As Bhutan implements the Goods and Services Tax (GST), concerns have swirled among businesses about potential cash flow challenges. Private sector representatives warned that paying tax at the entry point could create a cash crunch, putting pressure on working capital. But the Department of Revenue and Customs (DRC) has moved quickly to reassure entrepreneurs: fears of liquidity problems are largely unfounded.
During a recent private stakeholders meeting organized by the Bhutan Chamber of Commerce and Industry (BCCI), business leaders voiced apprehension about the GST’s impact on day-to-day cash flow. One representative pointed out that under the new system, businesses would pay tax at the entry point, raising the risk that “cash flow may go negative” if payments are not efficiently managed. The request from the private sector was clear: allow tax to be considered at the entry point but collected at the point of sale to ease operational pressure.
However, DRC officials firmly countered this concern. Pema Wangdi, Head of the Revenue Intelligence Division, clarified that the GST would not disrupt liquidity for businesses. “Though GST replaces sales and green taxes, tax is paid at the entry point only—just as in the previous regime. The concern about cash flow is based on a misunderstanding,” Pema said. He emphasized that if taxes were not already paid at the entry stage under the old system, the argument might hold, but under current practice, business cash flow remains unaffected.
DRC officials also noted that any cash flow crunch during the GST rollout will largely depend on individual business practices and operational efficiency. The key difference under GST is that while businesses now account for tax at the sale point, the money collected is not theirs—it belongs to the end consumer. Properly managed, this distinction means that businesses are not out-of-pocket, and their working capital remains intact.
Experts say businesses can further safeguard cash flow by leveraging input tax credits, a critical feature of GST. When input tax credits are properly tracked and claimed, they can offset GST liabilities and enhance liquidity. But success hinges on compliance, accurate record-keeping, and coordination with vendors. Automation and streamlined accounting systems are increasingly important for avoiding unmatched credits and ensuring smooth operations.
“Effective cash flow management is more critical than ever,” Pema noted. “Businesses should focus on matching input tax credits carefully and ensuring vendors comply with GST requirements. With these measures in place, GST is unlikely to create financial strain.”
The DRC’s message is clear: while the shift to GST may feel like a major change, it does not inherently threaten business cash flow. With careful planning, adherence to compliance requirements, and efficient working capital management, companies can navigate the transition without disruption. As Bhutan prepares for this major tax reform, the key takeaway for entrepreneurs is reassurance—GST is designed to simplify taxation, not strain finances.
Sangay Rabten
From Thimphu
