Fronting is easy money flourishing in the border towns and spread to other parts of the country and in new sectors such as tourism, hotels and boulder exports. This is according to the review report on business fronting presented by the Economic Affairs Committee in the National Council today. Fronting is defined as leasing of the license to another party to run the business.
The Economic Affairs Committee of the house reported that news reports and ACC investigation of 2015 show that fronting exists in retail and wholesale trade, construction and industrial sectors among others.
According to the report, the main motives for fronting for the license holder and the beneficial owners are to gain financial benefits without making any investment and assuming business risk. It also states that the outside investor in Bhutan enjoys a competitive advantage in trading sector against its counterpart across the border as the Indian goods exported to Bhutan are exempted from sales tax or GST.
“Compared to India, taxes in Bhutan are less. If we look at GST, Indian doing businesses in Bhutan do not have to pay GST. Moreover, when they do business in Bhutan they get fiscal incentives as per our policy. This provides them with an opportunity for better businesses,” Dasho Tashi Wangyal, the Chairperson for Economic Affairs Committee, said.
Report states that fronting has been mostly flourishing in border towns in the country. He said discussion with officials and business people in Phuentsholing indicated that there has been a steady rise in fronting cases. While hard facts and statistics are difficult to obtain, information from various government documents and media articles show that fronting is thriving in the border towns despite government efforts to control it. In January 2006, an internal report of the Ministry of Trade and Industry noted that out of 841 businesses inspected in Phuentsholing, 214 licenses were confirmed to be fronting cases. Likewise in 2003, more than forty eight people were suspected of fronting in Samdrup Jongkhar and Gelephu.
And to curb and deter these issues related to fronting, the Economic Affairs Committee submitted four recommendations to the National Council today.
The recommendations include effective legal provisions by studying the proposal to straightaway criminalise fronting as a felony offence in the penal code when they receive the amendment from the National Assembly or consider other legal measures such as imposing hefty monetary penalties or value-based sentencing to deter fronting before it is considered a felony offence.
The second recommendation the committee proposed is to establish an effective institutional framework to develop comprehensive policies to discourage, detect and deter fronting by identifying a lead agency to address fronting. The agency will be supported by all relevant agencies. The committee also recommends building on existing network and cooperation with border control agencies on the Indian side to share data and information with fronting in Bhutan which might undermine the laws of India.
The third recommendation ensures frequent rotation of public officials to address corrupt practices by public officials for being in the same place too long which breeds familiarity leading to the collision with businesses in the border towns.
The recommendation also includes establishing Ngultrum as the only legal tender in Bhutan (While holding the one-to-one peg between the two currencies) since the committee has observed that the existence of certain INR circulation in Bhutan along with free currency convertibility between two currencies have provided fertile grounds for fronting to flourish. This will require all transactions in Bhutan to be made in Ngultrum and all payments with India to be routed through the Banks. This will enable greater transparency, disclosure and monitoring while at the same time curbing fronting.
