A comprehensive diagnostic assessment of Bhutan’s tourism sector by the Economic and Finance Committee (EFC) of the National Assembly (NA) has flagged deep-seated policy, governance and operational weaknesses that continue to hamper recovery, competitiveness and long-term sustainability, despite tourism’s central role in the national economy.
The assessment finds that the current tourism framework, centered largely on the Sustainable Development Fee (SDF), has dampened overall demand—particularly from mid-range and regional markets. Frequent policy changes and inconsistent interpretation of the Tourism Rules and Regulations 2024 have further eroded confidence among domestic tourism operators and international partners, creating uncertainty and discouraging long-term investment.
According to the report, reliance on a single, uniform fee-based instrument has limited the sector’s ability to respond to seasonality and the diverse needs of different visitor segments. Consequently, Bhutan has experienced reduced tourist arrivals, shorter lengths of stay and weak regional dispersal, leaving the country less competitive compared to neighbouring destinations. These trends have also contributed to declining hotel occupancy and a rise in non-performing loans (NPLs) within the hospitality sector.
Tourism governance remains fragmented across multiple agencies—including Tourism, Immigration, Aviation, licensing authorities, financial institutions and local governments—leading to conflicting regulatory interpretations, delayed approvals and lack of accountability. The absence of a single empowered authority has slowed decision-making and undermined operational efficiency, service quality and investor confidence.
The assessment also notes that the 24-hour SDF waiver for border towns has delivered limited economic benefits. Most tourists use the waiver primarily for transit, travelling onwards to interior destinations and returning only for exit, thereby bypassing local hotels and restaurants. As a result, the intended economic stimulus for border towns has largely failed to materialise.
The liberalisation of tourist bookings has enabled offshore agents to dominate key components of the tourism value chain, resulting in revenue and tax leakage, reduced foreign currency inflows, and diminished earnings for Bhutanese operators. Tourists arriving without pre-arranged services also pose safety and coordination challenges, while practices such as undercutting undermine Bhutan’s “High-Value” tourism principle.
Compounding these issues is the lack of an integrated digital platform linking visa processing, SDF payments, bookings and safety monitoring. Multiple payment gateways and fragmented systems have reduced financial transparency, weakened oversight and affected the overall visitor experience.
Bhutan’s airfares remain uncompetitive compared to regional averages. The current three-tier pricing system—based on nationality and supported by domestic subsidies—lacks transparency and predictability, potentially deterring international visitors.
Tourism activity is heavily concentrated in western hubs such as Thimphu, Paro, Punakha, Wangdue and Bumthang, which account for more than 95 percent of total activity.
Meanwhile, central and eastern regions suffer from limited infrastructure and services, constraining balanced regional development.
The hotel sector has been particularly affected. Of Bhutan’s 409 registered hotels, occupancy rates have fallen from 37.2 percent before COVID-19 to just 17.4 percent in 2024. Employing around 13,000 people, the industry now faces loan distress, job insecurity and the risk of skilled workforce outmigration.
The assessment highlights heavy reliance on cultural sightseeing and trekking, with declining participation from homestays, artisans and rural communities. Although opportunities exist in wellness tourism, agro-tourism, gastronomy, textiles and MICE, these segments remain underdeveloped.
It also identifies policy gaps in culture- and nature-based tourism, noting the absence of clear guidelines on site accessibility and permissible activities such as paragliding, kayaking, rafting and fly-fishing.
To address these challenges, the committee has proposed a series of reforms, including a comprehensive review of the Tourism Levy Act 2022, to clarify roles, pricing instruments and governance mechanisms, with the Tourism Rules and Regulations 2024 retained only as a transitional framework.
It called for flexible SDF adjustments, incorporating long-stay incentives, group discounts and seasonal concessions, particularly to promote tourism in central and eastern regions.
The committee also proposed extension of the border town SDF waiver from 24 to 72 hours to encourage overnight stays and local spending, while mandating the establishment of a single, empowered Tourism Authority to oversee policy, licensing, SDF management and inter-agency coordination.
It proposed for the creation of a one-window digital platform integrating visas, SDF payments, bookings and safety monitoring; airfare rationalization through transparent, competitive pricing aligned with regional benchmarks; diversification initiatives to strengthen community participation and develop niche tourism products; targeted support for hotels, including soft loans, government-led demand generation, renovation grants and aggressive tourism marketing, and; formulation of clear policies and guidelines for culture- and nature-based tourism.
The committee concluded that while tourism remains vital for foreign exchange, livelihoods, regional equity and cultural preservation, reforms since 2022 have produced mixed results with unintended consequences. It stresses that a clear, predictable and cohesive policy framework, backed by strong institutional leadership and modern systems, is essential to restore confidence and ensure sustainable, equitable growth aligned with Gross National Happiness (GNH) philosophy.
Tashi Namgyal
From Thimphu
