Two months after Bhutan introduced its long-awaited Goods and Services Tax (GST), a group of small cross-border traders say the new system has brought an unexpected burden: a tax bill at the border.
Fruit and vegetable vendors who regularly import produce from nearby Indian towns say they are now required to pay a five-percent GST when bringing goods into the countryโeven if they are not registered under the tax system. Many say they had assumed the new tax would apply only to formally registered businesses.
The confusion has surfaced most visibly in the border town of Phuentsholing, where dozens of small traders cross into Indian markets each day to buy vegetables and fruits for resale in Bhutanese towns.
โWe thought GST would be collected only from registered businesses,โ said Tshering, a fruit vendor who imports produce from Indian border markets. โBut when we brought goods across the gate, the tax was charged at the entry point.โ
According to Tshering, customs officials informed traders that GST must be paid on all imports regardless of whether the importer is registered under the system. For vendors operating with narrow margins, the change has come as a surprise.
Another vegetable seller said many small retailers had believed they would be exempt because they were not registered businesses. โWe knew the old Bhutan Sales Tax was removed,โ the vendor said, referring to the previous indirect tax of around 2.5 percent. โBut we did not expect to pay GST ourselves at the border.โ
Bhutan introduced the Goods and Services Tax in January this year as part of a major overhaul of the countryโs indirect tax framework. The reform replaced several earlier taxes with a single unified system intended to simplify tax administration, improve transparency and reduce cascading taxes along supply chains.
Under the law, however, imports are treated differently from domestic transactions.
Officials from the Department of Revenue and Customs say GST applies to all taxable imports entering Bhutan, irrespective of whether the importer is registered under the tax regime.
Kinzang Thinley from the GST Project Team explained that the requirement is clearly outlined in the Goods and Services Tax Act of Bhutan 2020.
โGST shall be applicable on taxable supplies and taxable imports,โ he said, referring to provisions under Chapter 3 of the Act that define liability for the tax.
This means that goods brought into Bhutanโwhether by large companies, registered businesses or small informal tradersโare generally subject to the standard five-percent GST at the point of entry.
The policy reflects a core principle of most GST systems worldwide: imports are taxed to ensure a level playing field between domestic producers and foreign suppliers.
But for Bhutanโs small cross-border vendors, the requirement has created practical difficulties.
Many of these traders operate on a small scale, purchasing limited quantities of produce from Indian border markets and transporting them back for sale in local markets. Their businesses often rely on thin margins and daily cash turnover.
โThis is an extra expense for us,โ one vendor said. โWe already struggle to cover household costs. Paying tax every time we bring goods makes it harder to manage rent and support our children.โ
Some traders say the tax reduces their profit margins to the point where importing small consignments may no longer be viable.
As a result, several retailers are beginning to change how they source their goods.
Instead of travelling across the border themselves, some vendors are now purchasing vegetables and fruits from local wholesalers who import produce in bulk. Buying from wholesalers allows small retailers to avoid handling import procedures directly, although the tax cost is often embedded in wholesale prices.
Traders say this arrangement is simpler, even if it reduces their earnings.
For policymakers, the situation highlights the adjustment challenges that often accompany major tax reforms. GST systems are designed to be broad-based and neutral, but they can affect informal or small-scale traders in ways that were not immediately anticipated.
Bhutanโs GST framework also contains provisions covering imported services. Non-resident service providers offering business-to-consumer services in Bhutan are required to register for GST if their gross sales exceed Nu 5 million within six months or are expected to cross that threshold within the next 12 months.
Such providers must issue GST-compliant invoices and collect tax through digital marketplaces or other platforms. Failure to comply can result in penalties.
While those rules primarily target international digital service providers, the immediate impact of GST is being felt more visibly by small traders at border checkpoints.
For vendors in towns such as Phuentsholingโwhere cross-border commerce forms part of daily economic lifeโthe shift has been abrupt.
Sangay Rabten
From Thimphu
