Beneficiaries of existing privileges, like tour operators and hoteliers, are keeping their fingers crossed
Tourism: With the existing privileges and fiscal incentives for the tourism industry as per the economic development policy (EDP) 2010 ending this year, concerns have been raised on whether these incentives would continue after the sunset limit of 2015.
Tourism Council of Bhutan (TCB) officials said the issue would be put up at the upcoming council board meeting, a date for which is however not yet known.  After it is discussed in the board, which is chaired by the prime minister, TCB officials said the cabinet would review the policy and make a decision.
“There could be some revisions to the existing privileges and tax incentives and priorities could change,” the TCB spokesperson said.

Tour operators are exempt from customs duty and sales tax on tourist vehicles with a seating capacity of 10 and above.

A tour operator is allowed to import a Hiace bus and a Coaster bus without paying taxes. While unincorporated tourism business enterprises cannot import more than two buses in a period of five years, incorporated companies can import up to five buses.

With effect from 2010, until 2019 December, selected equipment for nature-based tourism activities, like trekking, rafting, kayaking and boating, are also exempt from sales and customs duty.

The service industry gets a 10-year tax holiday for newly established high-end resorts and hotels established between 2010 and 2015, as classified by TCB, from the date of commercial operation.

To ensure quality service, import of several items for hotels and resorts, like furniture, fixtures, kitchen and laundry equipment, mattresses and linens, cutlery, sanitary ware and electrical fittings, are also exempt from customs duty and sales tax.

For hotels with computerised billing systems, sales tax is charged on published or actual charged discounted room rents rather than rack rates of the hotels. A reinvestment allowance of 25 percent of total capital expenditure incurred is provided for upgradation of the existing hotels.

TCB registered farmhouses are also exempt from all licensing requirements and income tax. A 10-year tax holiday is also applicable for guesthouses and lodges established between 2010 and 2015.

In line with the EDP, as a sectoral privilege, the tourism industry is entitled to various fiscal incentives like tax holiday and vehicle quota, among others. (see box)
TCB spokesperson said that unless there were certain incentives and privilege, the tourism sector wouldn’t work.
“Tourism sector plays an important role in generating income and employment and the contribution needs to be ploughed back in terms of incentives,” the spokesperson said.
Tour operators and hoteliers said the industry should continue to receive certain fiscal incentives to attract investment and boost the industry.  However, they said, the EDP merits a thorough review.
Pointing out some anomalies in the existing regulation, Hotel and Restaurant Association of Bhutan’s (HRAB) president Thinley Palden Dorji said there were issues like lack of clarity that needed to be addressed.
For instance, he said, different hotels had different requirement based on which they bought furnishings.
“As per the existing regulation, hotels are entitled the same quantity of mattresses and linens, irrespective of the hotel rooms and classification,” he said. “On one hand, the overall objective of the incentives is to improve quality, and on the other hand, there are several quantitative restrictions.”
A hotelier, who has received proposals from foreign investors to construct hotels, said certain privileges were necessary to attract investment in hotel industry.  At present, she said guests mostly complained about the infrastructure.
“Better infrastructure can be developed only with incentives in place and we’re in dire need of it,” she said. “In hotel business, returns from investment are very slow.”
Without support from the government, hoteliers said, improvement in service delivery would remain farsighted.
Records with TCB show about 16 new hotels are under construction since 2013, of which five are foreign direct investments.  Most hotels are located in Thimphu and Paro.
Another hotelier in Paro said tax incentives helped hotels import quality products.
“Hotels are the most affected during lean season, which we’re able to make up through earnings from peak season, because of tax holiday and exemptions,” he said.
For tour operators, tax exemption on transportation plays a vital role, as they claim that a major chunk of their income is spent on hiring charges.
“The regulation needs rationalisation if the same privileges continue,” a tour operator said. “Rather than the number of tourists a tour operator brings in, contribution in terms of bed nights should be considered to get the vehicle quota.”
To avail the vehicle import quota, new tour operators are required to sign an agreement with TCB, agreeing to bring in at least 50 tourists for a certain period of time.  If they fail, they will have to pay full taxes and penalties.
“Our regulations are mostly based on assumptions that people would misuse which shouldn’t be the case,” a tour operator said.
Highlighting the importance of the industry, another tour operator said it was a trend in most countries that those contributing the most to the economy were entitled certain privileges by default.
“If the privileges are discontinued, there would be serious implications in terms of employment generation and others, in a bid to cut costs,” he said.
Many tour operators also feel that the existing incentives should be revisited, as the criteria should be on the volume of business.
By Kinga Dema