Revised customs duty has positive impact on final price: OCP

Reduction in customs duty, an indirect tax imposed on imports from third-country, to a uniform rate of 10%, was passed in July, 2021

The revised customs duty does indicate a positive impact on the final price of goods when the business environment returns to normalcy.

This is according to the rapid analysis report of the Office of Consumer Protection (OCP) on the impact of the revised Customs Duty Act of Bhutan 2021 concerning the retail prices of consumer goods.

However, the Customs Duty Act of Bhutan 2021 was passed in July this year, which reduced the customs duty and indirect tax imposed on imports from third-country to a uniform rate of 10%.

With this the retail prices of goods imported from third countries are anticipated to be uniformly cheaper than before, thereby benefiting the general consumers of those goods that have trickled down to the final consumers, according to the analysis report.

Meanwhile, the objective of the study was to determine the benefits of reduced import prices but the impact would be more pronounced after the pandemic ends.

Of the 69 commonly traded consumer goods, only 14 from three different retailers were found to be from the new stock – consignments imported after the customs duty revision took effect.

“In general, there was a reduction in the price of most goods,” an official from the Department of Customs said, adding out of 14 goods, retail prices of 11 goods fell by a margin of 3% to a little over 13.95%.

For some products, despite lower duty, final retail prices remained unchanged, especially those more prone to physical damage during shipping and handling.

Besides, with increased overhead expenses, such as labor cost for loading and unloading from Nu 8,500 to Nu 8,700 per truck at the Mini Dry Port (MDP), transportation cost also saw a hike from Nu 13,000 to Nu 15,000 per truck from Phuentsholing to Thimphu, not to mention increased demurrage in India due to disruption in the supply chain and increased damage of goods at the MDP

“These costs are ultimately borne by the consumers,” the official added.

For the study, 69 most common essential products, excluding luxury goods that are imported from third countries were selected. Seven major retailers in Thimphu, who are also licensed to operate wholesale, were identified as major suppliers by the Ministry of Economic Affairs (MoEA) during the lockdown period earlier last year.

My Mart, 8 Eleven, Jafa, Gahsel Store, Thimphu Mart, Shop No 7, Green Mart and Sherza Ventures are some of the main wholesale-retail players in the market and hence they were selected for this study.

Meanwhile, the main sources of import for essential goods are Thailand, Indonesia, Singapore and Malaysia. Imports from Bangladesh have not been included in the study since the two neighbors enjoy preferential trade arrangements, wherein essential goods from Bangladesh were already customs duty below the 10% level.

However, as a result of the pandemic crisis, there is a disruption in the global supply chain and moreover the cost of shipping from Bangkok to Kolkata increased drastically from approximately USD 4,000 – 4,600 to as high as USD 6,000 – 8,000.

At the same time, transportation costs from Kolkata to Phuentsholing also increased from Nu 130,000 to Nu 180,000 per container.

According to officials of OCP, only four months have elapsed since the amendment of the duty and there has been a limited volume of essential consumer goods imported from third countries while the analysis study was going on.

“It is too early to ascertain the wider impact of the customs duty revision on the final prices of goods,” the official remarked.

Other officials also shared that the accurate records of retail prices of goods imported from third countries before the customs duty revision are not available and the information used in this report is provided by the retailers.

However, the OCP is revising the list of goods in the Market Price Information (MPI) system so as to include commonly traded essential goods from third countries. The current MPI system mainly contains goods of Indian origin.

In addition, it has been observed that for certain goods from third countries, there is only a single wholesaler or supplier in the country, essentially making it a monopoly.

In such cases, an official explained, due to lack of competition, the dealer would be able to derive all the benefits of the customs duty revision without passing it down to the final consumers.

“Besides, it appears that most goods from the third country are not imported directly from the principal companies but rather from intermediary dealers or agencies,” the official said.   

At the same time, it is too early to make a more detailed assessment as most of the retailers are yet to receive new consignments.

“Thorough study needs to be carried out at a later stage to assess the real impact of the revised customs duty,” he added.

Kinley Yonten from Thimphu