2016-17 fiscal year states that revenue contribution from motor vehicle tax & fees and charges and green tax on vehicles fell by 13.7 percent due to decrease in the vehicle import.
Green tax contributed Nu 909.652M in 2016-17, which is a drop of 9.7 percent from the previous year. This was mainly because of decreased collection of green tax from motor vehicles.
However, the tax revision has created inequality in terms of vehicles imported from India with that of third countries. This is because of the customs duty, which was not levied on Indian cars. Since customs duty is at par with the sales tax and both are slapped on cars imported from third countries, it discourages people from buying cars made in third countries.
There are also fiscal incentives given to the transport sector. The government lost Nu 676M in 2015 from tax exemptions on import of vehicle for the government, corporate bodies, projects, and tourism sector and by granting quota to senior civil servants.
The RMA has also revised the loan to value ratio for purchase of vehicles in August last year. As per the central Bank’s monthly statistical bulletin, portfolio of transport loan has more or less stagnated since the implementation of the new guideline (Nu 5.21B in August, Nu 5.9B in September and Nu 5.27 in October). In April last year, loan towards transport sector stood at Nu 4.8B.
The absolute impact of shifting the tax valuation point on vehicle import and revision in loan to value ratio is yet to be seen as it was only implemented in August last year and figures are not available yet.