Tourism Industry: Are We Prepared For The Transformation?

I have been bewildered for the past many months - what am I missing? What am I unable to see? Have I gone well and truly senile? Have I lost my most rudimentary mathematics skill? What is so complicated about Bhutan's new Tourism Act of 2022?

I decided to devote two evenings to sit down and do my numbers - because in these perilous times, numbers matter. And, for the purpose of simplicity, I wanted to keep it simple.

UNDER THE MDPR REGIME

Under the tried and tested way of doing things that came to be known as the Minimum Daily Package Rate (MDPR) - a business philosophy that guided Bhutan’s tourism policy and a business model that ruled the roost for close to half a century, the numbers tell the story:

The implementation of the Minimum Daily Package Rate (MDPR) helped propel tourism to the top as the largest employer and highest foreign exchange earner in the country - with benefits accrued to the broad spectrum of Bhutanese society. Any and all Bhutanese who dared to hope and dream had a ready launch pad to act as a springboard to catapult them to heights unimagined in the wildest of their dreams.

As opposed to the above, a new business concept has been introduced - retrospectively effective from 20th June, 2022 - in which the SDF has been increased to US$200.00 - from the earlier US$65.00. With this new kid in town, the concept of the venerable MDPR was unceremoniously put to pasture and relegated to history. The new way of doing business will begin with the opening of tourism as of September 23, 2022, the numbers are likely to pan out as follows:

In place of the MDPR, the new tourism Act of 2022 calls for the collection of SDF at US$200.00 - but everything else remains mute. As the rough projections above show, the SDF may have seen triple fold increase - but the inflow of $$ and tax collection is seen to fall dramatically.

I have said these many times before - but I will say them again:

Under the MDPR regime, 100% of the “designated” tour payments were mandatory to be paid in advance. Tourism business was wholly owned and run by the Bhutanese, although few stray cases of fronting - both minor and major, were reported. Notwithstanding the incessant charge that there is undercutting in the industry, I know of no one who got away without paying the “designated” amount of MDPR, well almost.

Under the MDPR regime, it was impossible for tour operators to conceal business turnover given that TCB had all the records of business conducted by each of the country's tour operators, resulting in 100% collection of tax, as owed. By extension, hoteliers' true size of business were open to scrutiny by the tax department. With MDPR in place the TCB had the moral and administrative authority to administer ethical business practices among the tour operators. The tourism players were happy since what was on the table was more than adequate to keep every one happy and bouncy. No doubt there were some bad apples - that is because the authorities did not have the wherewithal to discipline the rogues.

Under the MDPR regime, it was all about protecting the brand Bhutan. Ofcourse some did not adhere - that is because those people in authority did not have the guts to do what they were expected to do.

Sadly, it is made to appear that the new policy’s focus is only on the collection of SDF, and everything else is subservient to the realization of this goal. To be fair, that is not really true - we know that the government has the industry’s long-term sustainability in mind. It is for this reason that the industry IS NOT in opposition of the new policy - but the manner in which it is implemented. Unfortunately, despite every body’s untiring efforts, the TCB and the industry players are dangerously inching towards a space in which, at best, they can co-exist as uneasy bedfellows, and not committed partners to a common cause.

The new rules and regulations practically shunt out the Bhutanese tour operators and go all out to encourage outside tour companies, tour agents and tourists, to conduct business directly with the government and the wannabes in the country. It is simply insane to think that a tourist who is willing to pay US$200.00 as SDF would be willing to position himself/herself at the EXIT gate and flag down taxis and go hunting for hotels and guides upon arrival in the country. But the larger worry is that this amateurish attempt is bound to cause massive fall in tax collection and inflow of foreign exchange - because they are required to bring in only the SDF of US$200.00 - which is, coincidentally, shy of US$50.00 compared to the MDPR of US$250.00. Here is a strange situation: the SDF has been jacked up threefold to US$200.00 - from US$65.00. I would have thought that a comparable increase in the inflow of foreign exchange would have been expected. It does not look like it - mathematics show that there is actually a dip of inflow of foreign currency, by as much as 12%. Even worst, tax collection is seen to drop by as much as 60%. To be fair it will not be so much - but since the income from other sectors - other than airlines and handicraft sectors - is rendered impossible to be recorded accurately, it is not possible to determine the size of their business, and thus, tax leviable on them.

Under the SDF only regime, even tour operators and hoteliers will fall under the grey area - unregulated business.

It will encourage under-declaration both by tour operators as well as the hoteliers. There are possibilities that tour operators might use the foreign agents and even individual tourists to conceal turnover, thereby escape paying the government's just dues. Even hoteliers are bound to take this route. The “SDF only” dictate opens up avenues for the immoral and the wayward to play hanky-panky.

Talking of hoteliers, their plight is even more precarious. I had submitted to the Hon’ble Prime Minister during his informal press briefing that a much bigger problem would confront the hotel industry. That they built the hotels based on a conducive policy that was in place and that when that policy is altered, the onus must rest with the government to bail them out of the sticky situation that they have been put into. The RGoB, whether past or present, needs to work at rescuing them from out of the quagmire.

I get the feeling that pegging the SDF to a suitably enhanced MDPR, and going ahead with business as usual seems to be the most workable method of doing business – particularly when conditions are in a confused state and are not very easeful. We are just a little over ten days away from Zero Hour and the Department of Immigration who is supposed take over the issue of Visa and collection of the SDF - remains unengaged and very, very quite.

It is my hope that the government would reassess the situation that is currently prevailing, and consider deferring the implementation of the new Act – until we are ready to take on the transformation initiative in the spirit and with the sure-footedness that such an upheaval warrants.

It is sufficiently clear that WE ARE SIMPLY NOT READY!