There are growing reports and increasing concerns of tax evasion in the tourism industry as tourists now only have to pay the USD 100 per day SDF and what they do and how much money they spend after this is up to them, which makes it difficult to track their expenses, and hence the income of tour operators, hotels, guides etc. 

There is also an associated and growing danger of fronting in the tourism industry whereby Bhutanese tour operators end up collecting commissions.

Earlier when the Minimum Daily Package Rate (MDPR) of USD 250 during peak season and USD 200 during lean season was there the money all had to come via the then Tourism Council of Bhutan (TCB).

This data was accessed by the Department of Revenue and Customs (DRC) who after discounting the expenses like food, hotels, travel, guide fees and other charges could calculate the income and levy the tax on tour operators and others.

In the earlier system even those who were undercutting or charging lower rates ended up paying higher tax as the DRC went with the official MDPR rates.

The reporter talked to a few tour guides and even operators to confirm that with no MDPR in place some are even asking tourists to bring cash so that DRC cannot track it online and tour operators and others can under declare their income and save on tax.

A major tour operator on the condition of anonymity said, “There are a lot of tourists who are being asked to bring in cash which is why the dollar supply in the informal markets have increased with a lot of people selling dollars be it 3,000 dollars or even 10,000 dollars online.”

He said larger tour companies that are incorporated cannot do this as they are audited, have to declare their income and have boards but the practice is more rampant among smaller players.

He said in the past it was much easier for the DRC as the fixed MDPR was there but now there is only the SDF.

Now, he said, anyone can operate trips and that makes monitoring a challenge and this not only impacts tax evasion but there is also an increase in fronting.

He said that fronting was there in the past too but now it has gone up and fronting in some aspects is legalized. He said it is not just from Jaigaon but from others parts of India and Nepal too.

“Tour operators and guides are happy with the commission money but the main money leaves the country.”

The operator said that the fact that tourists don’t have to come through Bhutanese tour operators anymore through a MDPR in one sense is nice as it will help certain restaurants to boom as they can eat where they like and it will also help transporters and taxis.

He said, in the past, the main complaint against the tour operators was from hotels but even then nobody was really stopped from being a tour operator as hotels were also free to open their travel desks and at the time there were certain rules.

Now the issue is that under the open system anyone can apply for a tourist visa including civil servants and so now there is a lack of regulation and tourists are now even coming on their own getting their own visas, booking their own hotels and then going their way.

He said this is good if we are ready but if we are not ready and not experienced then there are issues.

An official from the Department of Tourism (DoT) said in past discussions this was one of points raised in terms of the dangers of tax evasion and minimal spending. He said at least with the MDPR there was some certainty at the time even though there was undercutting.

He said now with just the new system and just the USD 100 SDF it is not possible to track like before.

To deal with this the DoT said one way was through standardization of hotels where tourists were to stay only in three star hotels and above which means there will be minimum spending. Now there is also the addition of one and two- star tourist standard hotels.

Another was mandating the use of guides where tourists have to spend and this maintains standards.

The official said that at one point the government even wanted to mandate that hotels rooms for tourists cannot be sold below Nu 3,000 per night and that tax would be charged on Nu 3,000 per night but this idea was done away with.

One of the tools is monitoring in terms of where tourists are staying, but weak monitoring is an issue.

The official said the danger of tax evasion was raised but they went ahead with doing away with the MDPR as it did not give flexibility to tourists. The new system would give flexibility and it would also level the playing field as hotels and guides can get guests on their own.

The official said even with the doing away with MDPR the tour operators are still dominant as the majority of tourists are coming through them. He said there are pros and cons and things will be relooked at.

At the same time a senior official from the DRC said even though the MDPR data is no longer there the DRC would get the Department of Immigration data on the SDF paying tourists, the tour operator they are coming through and where they are staying.

He said that at the airport right next to the immigration officer is a DRC officer who would would be collecting such information.

The DRC official said that they would also look at past trends. He said it will not make a difference if the payment is in cash or otherwise.

When a tourist comes, the DRC will know who the tourist is going with and for how many days and so the tour operator will have to show the expenses to justify deductions.

“If they cannot produce the bills and other receipts then then tax burden will be larger as there will be no deductions and so it is in their interest to maintain receipts of expenses.”

The DRC official said that for large and established companies the DRC will collect its tax based on it records etc but for smaller companies they will look at the past and estimate the tax.

He said even if people try to avoid tax the tax will be imposed based on the number of tourists and it will be in their interests to maintain the records and documents.

The DRC official said they are aware that certain payments for high end chains of hotels are made in their head offices like in Singapore but he said the money spent in Bhutan must enter the system and tax must be paid on it and only profits can be remitted out.

This article was first published in The Bhutanese, Bhutan