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Review Report on Fronting by Economic Affairs Committee

Posted on :07 June 2019

The Economic Affairs Committee (EAC) presented the review report on fronting: issues, consequences and recommendations.

The members of the committee detailed-out the review report which included background, introduction, motives for fronting, difference between FDI and fronting, measures taken to curb fronting, limitations and weaknesses of government actions, risks and impacts of continued fronting and committee recommendations.

Presenting the report Hon. Member Dasho Tashi Wangyal, Chairperson of the Committee, briefly stated that though fronting is not permissible as per rules and regulations, procedures, it is prevalent in the country.

He said, “At the outset, it is also important to note that not all businesses operated by non-Bhutanese are fronting business. Data from the Ministry of Economic Affairs shows that there are about 310 non-national who have valid licenses to operate businesses in Bhutan with over 90 percent of these businesses in the border towns of Phuentsholing, Gelephu and Samdrup Jongkhar.”

Sighting fronting examples between a Bhutanese license holder and a non-national, the Committee Chairperson said the well recognized methods were: a Bhutanese citizen leasing his/her business license to another person for commission; a licensee engaging another person to run the business on his/her behalf; a beneficial owner purchasing machinery and vehicles in the name of a Bhutanese; and a licensed non-national leasing the license of a Bhutanese license holder to venture into business in the industrial or services sector where he/she is not legally permitted to do so with the original license.

The Deputy Chairperson of the Committee, Hon. Ugyen Tshering, continued with the presentation of the review report and revealed financial benefit, business opportunity, tax benefit, deflection of imported goods, access to convertible currency and misconduct and corrupt practices of irresponsible public government officials as the motives for fronting. Some of the prominent areas of fronting as observed by the Committee were in retail and wholesale trade, industrial and construction sectors, scrape dealership, tourism and hotel businesses amongst many.

Hon. Anand Rai, member of the Committee reported the limitations and weaknesses of the government actions which included the liberalization of licenses, difficulty in detection, use of Indian Rupees as a legal tender in Bhutan, lack of an effective coordination agency, challenges faced by local committees and weak laws and ineffective penalties.
Hon. Jigme Wangchuk underlined some of the effects of continued fronting as the Committee stated were loss of opportunities for legitimate entrepreneurs, proliferation of illegal activities, social and economic impacts.
He also submitted the Committee recommendations which included the enactment of effective legal provisions, establishment of effective institutional frameworks, ensuring frequent rotation of public officials and establishment of Ngultrum as the legal tender in Bhutan to curb the issue of fronting.
Acknowledging and supporting the recommendations of the committee. The members sought clarifications and also suggested additional recommendations. Members suggested for a clear definition of fronting, create awareness on fronting, immediate interventions to address existing issues of fronting, inclusion of the existing fronting issues in massage and spa businesses in the report and frequent rotation of officials in the vulnerable positions by the relevant agencies, and provision of incentives to the officials.
The Committee will submit the final recommendations for adoption considering the suggestions submitted by the members.

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