GST and implications on the Bhutanese economy

Finance minister Namgay Dorji talked on GST and its impact on the economy during an informal
session with journalists at Journalists Association of Bhutan on Wednesday.

In an interview with Business Bhutan’s reporter, Chencho Dema, finance minister Namgay Dorji talks about GST and implications on the Bhutanese economy.

Q. Would Bhutan benefit from GST? How will it strengthen the country’s economy? Who all will be affected and how?

A. The benefit of GST is mainly to the consumers and the businesses in Bhutan since imports are expected to become cheaper by an average of about 10-15% due to exemption of GST on export of goods to Bhutan. Bhutan imports about 80% of its goods from India and any reduction in cost will benefit the consumers.

Q. Can GST hail as a game changer for Bhutan’s economy? If yes, how?

A. It may not be a game changer for Bhutan just because of reduction in value of imports. In fact our exporters are affected because Indian goods have become cheaper and competitive. We are losing our competitive edge and need to look at improving our competitiveness through innovation.

Q. In the next five years, the government would forego Nu 14bn revenue. What measures will the government explore to make up for this revenue loss?

A. This loss is a gain for the Bhutanese traders and businesses since it is redistributed to them in the form of exemption of taxes at source on their imports. This also leads to a reduction of about 5% in taxes for them due to imports becoming cheaper for them.Therefore, Government may rationalize taxes to recoup some of the loss in revenue.

Q. Could you explain about the confusion on double taxation on Green tax?

A. Sales Tax at the point of sales is to be collected on the selling price. The taxes and duties paid at the point of entry forms a part of the selling price of the seller, therefore, in the initial proposal Green Tax was in the valuation rules for the purpose of levying sales tax at the point of sales. However, the current valuation rules have excluded Green Tax from the valuation base and therefore, there is no double taxation.

Q. The GST regime will affect the manufacturing companies. How will government intervene?

A. The introduction of GST in India has removed cascading effects of taxes, and GST being a business friendly regime, the cost of manufacturing in India is expected to become cheaper. Therefore, the market in India has become competitive for export of goods from Bhutan to India. Government has granted tax exemption to the manufacturing industries for both imports of raw-material and packaging materials under Fiscal Incentive Act, and there are no taxes on export of finished goods. Further, the Government has also asked the manufacturing industries to submit their proposal on any areas where the Government can help them.