While Bhutan’s first tourists this season were enjoying the Punakha Domche, the prime minister sealed a debate on the new tourism tariff Wednesday at the capital.
Before a gathering of tourism stakeholders, along with five cabinet ministers, the prime minister asked those in the Tourism Council of Bhutan Hall to raise hands whether to increase the daily tariff to US$ 250.
The gathering included many tour operators who had till then criticised a proposed tariff liberalization plan of the government. Hands started lifting after Lyonchen Jigmi Y. Thinley’s query. In the hall of around 150 stakeholders, 70% raised hands for US$ 250 a day for every tourist who comes to Bhutan, a raise from US$ 200.
The Tourism Council of Bhutan had previously said the new liberalized tariff system will not only increase the number of tourists in the next three years but also have more high-end tourists.
But tour operators and guides thought liberalization meant drop in the tariff rates which would invite undesired elements, from tight-fisted misers to culture-loathers, into the country. This doubt worsened with news in the media with the initial government plan to bring in 250,000 tourists which was later scaled down to 100,000.
It was after a media report which said the GNH commission and McKinsey had projected an increase in tourist arrival to 250,000 annually within the next three to five years. The number included high-end as well as regional tourists.
Following criticisms after the article, the government said it was not the correct information. What they have planned was to bring in 100,000 tourists in three years calling it an “aspiration figure.”
What about under cutting
Tour operators and guide association members are happy with the decisions. But what about the tariff undercurrent culture?
Big tour operators will benefit, as they can continue to offer services at a much lower rate than US$ 250. But the small and mostly one-man tour operators do not have the muscle power to bargain for a lower rate.
What is undercutting? Tour agencies, flouting the fixed tariff rules bring in tourists at a much lower rate compromising on profits. The actual tariff of US$ 200 is charged from the tourist. But a better amount is given to the overseas agent who connects the tourists to the local operator.
For instance, if the foreign counterpart of a local tour agency demands for US$ 50 per person, both the parties come to an agreement and tour operator pays a certain amount to the foreign agent.
But the tricky part is, the foreign agent has to send the officially agreed tariff amount, to the Tourism Council of Bhutan account, from where the local operator will get the money after the necessary deduction of US$ 65 as royalty.
What usually happens is, the local operator sends back the negotiated amount to the agent, but it has to be in dollars.
Now, with the increase in the tariff rate, the agents will have to give back more money to the oversea agents, which might cause exchange rate problems for the local agents.
The dollar question
Business Bhutan learnt that last year a major tour operator had to give back Nu 30m to a foreign counterpart as the undercutting cost.
According to a small scale tour operator, major tour operators own their own hotels and busses, so they can afford to bring tourists. Big operators can undercut as low as US$ 120 per tourist. But small operators have to hire everything, increasing the cost.
“A baby is killed before it has seen the world,” said Lhendrub, a newbie tour operator who said the tariff increase will only work against him.
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