With Bhutan set to implement the Goods and Services Tax (GST) from 1 January 2026, businesses are raising concerns over how unsold inventory purchased under the current 10% Bhutan Sales Tax (BST) regime will be treated.
The Bhutan Hardware Association (BHA), which represents a sector heavily dependent on maintaining large stocks, has appealed to the Department of Revenue and Customs (DRC) for transitional relief to prevent what it calls an “effective double taxation” on goods purchased before 2026.
Hardware businesses typically import stock in bulk, paying 10% BST at the point of entry. Under GST, the tax rate on similar goods will fall to 5%, a welcome reduction in the long run.
However, for goods already purchased under BST but sold after January 2026, GST would also apply at the time of sale. “This means the same goods could bear both BST and GST, creating an unintended dual burden and price distortions in the market,” the BHA noted in its appeal.
The association warned that this could disadvantage businesses unable to liquidate stock before the deadline, particularly small and medium-sized firms. It also risks making imports from Indian border towns significantly cheaper, adding pressure on Bhutanese traders and causing volatility in consumer prices.
In its first appeal dated 14 August 2025, the BHA requested mechanisms for input tax credit or stock adjustment for pre-GST inventory.
Further, the association also sought public clarification on transitional provisions, and an industry-specific consultation to ensure readiness and compliance.
However, a DRC notification on 19 August 2025 stated that “no transitional credit shall be available for goods purchased prior to January 2026” and that “taxes paid under the previous system will not be eligible for input credit under GST.”
While appreciating the clarification, the BHA submitted a second appeal on 26 August, urging reconsideration. The association cited international precedents.
For example, India (2017 GST rollout) allowed transitional credit for excise duty and VAT on existing stock, while Singapore (1994) permitted input tax credits on pre-GST stock.
Similarly, Malaysia (2015) introduced a transitional scheme to prevent cascading taxes. “In all these cases, governments recognized that businesses should not be taxed twice on the same inventory during a system change,” the BHA exclaimed.
However, the BHA President told Business Bhutan that the association has not received any response to its request for reconsideration despite the follow-up appeal.
Although widely proclaimed that the GST is expected to modernize Bhutan’s tax system, improve efficiency, and enhance revenue collection, the BHA warns that without transitional provisions, the rollout could unintentionally strain local businesses and create market imbalances.
The association has urged the government to explore pragmatic solutions, such as partial adjustments or offset mechanisms, which balance revenue interests with business sustainability.
With just over three months before GST implementation, the hardware sector remains uncertain about how its existing inventory will be treated—raising questions about whether Bhutan will align its transition policies with international best practices or stick to a stricter approach.
The BHA is a non-political and non-profit organization formally launched in February 2019 with members comprising licensed business establishments issued by the Royal Government of Bhutan (RGoB), trading in construction materials, either locally produced or imported, so as to provide a common platform and collective voice to represent the welfare of its members & promote their growth.
More than 30 independent retailers and supplier businesses comprise the association currently.
Sangay Rabten from Thimphu
