Following the government’s announcement to introduce Goods and Services Tax (GST) at 7% in the National Assembly, a Public-Private Dialogue on GST was held at the office of the Bhutan Chamber of Commerce & Industry (BCCI) yesterday afternoon.
The meeting was attended by the Prime Minister, Finance Minister, parliamentarians, government officials and stakeholders from the private sector.
Finance Minister Namgay Tshering shared to the private sector that Bhutan’s tax base is very narrow and taking that into consideration, they have proposed to implement GST.
“GST is based taxation system, which will avoid tax on tax which is a burden on the consumers,” he said.
“GST will ensure that everyone complies with the tax issue to minimize the loopholes in the taxpaying system,” he said, adding that by implementing GST system, it would streamline the system and create advantageous environment for both the taxpayers and government.
The minister added that the government is aiming to reduce the burden on the consumers and the GST system will help in the inflow of additional revenue to the government.
According to the government, it is looking for the biggest reform in Bhutan’s taxation system with the implementation of GST and that the Department of Revenue and Customs (DRC) under the Ministry of Finance will replace the current sales tax with a single GST.
Lyonchhen Dr Lotay Tshering said if the government will not continue another term in the 2023 election, it can be attributed to the taxation policy and this will be a kind of ‘foot-print’ during our time.
“We want to do this country a huge favor by revising the taxation policy. If a person pays Nu 100, another person might have to pay a Nu 1,000 more, but the tax returns will indirectly benefit the individual in the form of improved roads, water supply, education, health, among other,” Lyonchhen added.
The Prime Minister told the private sector that it is important for the taxpayers to not take the taxation policy individually but have a view of the larger benefit to the country as a whole.
“Now with this GST system, for consumers the price of goods will be cheaper as it will prevent taxation at various points of trade. More importantly for the government, the GST will mean rate provides an ideal balance between impacts on revenue collection versus burden of tax on the taxpayers.”
Impact on total tax rate
However, apart from these advantages, it was shared that GST could narrow tax base, complex design (multiple rates and exemption, tax on tax), and lack of level-playing field. There will be zero tax on 36% of imports and it would also ensure fiscal sustainability.
Under the reforms, excise is payable on motor vehicles, on both alcohol and non-alcoholic beverages, vinegar, tobacco products, plastics among others that are manufactured in or imported into Bhutan.
Goods such as basic foods, medicines, energy saving, and IT goods and services like health, education and agriculture are GST exempted goods.
Meanwhile, per-GST of processed food is 30% and now with this GST rate it drops down to 27%, for small cars from 45 % to 37%, for luxury vehicle from 50% to 47% and there is increase in alcohol and tobacco taxation up from 100% to 107%.
About 93% of the import and supply of goods and services from India and other third countries will be taxable at the rate of 7%. And 20% to 40% will be taxed on plastic, junk food and aerated water.
Further, Excise Equalization Tax will be applicable on import or manufacture of sin, harmful, and luxury goods at 20% to 100%.
Kinley Yonten from Thimphu