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.
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.
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:
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:
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?
Is this what the National Council wants?
..................to be continued