With the implementation of Goods and Services Tax (GST) coupled with a digitized economy, the projected revenue increase would be almost 69% at GST rate 7%.
Prime Minister Dr Lotay Tshering said that GST at 5% can achieve neutral revenue while GST rate below 5% is not recommended as the revenue falls below the baseline but revenue doubles with GST at 9% and above.
“In some cases, prices will go down, in some they will go up and others remain the same. Currently there are multiple sales tax rates (11 different rates), most being above the GST rate of 7%,” Lyonchhen said, adding that all the sales rates will be brought to 7% GST rate.
Lyonchhen said GST will make Bhutan’s taxations, with the modernization of the current sales tax and excise duty, fairer and more sustainable.
Further, Lyonchhen said it is going to be a major step towards the integration of informal economy with the annual turnover equal to or above the registration threshold of Nu 5mn and may lead to higher revenue in the future.
According to the Ministry of Finance, the total domestic revenue performance for the 11th FYP was Nu 143bn, an increase of 61% over the 10th FYP and for the 12th FYP the total domestic revenue projected is Nu 217bn which indicates that indirect tax is going to be Nu 36bn.
Likewise, tax revenue as percentage to GDP, the tax collection for the FY2017/18 was Nu 27.1bn, consisting of 14.5% of GDP and the domestic revenue growth is 13.7% (Avg.) and average tax growth for 11th FYP was 13.7% (Direct Tax 9.9%; Indirect Tax 21.4%; Others Sources 9.7%).
“We are very excited about the GST,” said Finance Minister Namgay Tshering, adding that it is inevitable that GST will encourage smart investment, employment and enterprise. “GST will impact Bhutan in the current economy and in future.”
He added that for exporting goods and services the GST rate is set at 0%, which is also called zero-rated supplies. This means that businesses that are only engaged in exporting do not have any liability to GST on its sales as GST is not collected. Input tax credits can be claimed.
With this the producers or manufacturers in Bhutan can increase productivity and perform better in global markets. Manufacturers and traders would benefit from fewer tax filings, transparent rules and overall book keeping in digital system.
However, with GST implementation, consumers would be paying less for the goods and services and this could lead to change in their expenditure pattern and livelihood. The government would also generate more revenues as revenue leaks would be plugged by GST implementation.
GST has a cost and tax on most of the goods attached to it. One of the traders said that some of the prices will be slightly higher for small scale manufacturers and traders.
“Even if GST is not payable on export, we have to pay GST on imports of goods and services in Bhutan, except where they are listed as exempt,” he said, adding long term effect of GST expected is that GST would not just mean a lower rate of taxes, but also minimum tax slabs.
Prime Minister said in many countries, GST has helped in reforming the economy by applying only two to three rates. GST rated 7% is designed to minimize the rate with a lower rate for essential commodities, and even less tax rate for the luxurious commodities.
He added that impact of GST on macro-economic indicators is likely to be very positive in the medium-term. “Inflation would be reduced as the cascading (tax on tax) effect of taxes would be eliminated in the country.”
GST specialist from MoF, Sonam Penjor believes that the country’s economy would be bolstered in the ease of doing business with the implementation of the most important tax reform ever in the history of the country.
An official from the MoF said at the same time revenue from the taxes for the government is very likely to increase with an extended tax net while the fiscal deficit is expected to remain under check. “GST would be a game changer.”
Kinley Yonten from Thimphu