BHUTAN TODAY The New Perspective
The Excise Tax Bill 2025, currently under deliberation in Bhutanโs National Assembly, aims to curb the consumption of alcohol and tobacco by raising excise duties. While this objective is rooted in public health concerns, the economic impact on small and medium enterprises (SMEs) deserves equal consideration. In developing economies like Bhutan, taxation policy should function as an instrument for enabling private sector growth, not as an obstacle. If poorly structured, such reforms could inadvertently stall the progress of businesses already navigating difficult economic terrain.
The governmentโs intention- to reduce harmful consumption while boosting domestic revenue-is valid. Bhutan, like many nations, faces growing lifestyle-related health issues, and tax measures have proven effective in discouraging harmful behaviors. However, when such reforms are introduced in isolation, without complementary support measures or sector-specific considerations, they risk undermining the very economy they seek to strengthen.
SMEs in Bhutan, particularly restaurants, bars, and small vendors, are among the most affected by the proposed hikes. Between July 2024 and April 2025, over 2,000 alcohol service licenses were issued, pointing to a sizable industry whose revenue stream heavily depends on alcohol sales. These businesses already grapple with high rents, limited foot traffic, and rising operational costs. For many, alcohol is not a luxury item but a primary source of income. A sudden increase in prices driven by taxation could significantly reduce customer demand, pushing some enterprises toward closure.
It is important to recognize that the governmentโs long-term vision for healthier citizens and increased public revenue is not in conflict with private sector development. In fact, both goals can be achieved in tandem if tax reforms are strategically implemented. A well-designed excise policy would factor in the current capacity of SMEs, offer them avenues to diversify, and ensure that the burden of reform does not fall disproportionately on smaller players.
The Annual Macroeconomic Performance and Outlook Report 2025 rightly emphasizes the need to deregulate markets and align fiscal strategies with sustainable economic growth. For Bhutan, where SMEs represent a critical engine of employment and local innovation, taxation must serve as an enabler. Tax structures that strain the very sectors driving domestic commerce will only deepen inequality and widen the gap between policy and practice.
From a broader perspective, international examples offer valuable lessons. Sweden, for instance, controls alcohol sales through a state monopoly and implements widespread education campaigns. Singapore enforces a strict smoking ban with surveillance and fines, but also supports cessation programs. In Finland and Japan, policies go beyond taxation and include advertising restrictions, school-based education, and state-funded rehabilitation. These models demonstrate that taxation alone cannot drive behavior change unless supported by public services, legal enforcement, and cultural engagement.
In Bhutanโs case, enforcement remains inconsistent. Despite existing prohibitions, public smoking is commonplace, especially among youth. Strong laws exist on paper, but implementation often lags behind. A tourist guideโs account of visitors questioning public smoking at Changjiji Youth Park reflects the dissonance between national image and everyday reality. This signals that without robust enforcement and awareness campaigns, taxation will be a blunt instrument, unlikely to yield meaningful health outcomes.
The human side of this policy must not be overlooked. Vendors who rely on a limited range of products, such as cigarettes and doma, operate with narrow margins and little capital cushion. For them, even a small decline in sales could mean loss of livelihood. Consumers, too, voice concerns not necessarily against the governmentโs intent but against the lack of supportive alternatives. Individuals struggling with addiction may not benefit from higher prices if affordable cessation aids or rehabilitation services are unavailable. For example, one smoker shared that even during the COVID-19 restrictions, when prices were inflated and supply scarce, consumption did not stop- it merely became more expensive.
Rather than relying solely on price as a deterrent, the government should view taxation as part of a larger framework. Policy coherence is crucial. If the goal is to reduce consumption, then price mechanisms must be paired with educational campaigns, access to treatment, and improved regulatory oversight. For businesses, transitional support is equally vital. Incentives to diversify offerings, easier access to credit, and training in alternative income streams can help SMEs adapt without collapsing under the weight of reform.
Additionally, there is scope to explore differentiated taxation models. For example, graduated excise rates based on volume of sales or business size could offer some protection to small vendors while still achieving public health objectives. Targeted subsidies or tax rebates for those who choose to shift away from alcohol and tobacco dependence in their business models could further reinforce behavioral change.
Ultimately, the success of the Excise Tax Bill 2025 will depend on how well it balances competing priorities. Public health and economic development are not mutually exclusive. With careful planning, taxation can serve both. But without a holistic approach, the risk is a policy that addresses one problem while creating several others.
Bhutanโs economic aspirations, especially those tied to private sector growth and employment generation, require a taxation framework that is fair, transparent, and responsive to the needs of its business community. Tax reforms should provide a foundation for businesses to innovate and expand, not force them into retreat. As the country moves forward, it must ensure that its fiscal policies reflect not just good intentions, but practical understanding of its economic realities.
