FDI makes tax contribution of Nu 1.58bn

The Foreign Direct Investment (FDI) made a total tax contribution of Nu 1.58bn for 2016. This constituted 7.23% of the tax revenue and 5.3% of the total revenue of the government in 2016.

According to the FDI annual report 2017, as of December 2016, there were a total of 54 projects approved of which 32 projects were in service industry and the remaining 22 in manufacturing industry. FDI in Bhutan is mainly concentrated in hotel industry with 39% share. Other sectors include manufacturing such as power intensive industries, pharmaceuticals and furniture production constituting 22% of the total FDI projects.

Five projects were approved in the 2016, adding up the total number of projects approved as of December 2016 to 54 projects. Of the 54 projects, 39 projects have started commercial operation and 15 projects are under constructions.

The report states that FDI in the hotel industry has grown steadily from Nu 2.45bn in 2010 to Nu 4.60bn in 2016, an increase by 87.6% over a span of six years. This is further expected to grow as an increasing number of hotel projects are in the pipeline for approval.

FDI projects are allowed to invest in the country either through equity or debt, which can be raised either from within the country or through the external commercial borrowings. About 20 projects are financed through debt, mostly being raised from the commercial banks within the country.

The report also states that in terms of sectoral share of FDI, 59% of the projects are in services sector and the remaining 41% in manufacturing sector. Hotel sector continued to attract maximum foreign investment accounting for 39% of overall FDIs in the country.

Location wise, FDI projects are mostly located in the western dzongkhags of Thimphu, Paro and Chukha, the former two in service sector and the latter in manufacturing.

The report mentions that the investments are mostly made by Asian private companies with Indian leading as the origin of investment followed by Thailand and Singapore. About 70% of the investments from India are in manufacturing sector and are mostly established taking advantage of the cheap and reliable electricity available in the country. Investments from Singapore and Thailand are mostly in the hospitality sector aimed to cater to growing demand in the expanding tourism industry in the country.

While the number of projects approved during the year remained stable, the equity inflow has increased significantly by 178%. FDI projects recorded an inflow of Nu 600.53mn, of which Nu 306.70mn was in Indian Rupee and the remaining in US$ ($4.45mn) invested as equity during the year.

In terms of employment generation for Bhutanese and tax contribution of the government, both have increased marginally. The FDI companies employed a total of 3,798 Bhutanese as regular employees and 726 as casual employees. Foreign personnel employed by the companies stood at only 7% of the total employment. Mountain Hazelnut private limited has the highest number of employees with 863 followed by Bank of Bhutan with 662 Bhutanese employees.

FDI in Bhutan began with the formal opening of the economy through the adoption of FDI policy in 2002 and it is implemented in 2005. The policy was amended in 2010 to re-align to changing needs of the economy and changes in global investment environment.

In 2014, the policy was further amended with few changes geared toward enabling the environment for investors.

Dechen Dolkarย from Thimphu