Bhutan’s Tourism Sector Grapples with Governance and Policy Challenges Affecting Growth and Sustainability

Current Landscape of Bhutan’s Tourism

Bhutan’s tourism industry, long regarded as a vital part of its national economy, is currently navigating significant hurdles. A detailed diagnostic review has brought to light persistent weaknesses in policy, governance, and operational management that continue to impede the sector’s recovery and overall competitiveness. These challenges raise concerns about the long-term sustainability of tourism in Bhutan and demonstrate the urgent need for strategic intervention.

Challenges in Policy and Framework

At the heart of the issue lies the tourism framework built around the Sustainable Development Fee (SDF), a uniform fee imposed on visitors. While intended to benefit environmental and cultural preservation, this fee has unfortunately discouraged many mid-range and regional tourists, dampening demand overall. Frequent changes and inconsistent enforcement of the Tourism Rules and Regulations 2024 have further shaken confidence among stakeholders and foreign partners, creating an environment of uncertainty that is harmful to long-term investment prospects.

Relying heavily on a single, flat fee system limits flexibility in responding to seasonal visitor flows and the varied preferences of different traveler demographics. This rigidity has resulted in fewer tourists arriving, shorter stays, and poorer dispersal across the country, thus weakening Bhutan’s standing compared to neighboring destinations. In addition, the hospitality sector has witnessed a decline, with reduced hotel occupancy rates and an increase in non-performing loans, increasing financial strain on operators.

Fragmented Governance and Operational Inefficiencies

Bhutan’s tourism governance is currently spread across multiple bodies including tourism authorities, immigration, aviation, licensing, financial institutions, and local government units. This fragmentation leads to regulatory overlaps, conflicting interpretations, delayed processing times, and diluted accountability. Without a consolidated and empowered single tourism authority, decision-making slows down, service quality suffers, and investor confidence diminishes.

An illustrative example is the 24-hour SDF waiver for travelers in border towns. Although designed to stimulate local economies, the scheme primarily benefits transit visitors who do not spend on local hospitality, thus failing to ignite meaningful economic activity in these communities.

External Booking Control and Digital Gaps

The liberalization of tourist bookings has led to offshore agencies dominating significant parts of the tourism supply chain. This results in revenue and tax leakage, reduced foreign currency inflow, and diminished earnings for local operators. Tourists arriving without pre-arranged accommodations or services can encounter safety and coordination issues, undermining the “High-Value” tourism philosophy Bhutan strives to maintain.

Compounding these challenges is the absence of an integrated digital platform that could unify visa processing, SDF payments, bookings, and visitor safety monitoring. Currently, multiple fragmented payment gateways and systems hinder financial transparency and reduce oversight capabilities, thereby diminishing the overall visitor experience.

Pricing and Regional Imbalances

Airfares to Bhutan remain relatively high and lack transparency due to a complex three-tier pricing system based on nationality and subsidized by domestic policies. This complexity makes it harder for Bhutan to attract international visitors consistently.

Tourism activity is mostly concentrated in western regions such as Thimphu, Paro, Punakha, Wangdue, and Bumthang, encompassing over 95% of total activity. Conversely, the central and eastern regions have underdeveloped infrastructure and limited services, restricting balanced economic growth and tourism distribution across the country.

Tourism Sector Impacts

Underdeveloped Potential and Policy Gaps

While Bhutan’s traditional attractions like cultural sightseeing and trekking remain popular, the report identifies underutilized niches such as wellness tourism, agro-tourism, gastronomic experiences, textiles, and Meetings, Incentives, Conferences, and Exhibitions (MICE). Policy uncertainty also clouds activities in culture- and nature-based tourism, with unclear guidelines around adventure options like paragliding, kayaking, rafting, and fly-fishing.

Proposed Reforms to Revitalize Tourism

The committee overseeing the assessment has laid out a roadmap for reform to steer Bhutan’s tourism back on track. These proposals include:

• Comprehensive review of the Tourism Levy Act 2022, refining roles, pricing tools, and governance.
• Introducing flexible adjustments to the SDF with incentives for long-stay tourists, group discounts, and seasonal concessions, with focus on fostering tourism in underdeveloped regions.
• Extending the border town SDF waiver to 72 hours to encourage overnight stays and increased local spending.
• Creating a single, empowered Tourism Authority responsible for policy, licensing, SDF management, and inter-agency coordination.
• Developing a unified one-window digital platform integrating visas, SDF payments, bookings, and safety monitoring.
• Rationalizing airfare pricing to be more transparent and competitive, aligned with regional benchmarks.
• Promoting diversification by strengthening community participation and developing niche tourism products.
• Providing targeted support for hotels via soft loans, demand generation, renovation grants, and enhanced marketing efforts.
• Establishing clear policies and guidelines around cultural and nature-based tourism activities.

Looking Ahead: Tourism’s Vital Role and Need for Strong Leadership

Despite recent setbacks, tourism remains crucial for Bhutan’s foreign exchange, employment, cultural preservation, and regional equity. However, reforms so far have yielded mixed outcomes with unforeseen consequences. The clear takeaway is the urgent need for a steady, predictable, and unified policy framework supported by robust institutional leadership and modern digital infrastructure. Only then can Bhutan realign its tourism sector with its unique philosophy of Gross National Happiness (GNH) and secure sustainable, equitable growth.

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Summary: Navigating Bhutan’s Tourism Challenges with Transparency and Innovation

Bhutan’s tourism sector stands at a crossroads, facing significant hurdles from policy rigidity, governance fragmentation, and market imbalances to digital incoherence and underdeveloped offerings. Key challenges include dampened demand due to the Sustainable Development Fee structure, declining hotel occupancy, concentrated regional activity, and the lack of integrated digital systems. The sector’s future relies on comprehensive reforms that promote flexible pricing, unified governance, enhanced infrastructure, and diversification into emerging tourism products.

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