While some welcomed the move, a few entrepreneurs feel that they will get affected
Levying Customs Duty (CD) rates at 10% on all goods would forgo revenue amount of Nu 169mn on average for three years, according to the Customs Division of the Department of Revenue and Customs (DRC).
The current CD rates have nine slabs ranging from 0 to 100%. The Customs Duty is levied at the point of entry on the goods imported from third countries.
Finance Minister Namgay Tshering has proposed to introduce a uniform 10% Customs Duty on all goods imported from third countries excluding alcohol, tobacco products and vehicles to the Parliament on May 31. The revision was aimed at increasing tax payment compliance, reducing inflation and making varieties of products available for consumers.
The Commissioner of the Customs Division at the DRC, Yeshey Seldon said the CD rate revision to 10%, a single rate on all commodities irrespective of the commodity description, is expected to bring transparency on levy of CD by the tax administrator while also ensuring predictability for the traders to easily determine the tax liability.
She added with the downward revision of CD, the tax base is expected to increase with the increase in compliance. Further, it will also minimize discriminatory application of CD rates and classification of goods to evade tax.
Yeshey Seldon said the multiple CD rates are confusing for the traders to correctly determine the tax liability while higher CD rates provide room for committing commercial frauds such as misclassification of commodities to avoid paying the otherwise higher applicable CD rates.
According to her, the study of trade data for the last ten years shows that the average CD rate applied is only 4.07% as compared to the actual average rate of 18% since almost 77% of realizable revenue from countries other than India is exempted under the Fiscal Incentives Act and other general exemption.
She said in the last ten years studies show that there are no drastic increases or decreases on imports with the existing CD rates.
“On an average around Nu 169mn revenue would forgo as per the study of three years,” she said, adding that as per the trade record studies the highly imported commodities are daily consuming items, clothes and items that people use for day-to-day life.
She said that these items are consumed by every section of the people and with reducing CD rates to 10% it will benefit the consumers.
Further, said that the rationalization of CD rates reveals that a CD rate of 10% is an economically viable and reasonable single CD rate to replace the existing multiple CD rates.
“The proposed duty rate of 10% is as per the lowest duty rate currently levied on the finished goods,” she said.
She also mentions that currently with multiple CD rates structure coupled with the wide commodity description, it is slightly complicated.
When asked about how it would benefit the ultimate consumers, Yeshey Seldon said that the purchasing power of money has been decreasing because of the increasing inflation over the last few years.
“Therefore the saving tendency is quite low in Bhutan. With the downward revision of the CD on the goods and commodities, the inflation is expected to go down thus giving the Bhutanese citizens a choice to save, hopefully this revision will promote and encourage saving,” she said.
Further, she said that the general consumers in the country will have a wider choice of quality products at a cheaper price since this is a radical downward revision of CD rates on all consumer products, from CD rate as high as 50% to 10%.
Similarly, Economics Professor at the Royal Thimphu College, Sanjeev Mehta said tariff liberalization will benefit the economy in many ways.
“One definite advantage is to the consumers, in terms of lower prices. It will also ease the inflationary pressure, albeit marginally and it will also promote competition and enhance efficiency,” he said.
Additionally, Sanjeev Mehta said domestic manufacturers will have to learn to be efficient and compete on this basis, not because of the protection.
“Imported inputs from third countries will also become cheaper”, he said, adding that yet manufacturers will not feel much pressure as already Indian imports are duty free.
While some welcomed the move, a few entrepreneurs feel that they will get affected.
The founder of Chechey sanitary pad, Pema Chonzom said that though it is a good move, it will directly affect her business and many people will opt for imported products since it will be much cheaper compared to locally-produced ones.
Similarly, the Opposition and some of the Members of the Parliament from the National Council and National Assembly expressed concerns about the government’s proposal to reduce the Customs Duty to 10% from the existing rates of up to 50% on imports from third countries, saying that it will affect local industries.
There are around 5,669 commodities’ codes and the government has proposed 508 commodities as 0% and 5,077 commodities are reduced to 10%. However, 84 commodities will remain as it were before.
The new Customs Duty proposed for zero percent includes medical equipment, education, sports and agriculture.
The National Assembly adopted the Customs (Amendment) Bill of Bhutan 2021 on Wednesday and it has been forwarded to the National Council.
Dechen Dolkar from Thimphu