Sunday, November 29, 2015

Bhutanese Tourism Industry Under Attack: VI

The Minimum Daily Tariff has been key to Bhutan’s successful implementation of the high-value, low-impact tourism policy. It is both the launch pad and the vehicle on which rides the policy of “high-value, low-impact” tourism. The moment we remove the Minimum Daily Tariff from the equation, the policy will flounder and fail.

It has become sufficiently obvious that some of our lawmakers are intent on pandering to the greed of some select group of people; to the extent that they have become blind to the imminent dangers posed by their call for the lifting of the Minimum Daily Tariff. It is incredible that members of the country’s highest legislative body cannot perceive the dangers of their enterprise. Regardless, let me point out some that I can think of.

The removal of the Minimum Daily Tariff throws up a slew of problems, principal among them being the following:

1. Influx of undesirable tourists
2. Massive decline in Foreign exchange inflow
3. Rampant Tax evasion
4. Opportunity to maintain and operate offshore accounts
5. Hotel owners will suffer the most

Influx of undesirable tourists:
The moment we remove the Minimum Daily Tariff, the backpacking class of tourists will overwhelm our cities and villages. Thousands will overrun and overwhelm the rural population. Law and order situation will deteriorate; our culture will be diluted. Our environment will be devastated. They will bring with them strange habits and beliefs that may not find ready acceptance with the local populace. Tensions will build up and conflicts will arise. They will bargain, they will cheat, they will steal, they will smuggle, they will rape and they will defecate - resulting in building up of resentment against tourists in the minds of the local people. The Bhutanese people will develop an abhorrence for tourists.

Is this what the National Council wants?

Massive decline in foreign exchange inflow:
As of now, tourism ranks as the highest earner of untied foreign exchange. During 2014, tourism accounted for a total of US$73 million inflow of foreign exchange. The generation of this sum can be directly attributed to the mandatory Minimum Daily Tariff of US$250.00 per tourist per night halt that is required to be remitted inwards before tourists enter Bhutan.

Now, what some of the National Council members are proposing is that we do away with the Minimum Daily Tariff and require only the Royalty of US$65.00 per tourist per night halt, be collected. US$ 65.00 represents only 26% of the Minimum Daily Tariff. This means, if we do away with the Minimum Daily Tariff, we are looking at 74% drop in our foreign exchange earning. In other words, taken at 2014 figures, if we do away with the Minimum Daily Tariff, Bhutan’s foreign exchange earning will drop to US$ 19 million from US$73 million.

Is this what the National Council wants?

Rampant Tax evasion:
As of today, tourism is among the only business that is fully regulated and monitored. As a result, there is minimal chance of tax evasion. Every single tourist arrival in the country is recorded with the TCB, along with the total sum received for each tourist. Thus, the taxman is fully aware of the scale of each tour operator’s business. Should any tour operator attempt to evade tax, the DRC can simply ask the TCB for the record of their business - merely a few keystrokes away.

Once the Minimum Daily Tariff is done away with, the tour operator’s obligation is merely to deposit the Royalty portion of the tour cost - rest of the turnover cannot be recorded by the authorities because they will be oblivious to it. This will result in the taxman being completely clueless as to the real size of the business. This will open up the opportunity for the tour operators to indulge in tax evasion. Tax collection from the tourism sector will drop dramatically, while whole lot of people will be tempted to turn tax evaders.

Is this what the National Council wants?

Opportunity to maintain and operate offshore accounts:
In all likelihood, no tour operator will want his or her tourists or overseas agents to remit the full amount of the tour cost to the account of the government, since the liberalized rule will require only the Royalty portion of the tour cost be deposited with the governemnt. The tour operators will now have the opportunity to park the balance of the payment (other than the Royalty), in foreign currency, in offshore accounts that they will maintain and operate. This means that the lifting of the Minimum Daily Tariff will create an enabling condition for citizens to park unaccounted income in offshore accounts.

Is this what the National Council wants?

Hotel owners will suffer the most:
If the Minimum Daily Tariff is to be lifted, the biggest losers will be the hotel owners - particularly those in the 3-Star and 4-Star category. The 5-Star hotels and those hotels without star ranking cater to different class of clientele and are unlikely to be hampered by the paradigm shift in the tourism policy. However, the 3-4 Star hotels are the most vulnerable - they need their clients to be in the mid range - those that cannot afford 5-Star but are unwilling to go with the starless. Under the Minimum Daily Tariff system, the tour operators can comfortably afford the 3-4 Star hotel charges. But once the mass tourism is introduced, the class of tourists that will come in will be mostly those that will target the low-end hotels. On the other hand, given the intense competition that will prevail among the tour operators under the liberalized situation, the first stop in their quest for cost cutting will be the hotels - because the cost of hotel accommodation constitutes the largest component - compared to all other costs.

Is this what the National Council wants? be continued


  1. I find your description of "undesirable tourists" terribly biased and irrational. Are you saying that well-heeled tourists do not have "strange habits and beliefs"? Do the wealthy not cheat, steal, smuggle, rape, or defecate?

    Basically you're asserting "Rich = morally good, Poor = morally bad".

    As a long time reader, these statements of yours are deeply disappointing.

