The Government proposal to increase taxes aimed at easing negative balance of payment with India and rupee crunch and my views on them as posted on 23 June 2012.
The National Assembly (NA) discussed the issue on 27 June 2012 and decided the following.
The National Council (NC) discussed the taxes as proposed by NA on 2 July 2012 and decided the following.
(i) 40% green tax on vehicles of 1,800 cc and above, in addition to existing 45% sales tax and customs duty;
Pros: (a) Discourage import of luxury vehicles
(b) Save hard currency to improve dollar/INR reserve
Cons: (a) To me the tax increase makes no sense in financial, technical as well as in economic terms.
Financially, a person normally willing to pay Nu 2.9 million for a SUV (45% tax over base price of Nu. 2.0 million) will not hesitate to buy SUV costing Nu 3.7 million (85% over Nu 2.0 million). Moreover, SUVs are mostly bought by tax-exempt persons. So the hard currency savings may be very nominal.
Technically, 4-wheel drive vehicles are more suitable than under-powered petrol driven mini cars for mountainous terrain and on the existing road conditions considering comfort, safety, repair & maintenance cost, and vehicle life.
Economically, the vehicle operation costs of a diesel SUV (which lasts about 20 years) should be comparable with under-powered petrol driven mini car lasting about 6-7 years if the load carrying capacity is also accounted.
(b) Heavy tax on vehicle import has mostly negative impact on economy because of high vehicle operation cost through the use of old vehicles.
(c) The tax policy will increase the smaller cars on the road but decrease bigger vehicles. Overall annual fuel import cost may not change because of increase of small petrol-driven cars.
(d) The traffic congestion is created by small cars. Reducing traffic congestion and encouraging car pooling and/or use of public transport should play part in government tax policy.
(e) So, how is it green tax?
[Green tax - tax placed on people for goods and services that some people feel are not environmentally good. These taxes (in theory) go to help reduce the environmental impact of that object.]
It would be insensible to just consider import price of SUVs and assume overall dollar savings [which is questionable] resulting in easing rupee crunch. Will the above tax policy have overall positive cost impact on the economy? I am not sure. The strategy should be to introduce more fuel efficient and suitable vehicles, and improve roads.
NA Decision: 20% green tax on vehicles of 1800 cc and above, and 5% green tax on below 1800 cc.
NC Decision: No tax increase on all vehicles.
(ii) 5% tax on kerosene, petrol, diesel, lubricants and LPG;
Pros: The increase will make the cost of petrol/diesel at par with the prices across the border in India.
Cons: The 5% tax increase on petrol and diesel in addition to more than 10% increase in May 2012 is heavy.
NA: No increase.
NC: No increase.
(iii) 10% tax on refrigerators, freezers and air conditioners;
Reasonable.
NA: No increase.
NC: No increase.
(iv) 50% excise duty on all alcohol, domestic and foreign;
Reasonable.
NA: No increase.
NC: No increase.
(v) 5% sales tax on meat, fish and egg;
Reasonable.
NA: No increase.
NC: No increase.
(vi) 15% sales tax in addition 50% customs duty on furniture (increase from existing 10% sales tax, no change in customs duty);
Overall increase of 5% looks reasonable.
NA: No increase.
NC: No increase.
(vii) 15% sales tax and 50% customs duty silk fabrics (increase from existing 5% and 30% respectively)
Overall increase of 30% on silk fabrics looks reasonable.
NA: No increase.
NC: No increase.
(viii) 20% sales tax and 30% customs duty power chainsaw (increase from existing 0% and 10% respectively)
Substantial 40% increase on power chainsaw? I cannot think of a reason.
NA: No increase.
NC: No increase.
On 27 June 2012 the National Assembly deliberates Tax Bill (Bill) and passes the Bill with amendments. The Bill is forwarded to National Council. On 2 July 2012 National Council votes against all tax increases proposed in the Bill (out of 22 members, 21 voted against tax increases and one abstained). Most Council members find no convincing logic to levy green tax.
ReplyDeleteThe Constitution stipulates (Article 13, Clause 7): “Where the other House does not pass the Bill, that House shall return it to the House in which the Bill originated with amendments or objections for re-deliberation. If the Bill is then passed, it shall be presented to the Druk Gyalpo for Assent within fifteen days from the date of passing of such Bill.”
Since the Bill was not “passed”, National Council returns the Bill to National Assembly for re-deliberation.
On 5 July 2012 the National Assembly decides not to re-deliberate the Bill on the grounds that reasons for not passing the Bill by the National Council were not reasonable, and re-deliberation would mean breaking regulations on parliamentary procedure. Thus National Assembly passes the Bill as deliberated on 27 June 2012, levying green tax of 20 percent on vehicles above 1800 cc and five percent on below 1800 cc.
The Constitution stipulates (Article 13, Clause 8): “ Where the House in which the Bill originated refuses to incorporate such amendments or objections of the other House, it shall submit the Bill to the Druk Gyalpo, who shall then command the Houses to deliberate and vote on the Bill in a joint sitting.”
Also, on 3 July 2012 with clear majority, National Assembly decides to “withdraw” the parliamentary entitlement (amendment) bill -- introduced by National Council -- proposing, among others, entitlement to gratuity for members resigning before completion of terms if they opted to re-contest seats in the next council election.
I do not understand the meaning of “withdrawal” here. I hope it implies returning the parliamentary entitlement (amendment) bill to National Council for re-deliberation.
Do you have clear idea where our political leaders are leading us to? I don’t!
When crude oil was at $120/barrel, rupee was at 45 to a dollar and now crude is at $90/barrel, rupee is at 57. Crude reduced by 25.0% while rupee depreciated by 26.7%.
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