A consultative meeting between the government and private sector about GST impact on economy discussed the good, the bad and the way forward
The Royal Government of Bhutan will have to forego revenue of Nu 14bn: Nu 12bn as excise duty fund and Sales Tax (ST) and Green Tax (GT) of around Nu 2bn post-GST.
This was revealed in a consultative meeting between the government and private sector held yesterday to discuss the impact of GST on Bhutanese economy.
The average tax revenue collection from ST and GT will also fall by 10%. Apart from this, industries like cement and steel manufacturers will be hit hard with export prices increasing by 6% and 3% respectively.
Cement pre-GST had 14.5% VAT; tax after GST is 28% with a difference of 13.5% in tax. Steel pre-GST had 5% VAT; tax after GST is 18% with a tax difference of 13%. Ferro Silicon had 5% VAT; tax after GST is 18% with a tax difference of 13%. However, it is expected that ferrosilicon industries will not be impacted.
Meanwhile, there are positive implications to GST as well. For instance, the price of goods of Indian origin will fall: imports will become cheaper; the top 10 commodities will cost less by 14%.
The prices of consumable goods are expected to fall by around 5% on an average and raw materials will become cheaper for the manufacturers. Consumers will also benefit if tax benefit is transferred by the sellers. There will be no impact on essential goods (vegetables, rice, oil, salt, sugar, milk, etc).
The trading sector will benefit 78% of taxes on import paid by trading sector. Tax burden at point of entry will reduce by around 5%.
In the long run, GST is expected to boost formal trade with electronic filing/declarations and payment of taxes and the taxation system will be formal and organized preventing tax leakages. Also with proper registered suppliers, trade is expected to operate smoothly.
Deflection of goods can occur due to deferential higher GST rate against ST/GT rate or zero-rated ST/GT. This means though suppliers selling deflected goods will benefit in the short run, rupee outflow will occur thus posing hazards to the economy.
Lyonchhoen Dasho Tshering Tobgay said that revenue generation of the government will be affected in general but in general but GST will benefit the country though few businesses will be affected.
“Bhutanese people will be able to buy goods from in country; it is a good opportunity and one should take advantage of it.”
The private sector had made a number of submissions to the government to cushion GST effects. Among others, it wanted exemption of IGST on export of Bhutanese goods to India but the government said that GST is a consumption tax charged on both Indian and imported goods.
The private sector also recommended that IGST be deferred from point of import to point of sale in India. Other recommendations included exemption of IGST on export of services to Bhutan with payment made in Indian Rupee; GST exemption on transport services used for import of goods to Bhutan; refund of ST/CD to be paid on import of secondary raw materials; and an introduction of service tax on consultancy and transport services and Sales Tax on consumables & FMCG products was also proposed.
The authorities meanwhile updated that they have requested the GoI to look into the matter and the exemption of raw materials are adequately covered under Fiscal Incentives Act 2017. The finance ministry is reviewing the recommendations submitted by BCCI for introduction of new taxes and rationalization of the existing ST on consumable goods and FMCG.
Ugyen Tshechup Dorji, Chairman of Zimdra Automobiles, said that the taxation system has limitations as electronic money transfer has ceilings within the country and India, and this could pose trade hassles.
“We are working on the payment system aggressively to facilitate smooth trade. The central bank takes responsibility,” responded Royal Monetary Authority Governor, Dasho Penjore.
However, the government has promised to maintain price stability and revenue neutrality. It has also issued notification for shifting sales tax collection on selected items (vehicles) from point of entry to point of sales.
The government will also be creating an awareness and sensitization workshop in the bordering towns for enforcement agencies and private sectors.
A coordination meeting with the law enforcement agencies in the border towns to curb deflection will also be held including regular meetings by the Regional Revenue and Customs Offices (RRCO) with Indian Land Customs Stations to facilitate trade. The Regional Director, RRCO and Regional Director, Regional Trade and Industry Office (RTIO) will serve as contact for any trade related issues.
Chencho Dema from Thimphu