  2. Dear Anonymuse,

    You will have to re-read my post once again. I never used the term "rich" or "poor". I said that the tourists we get are educated, learned, aged and wise. This means they have the maturity to understand our peculiarities, which I admit we have plenty.

    I am not being biased …. simply alert to the dangers of being overwhelmed by the type of tourists that we do not need. If you are a Bhutanese I am sure you will understand our concerns. If you are not, you have a right to be disappointed because you are unlikely to be sympathetic to our situation.

  3. I'm certain that is no literacy/intelligence test involved when applying for a Bhutan tourist visa, nor is there an age requirement. So how can you be sure that the tourists you get now are aged, educated and wise? All you need is to engage a Bhutanese tour operator, fill up a simple English form with copies of your travel documents, and crucially be able to pay for the travel package.

    I've lived and worked in Bhutan and I'm not ignorant of its workings. The reason why I continue to read blogs like yours is due to concern for the country that my dear Bhutanese friends and their families live in.

    Personally, I do not think removing the current tariff is wise. What I take offence with is your choice of words and sweeping statements about the "backpacking class of tourists". I believe your viewpoint of backpacking tourists comes from the oft-repeated criticism of the tourism industry of a neighbouring country.

    I offer you a counter point. As a former avid backpacker, I'll explain why the backpacking experience was alluring for me. The freedom of independent travel, the ability to take less trodden paths, and being able to socialise with locals and fellow backpackers.

    For work, I've had to live in 4/5-star hotels for months at a time, and I could count on one hand the number of interactions I had with hotel guests.

    On the other hand, I have numerous funny and touching stories from my backpacking adventures, including memories of wonderful conversations with fellow backpackers because of our shared spaces. I vividly remember an encounter with a 50-something Australian lady in Nice, France. She was solo backpacking her way through continental Europe on her way to visit her daughter in London.

    In my opinion, she was educated, learned, aged and wise. And backpacking.

  4. Hi Anonymuse,

    As you say yours is a counter point and you are entitled to one. Thank you for visiting my Blog. I know that not all of us can be in agreement with all of others' views. That is acceptable and nothing to take offense about. Take care

  5. Hi Yeshey,
    I know the backpacker community fairly well. The majority are young people who have taken a year off before continuing their studies or before starting their career. What I call the undesirable elements among the backpackers are a rather small group, most of whom would not even consider to come Bhutan if they needed to pay $65 per day. They try to survive on a very small budget and would cheat and steal to make their budget last longer. Bad behaviour can also be found among the rich and famous who can afford the present daily fees. Think about Gary Glitter in Cambodia. Cheating in tourism often goes both ways. A group that once was known for their cheating and non-sensitive behaviour were the groups of Israelis who had just completed their military service. I have seen signs on guesthouses telling that they are not welcome.
    Nepal with its hippie-tourists was the example for what Bhutan did not want when they decided to open up for tourism. Nowadays, there are largely two groups of visitors to Nepal: independent travellers and groups. Groups arrive mostly through foreign and/or local tour operators and many of these are only concerned about their own earnings, leaving little or nothing for the local villagers and small operators. The independent travellers often stay in smaller and cheaper guesthouses, may or may not hire local porters and guides, but more of their money goes to local people. The Travel Agency Association of Nepal has tried (probably by buying members of the government or parliament) to make it harder for independent travellers to visit Nepal. In one area which was declared a “groups-only” area, I talked to the owners of the three guesthouses in a village. They complained that they got nothing from these groups, except that once in a while someone would buy a coca-cola. They wanted independent trekkers to be allowed into the area, which happened some years later. The entry fees are still quite high, four times the fee for some other nearby trekking areas. The village now has 8 guesthouses. I assume that if the villagers abhorred tourists they would not have opened new guesthouses.
    If the minimum daily tariff was done away with, tourists would have to pay the $65 plus whatever they needed to pay for lodging and food. Sure many of them would not stay in 3 or 4-star hotels. Many others, especially the older tourists would still prefer to come on pre-arranged tours which may cost them some $150-$200/day while in Bhutan. I guess that on average the income per tourist would drop to about two-third of the minimum daily tariff. To make up for this tourists would have to stay longer in Bhutan and/or more tourists need to visit Bhutan. I expect that both are likely to happen. Yes more tourists means more disturbance but not necessarily less foreign exchange income. I expect that the big losers will be the 3 and 4-star hotels.
    What I see as a bigger problem is the large number of Indian tourists that visit Bhutan. They contribute relatively little to the Bhutanese economy. I have seen them in the hill stations in India and if they start treating Bhutan as a new exotic hill station, I am afraid that the $250/day tourists would be very unhappy, and probably start staying away from Bhutan. Maybe Bhutan should limit the number of Indian tourist to the same number as Bhutanese who visit India in a year. And even then the impact of these Indians in Bhutan would be much larger than the impact of Bhutanese in India.
    The possible tax evasion and offshore accounts need to be looked into seriously. I suppose that tax specialist can find reasonably effective ways of dealing with this.
    As for the destruction of the Jomulhari Trek, I did not read anything (but I did not read everything) on the infamous road that is being constructed from Dodona and reportedly is supposed to go to Lingzhi. May this lead to the disappearance of a good part of the trek? There appears to be no economic justification for this road.