Is vehicle quota needed?

Is vehicle quota needed?

The government loses Nu 700mn annually in tax revenue foregone because of the quota system

Is it still necessary to continue with the give-away vehicle quota system?

This is one pertinent question that has emerged following reports of vehicle quota being overly misused and billions of revenue forgone as a result.

Certain sections of the people are even questioning whether the vehicle quota system should be in place particularly at this time when everyone can afford to buy a vehicle and there are over 2,000 government pool vehicles.

According to the performance audit report of the Royal Audit Authority (RAA), the vehicle quota system of allowing import of foreign vehicles, exempt from tax and import duty, started sometimes in 1982. This system was extended to high rank officials, officers of the three armed forces and civil servants, depending on their grades.

However, currently, this system has become a facility or incentive to multiple government and non-governmental organizations and almost all individuals in public service irrespective of the types of employment. It appears that the very objective of providing this facility has disorientated over time.

The RAA report states that the objective of the introduction of foreign vehicle quota system as laid down in the foreign vehicles allotment rules 1994 was to facilitate mobility of government officials, minimize the demand on pool vehicles and cost of maintenance, and standardize the import of foreign vehicles.

As per records maintained by the Directorate of Services (DoS) under the Ministry of Finance, 7,265 limited quotas and 1,288 full quotas, of which 1,092 for government vehicles, were issued beginning 2014 till the end of 2018.

The financial and economic implications of the quota system are in terms of forgone tax revenue, depletion of the country’s foreign currency reserves and inflating import of vehicle, spare parts and fuel. National statistics indicate increasing import of motor vehicles and the foreign vehicle quota system aggravates the situation.

The vehicle quota system, over the years, has had huge financial implication on the government exchequer in terms of tax revenue forgone. As of June 2018, the total number of registered vehicles in the country stands at 96,307, an import of 8,080 motor vehicles in a year period. On an average 22 motor vehicles are imported in a day.

As per data from the Department of Revenue and Customs, between 2014 and September 2018, more than 9,000 vehicles were imported using government issued vehicle quota and more than Nu 3bn in tax revenue was waived. 

In the last five years more than Nu 3.1bn tax revenue was foregone as a consequence of the vehicle quota system.

The vehicle quota rules state that the vehicle quota allotment shall not be misused including sale to third party for breach of which the public servant will not be eligible to any quota allotment in the future.

However, many individuals do not abide by this rule and most of the vehicle quotas are sold in the open market or in some cases given to or used by another individual, family members or friends.

The RAA report states that due to the quota system the government incurs loss of over Nu 700mn annually in foregone-tax revenue.

The report recommends that considering the financial and economic implications of the quota system and ambiguous legislations, it may be timely to revisit the very objective of providing this facility or incentive.

An avid blogger Yeshey Dorji says that the vehicle quota is certainly not needed in these times. The country cannot afford it.

He said the unjust and undeserved vehicle quota should be immediately withdrawn from the system.

“Awarding this vehicle quota to some select people in preference over others who are perhaps even more deserving is not right. This is an insult to those of us who work 16-17 hours a day to improve health service, upscale food production and deliver safe drinking water to thousands of children,” said Yeshey Dorji.

He added the government should stop treating some of us like second class citizens undeserving of equitable treatment.

According to him, there is a fundamental flaw in our value system when a government finds legitimacy in elevating the MPs and the Ministers and the civil service to a category above others and awards them with special gifts that are undeserved. “Doing so is a demonstration of paucity of morality among those who espouse such social segregation,” he said.

Similarly, former economic affairs minister Lekey Dorji said vehicle quota system has outlived its intended purpose envisioned in the early eighties.

“If we do away with the vehicle quota system, taxation on vehicles will be more meaningful and the government will receive more tax revenue. There will be less demand for vehicles and the resources so saved could be invested more productively,” he said.

He said there cannot be any excuse for the government to not invest in public transport and traffic congestion may not be a growing issue in urban towns. 

“Of course, withdrawing vehicle quota would undoubtedly disappoint many of our civil servants becoming eligible for vehicle quota and that could demotivate them and may affect public service delivery,” he said.

He also said if the vehicle quota is continued, the government will continue to lose out on tax revenue, traffic congestion will increase, resource allocation and investments will get skewed, and investments in good public transport system may not be a priority for the government.

Meanwhile, the report also shows that in 2017 and 2018, the tax forgone is higher than the expenditure on government vehicles.

The number of government vehicles as of June 30, 2018 stands at 2,437, excluding the vehicles in the financial institutions, projects and corporations.

According to the report, annually significant portions of total resources of the government are spent on procurement, maintenance and recoupment of government vehicles. The total cost on vehicles in terms of acquisition, maintenance and rental of vehicle accounts for Nu 3.6bn from the financial year 2013-14 to 2017-18.

Nu 1.7bn were spent on the maintenance and Nu 1.7bn on procurement of new government vehicles from 2013 to 2018.

Dechen Dolkar from Thimphu