Where is the wow factor?

With the Pay Commission’s report out, many civil servants feel that the promised ‘wow factor’ is missing.

They are pointing out that although a higher percentage is given to lower level public servants, there is disparity in absolute terms.

The revision for elementary and general support personnel is the highest with 29 percent and 23 percent respectively. In absolute terms, the pay increases by about Nu 2,000 while 14 percent revision for secretaries and MPs result in an increase of at least Nu 10,000. The Prime Minister benefits by Nu 25,000 and ministers by about Nu 18,000. For the P-level, the difference in minimum pay is about Nu 4,000 and Nu 3,000 in S-level.

About three new allowances were introduced for health workers and additional benefits were proposed for teachers based on their competency. Most of the allowances, such as professional allowance for Anti-Corruption Commission, Royal Audit Authority, internal auditor, discretionary allowance, high altitude allowance, patang/gentag allowance among others remain unchanged.

Civil servants have taken to social media, questioning if such a move focused on narrowing the gap.

However, the chairman of the fourth Pay Commission (PC) , Governor of the Royal Monetary Authority, Dasho Penjore, said the reaction did not give the full picture of the revision and that it is a one-sided analysis.

Technically, he said, the pay compression ratio has improved.  Pay compression is a situation that occurs when there is only a small difference in pay between employees regardless of their skills or experience. A compression ratio of 1 or 100 percent means that an employee is paid exactly the average pay and is at the midpoint of the salary range.

According to the report, compression ratio was 6.7 until 2006. It improved to 6.4 with the July 2014 revision. The compression ratio with the recommended pay revision further improved to 6.1. “This is an indication of narrowing the income gap which is in keeping with government’s commitments,” the report stated.

“We also need to understand the key principle considerations when the beneficiary spectrum is wide,” Dasho Penjore said. The benefits of the lowest level public servants, he said were looked at first, by giving 29 percent raise, giving them housing allowance and including them for post-retirement benefits.

Considering all these factors, total change in entitlement for ESP level is 77 percent, 51 percent for GSP, 38 percent for O-level, 35 percent for S-level, 33 percent for P-level, 32 percent for EX-level and 31 percent for secretaries, elected and term-based positions.

The chairperson said they tried to spread the pay raise over Performance Based Incentive (PBI) and increasing the provident fund, which would encourage savings.

“To avoid future ad hoc pay revision, a political agenda, we tried to index pay revision to inflation tolerable to 5 percent per annum,” Dasho Penjore said.

The report also stated that existing level of salary is barely adequate to enable savings for future. “Rise in the price level of essential commodities and house rents, as a result of pay revisions, pushes the overall cost of living higher, thereby, impacting the living standard of public servants. In order to minimise this impact, and recognising the importance of a decent living after retirement, the Commission recommends an increase in the government’s share of PF contribution by 7 to 18 percent (employee contribution remaining same at 11%), increasing the total contribution to 29 percent,” the report stated.

According to the consumer price index report published by National Statistical Bureau, income erosion due to inflation for the last five years (July 2014 to June 2019) excluding housing was recorded at 20.5 percent. Accounting for the annual lump sum increment of 2 percent on the starting basic pay, the net income erosion in the basic pay is estimated at 10.9 percent.

This means that if the pay revision is just to cover the inflation, a 10.9 percent increase across the board could compensate for the income erosion.

On allowances, Dasho Penjore said that to maintain a clean pay system in the long run, existing allowances have been rationalised and only provided where absolutely necessary. “The upward revision of existing allowances and introduction of new allowances were limited only for critical sectors,” he said. He also indicated that allowances created disharmony and it should be phased out gradually.

Financial implication and measures

The annual implication of the revision in pay, allowances and benefits is estimated at Nu 4.23B, an increase of 30 percent from the existing expenditure. In the fiscal year 2018-19, expenditure on pay, allowance and benefit is estimated at Nu 14B, which is expected to increase to Nu 18.28B, should the proposed revision take effect.

The major implication from revision, according to the PC is on pay, house rent allowance, professional allowance, introduction of PBI and additional PF, and monetisation of vehicle import quota.

The additional expenditure for the recommended revision is Nu 17.9B for the remaining four fiscal years of the 12th Plan. In anticipation of the revision of pay and allowances, a provision of Nu 20.5B was earmarked in the 12th Plan outlay of Nu 310B, which is adequate to finance the proposed revision.

However, the PC also reviewed and explored potential sources of revenue to finance the revision. It is estimated that Nu 11B could be generated in the next four fiscal years from modernisation of sales tax into smart GST, additional PIT collection from salary revision, taxes from monetisation of vehicle import quota, and other fiscal measures.

The commissioning of Mangdechhu project is estimated to generate an additional revenue of Nu 3.86B, excluding the surplus transfer in the first year.

To devise financial prudence, the Commission has also recommended rationalising the mileage and minimum travel distance for purpose of TA/DA besides doing away with the mobile phone purchase allowance.

With the PC’s proposal, the current expenditure for the 12th  Plan period has been projected at Nu191.318B, which is about 1.3 percent lower than the original figure. Domestic resource is also projected to increase to Nu 228.71B. Consequently, the coverage of current expenditure by domestic revenue is projected at 119 percent on average and the current surplus will be able to finance 34 percent of the capital budget.

The PC has also recommended revenue enhancement measures like broadening tax base through introduction of new taxes and reviewing and rationalising existing tax rates.

“For instance, if the green tax is revised by 5 percent, there is opportunity to generate additional Nu 450M per annum,” the report stated. Royalty on Forest Products and Non-wood Forest products including surface collection is proposed to be revised.

One recommendation is to revise the Sustainable Development Fee (SDF) of USD 65 on international tourists, which has remained unchanged for the last 40 years and also introducing SDF of Nu 500 per head for regional tourists. It is estimated that Nu 425M could be generated annually by imposing SDF on regional tourists.

The PC suggested the government to introduce value-based property taxes, extension of the coverage of 5 percent property transfer tax and luxury taxes to generate additional revenue.

The commission also recommended a comprehensive guideline for proper usage of hospitality and entertainment (HE) budget. For the FY 2017-18, HE budget was Nu 130M representing about 4 percent of the total current budget. The report recommends serving only local alcohol beverages during official gatherings.

Finance ministry was also advised to institute proper mechanism to determine the grants, transfers, and capitation fees for state owned enterprises.

Lyonchhen Dr Lotay Tshering said that the cost of revision is within the 12th Plan budget outlay.  “We cannot give more because the ceiling is fixed. Roughly about Nu18-19B is provisioned for pay raise even with Nu 29B budget deficit.”

Tshering Dorji

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