Bhutan's Tourism Industry: Disaster Foretold

During early 2022, a select group of BSTS Members met the Chair of the Tourism Council of Bhutan (TCB) in his Chamber at the Gyelyong Tshokhang - in an effort to forestall the dismantling of Bhutan's globally celebrated tourism business model that worked successfully for close to half a century since its institution. This was one of the many desperate attempts made by a passionate group desperate to save the tourism industry from utter ruin - the last and final attempt was made on 22nd June, 2022 when we met the National Assembly's Economic and Finance Committee - in yet another attempted to save the industry from being driven into the ground.

During the Meeting with the Chair of the TCB, following points were submitted in writing:

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PITFALLS OF DISMANTLING THE MINIMUM DAILY PACKAGE RATE (MDPR)

Submitted to:

His Excellency (Dr) Lyonpo Tandi Dorji

Chair, Tourism Council of Bhutan

Copy to:

Director General

TCBs

Submitted by:

The Working Group Members

Bhutan Sustainable Tourism Society (BSTS)

Points in bullet form:  The Consequences

1. Influx of undesirable tourists

2. Massive decline in foreign exchange inflow

3. Rampant tax evasion – reduction in revenue to the exchequer

4. Hoteliers will suffer the most

5. Fronting – risk of external players taking over the country’s tourism business

6. Cultural dilution and environmental degradation

7. Decline in quality services/products and visitor experience

8. The preferred OPTION: increase in the MDPR

EXPANDED NARRATIVE

The pricing policy of Bhutan based on a Minimum Daily Package Rate (MDPR) is one of the unique features of Bhutan’s tourism development initiative that is held in great admiration by many countries.

In the pursuit of our tourism vision of ‘High Value Low Impact’, the MDPR remains the principal catalyst that has helped the tourism industry grow at an even pace and in the desired direction. Removing this tool would have long-term consequences on the government and the people of Bhutan.

In brief following are some of the obvious consequences:

1. Influx of undesirable tourists: Brand Bhutan has successfully positioned Bhutan as one of the top travel destinations. There is a huge desire in the market to visit Bhutan. So, when we have the opportunity to capitalize in choosing the top end market, removing the MDPR will only weaken this opportunity by making it easier for influx of undesirable tourists.

2. Massive decline in foreign exchange inflow: Presently tourism is the top foreign exchange earner. This is largely attributed to the implementation of the MDPR.

3. Rampant tax evasion: The application of the MDPR ensures that the business of tourism is well regulated and transparent. Removing it will open up opportunities for tax evasion.

4. Hoteliers will suffer the most: While every segment in the business chain will suffer, the hoteliers will stand to bear the major brunt, if the MDPR is removed. The current thinking that they would benefit will not be true. MDPR sets aside a reasonably good amount to meet the room cost. Removing the MDPR would mean the need to succumb to lower room rents considering the stiff competition between the hotels and other accommodation facilities.

5. Fronting: Fronting may already exist, albeit at a small scale. Dismantling the MDPR would encourage the emergence of external players who would begin to decide the direction of our tourism business. They become the masters.

6. Cultural dilution and environmental degradation: Unregulated tourism activities will pave the way for mass tourism and culturally/environmentally insensitive people to overwhelm the country. Our two main pillars of tourism – Nature and Culture will come under direct threat.

7. Decline in quality services/products and visitor experience: Removing the minimum pricing policy would lead to the emergence of negotiated payments with service providers and product developers. This would mean less earnings, resulting in poor service and visitor experience – a direct conflict to our professed tourism philosophy of ensuring high value and satisfying experience to the visitors.

Conclusion 

No system is perfect and we are aware that several problems do exist in the tourism sector. The problems can be addressed if we take an objective and focused approach on those issues but not at the cost of dismantling the MDPR. The MDPR needs to be understood as a tool to improve our services, protect our Brand Bhutan, and add value to the overall growth of sustainable/high value tourism. The success of the MDPR can be seen by the rapid increase in socio-economic development of our people. Believing that the MDPR is an impediment to the growth of tourism is a falsehood – at best it demonstrates a lack of understanding of the principals on which the concept was founded. On the other hand, what is true is that it has empowered the Bhutanese people to have control over tourism growth. Therefore, removing it would have dire consequences on the country and the people of Bhutan.

If ever a change is deemed necessary, the beneficial change would be to increase the MDPR even higher, from the existing level, which has remained unchanged for years.

A case in point – to demonstrate that the MDPR of US$250.00 is not a deterrent is the approach of the high-end hotel chains like the Aman Kora and the Six Senses. Their daily package rates range anywhere between US$1,500.00 – US$4,500.00. Thus, when our country has the potential and opportunity to tap into the high-end market why be foolish to pave way for adversity.

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Sadly, our above submission was entirely sidelined – the MDPR was consequently demolished – upon passing of the Tourism Levy Act of Bhutan 2022, by the National Assembly of Bhutan during its 29th Session (2nd June to 4th July, 2022.

It did not take too long for our near prophetic predictions to be proven right - the Kuensel, on 11th May, 2024, carried the following news report:

The truth of the failure - as reported by the Kuensel in their news report of 11.05.2024

You can see that we predicted – almost incident-by-incident – what would happen. Sadly, for us, it is not a matter for cheer. In fact, we mourn that we were so totally accurate in our predictions.

Now that the government has had a taste of their pudding, it is our hope that they would have the humility to accept that they have erred ….. that it is time to make amends so that the country’s most vital industry can begin to crawl back to life and its former glory.