The Civil Aviation Authority of Nepal (Caan) has decided to distribute Rs530 million as bonus to its employees in a move that has stirred controversy as the money has actually been collected from taxpayers.

After the Caan board gave the go-ahead, the management sent the proposal to the Tourism Ministry to obtain permission from the Finance Ministry to pay out bonuses from the profits earned during the fiscal years 2011-12 to 2014-15.

The Bonus Act 1974 allows Caan to distribute bonus from its profits, but there are several questions that must be raised. Can a government service provider award bonuses from the money that has been collected from travellers as tax to develop infrastructure?

The bonus announcement has also come at the time when the efficiency of Nepal’s aviation infrastructure and manpower has been widely questioned at national and international levels due to the lack of investment and training facilities.

Moreover, Caan is in the process of being split into two separate functions—service provider and regulator—which will require additional funding.

The key issue will be Caan’s loans in the coming years. Its borrowings (or investments) for different projects will come to around $400 million (equivalent around Rs40 billion) by this year.

The interest payment on these loans totals around Rs3.2 billion annually, calculated on the basis of an interest rate of 8 percent that the government charges public enterprises.

The aviation authority has also planned to build a Second International Airport in Bara, Nijgadh which will cost Rs121 billion. Caan’s annual income stands at Rs5 billion. It has borrowed $68 million to build an international airport in Bhairahawa, and another $216 million to build an international airport in Pokhara.

Moreover, Caan has been upgrading Tribhuvan International Airport (TIA) with a loan of $70 million, which means it is up to its neck in debt. “So, is the distribution of bonus justifiable?” asked a former director general of Caan. “Bonus is a right of employees, but it should be justifiable,” he said. “No one will question the distribution of bonuses if airport services and infrastructure are top class.”

Tourism Ministry officials have pointed to flaws in the Bonus Act which allow public enterprises, established with the objective of serving the public or delivering services, to distribute bonuses from tax money collected from the people.  

Sanjiv Gautam, director general of Caan, told a recent press conference that they had a legal right to pay out bonuses from the profits earned. However, he added that it was ‘morally’ unreasonable to distribute bonuses raised from taxpayers.  Caan currently collects taxes in two separate baskets. The government has authorized Caan to raise Rs1,000 (excluding VAT) in airport development tax per passenger which comes to Rs1.80 billion annually.

In April 2013, the Caan board authorised the collection of a development tax from travellers departing from TIA to raise funds to repay its loans and finance ongoing improvement projects for a period of five years. The Caan is authorised to spend this amount solely on development of airport infrastructure.

In addition, Caan collects Rs1,130 as passenger service charge from each international traveller which amounts to Rs1.70 billion a year.

According to Tourism Ministry officials, Caan has proposed to distribute 30 percent of the bonus to its employees and deposit the remaining 70 percent into the employee welfare fund. This money will eventually be paid to them when they retire. Caan has racked up accumulated losses of Rs1.15 billion since its establishment. It made a net profit of Rs1.89 billion in the fiscal year 2011-12, which led it to announce a bonus for the staff for the first time. However, the Office of the Auditor General forbade Caan from awarding bonuses as it had not had its audit done for the last 10 years.