Finance Minister brushes out any speculations about tax increase
A huge public outcry erupted after the government lifted the moratorium on vehicle import on August 18, with scores of disgruntled people largely criticizing the increase in automobile prices. These people were waiting for the moratorium to be lifted so that they could purchase cars within their income range.
Literally flabbergasted people took to social media and any other platforms available, pouring and venting out their frustrations on the government.
Latest available information with automobile dealers in the country shows that the price for the EX Creta model has seen significant increase over the past few years. Prior to the government’s vehicle moratorium, the price for EX Creta was about Nu 1.3 million (M). However, following tax revision implemented in August 2022 by the then government, the price for the same model rose to about Nu 1.6M. Now, with the recent lifting of the vehicle moratorium, the price has escalated further to around Nu 1.8M. The similar model costs around Nu 1.2M in the Indian market.
One social media user commented that the price of cars in Bhutan is nearly double than that in neighboring India. He said that if the government allowed direct purchases from Indian car dealers, it would significantly reduce vehicle costs, particularly if customers paid the necessary taxes themselves.
Another person, named Sonam Dorji, stated that the previous government initiated the moratorium with good intentions, but many believe it has hindered the accessibility of cars for the average Bhutanese. He pointed out that while the current government lifted the moratorium, no substantial policy review was conducted to address the underlying issues, which has led to continued inflation in vehicle prices.
Another social media user argued that the general public believed raising taxes contributed to corresponding surge in the price of vehicles in the country. He suggested that if the government could improve public transport system, it could shift the public perception of vehicle ownership from a necessity to a luxury, ultimately easing the demand for personal vehicles.
The senior general manager (GM) of Bhutan Hyundai Motors, Pema Lodey said that rising taxes and firm costs have led to increased vehicle prices in the country. The senior GM said that the Bhutan Sales Tax (BST) was hiked by 15% from its previous rate of 45%, and the government also increased the green tax by 10% to a total of 20%. “Overall, taxes on vehicles have increased by nearly 80% from the previous tax rate of 55%,” he stated.
The senior GM also said that the rising prices in India have also resulted in increased costs related to importing vehicles. “Over the past two to three years, manufacturing companies have raised the prices by 2-3 times,” he added.
He also pointed out that the general public might not be aware about the tax revision and its directive from the government on implementation, and that might have created confusion since the price hike began during the moratorium period.
The Chief Executive Officer (CEO) of the State Trading Corporation of Bhutan Limited (STCBL), Tshering Wangchuck, also confirmed the hike in prices across numerous vehicle models. The CEO said that the hike varies between different brands and model of vehicles, but there is also a significant price increase in the fossil-fuel vehicles.
The CEO explained that the hike in prices are attributed to multiple factors including tax revisions, inflation, and rise in cost of production, shipping expenses, and increased employees’ wages. “There are many variables that affect the price of vehicles, but main factors affecting the vehicles prices are costs imposed by manufacturers and taxes within Bhutan,” he said, adding that as a dealer, they have limited control over these factors.
The CEO underlined that the price changes in TATA and Eicher brands are not very significant. However, the tax revisions have significant impact on the price of Toyota Land Cruisers and Hiluxes. For instance, Toyota Land Cruisers and Hiluxes have seen tax rates climb from 180% to 205% and from 125% to 150%, respectively. He acknowledged that the primary cost drivers are the manufacturing prices and Bhutan’s taxes, which are beyond the dealer’s control.
Similarly, prices for vehicles with BS4 and BS6 standards have increased by 25-30%, regardless of brand, while the average increase in price of TATA, Eicher and SMLI vehicles of the same model ranges from Nu 20,000 to Nu 50,000.
He pointed out that public perception regarding vehicle dealer maintaining high margins is a misconception due to the competitive nature of Bhutan’s market. He shared that the price of vehicles will always keep on changing depending on numerous factors and the trend has been happening over the years.
The CEO explained that the vehicle dealers must carefully consider several factors, including market competition and customers’ purchasing power, before adopting high profit margins. “Otherwise, they could lose customers to competitors.” He also shared that the vehicle dealers have to abide by the dealership agreement signed with the principal companies, and normally dealers do not have absolute discretion when it comes to setting the price.
The CEO also clarified that the public are seemingly unaware of tax increment. “People couldn’t understand this, as the previous government imposed the moratorium right after the tax was increased.”
In the midst of this scenario, Finance Minister Lekey Dorji clarified that neither the existing taxes were raised nor were any new taxes introduced.
“The government did not endorse any new tax increases. The tax hikes were implemented by the previous government in 2022. We have lifted the moratorium, but the tax rates remain unchanged,” the minister said.
Meanwhile, the moratorium on vehicle was imposed on August 18, 2022, by the Finance Ministry.
By Nidup Lhamo, Thimphu
