On January 1, 2026, Bhutan’s Goods and Services Tax (GST) came into force. As the nation moves on, it is already confronting a pressing and uncomfortable question: Is GST pushing up prices and fuelling inflation?
Touted as the most significant overhaul of Bhutan’s indirect tax system, GST was designed to replace a maze of taxes with a single, streamlined structure. The reform promised transparency, efficiency, reduced tax evasion, and a stronger national market to support long-term economic growth. However, on the ground, the early days of GST have been marked by confusion, rising prices, and growing public unease.
Across the country, consumers say their wallets are feeling lighter, and at a faster rate.
Rising Prices Spark Public Anxiety
From urban centres to rural communities, reports of price increases are mounting. Many consumers say they are paying more for everyday essentials, even when GST is not explicitly shown on bills.
In Trongsa, Sonam Yuden said price hikes are already evident. “GST has led to inflation of prices,” she said, adding that most consumers are unsure which goods are exempt and which are taxable, making it difficult to challenge higher prices.
Sherab Wangmo from Nangkor in Pemagatshel echoed similar concerns. “Prices have increased since GST came into effect, even though shopkeepers don’t clearly charge GST,” she said. “It feels like prices have gone up everywhere.”
In Bumthang, Kezang Dema observed that households are already paying more for basic commodities, while in Dangchu, Wangdue, Passang Gyem said the shock became apparent while shopping for ritual items. “Some prices were unusually high,” she said. “Families may now have to be more careful with spending.”
The common sentiment is unmistakable: whether visible or not, GST appears to be pushing prices upward, at least for now.
Why GST Can Trigger Inflation
Economists explain that taxation reforms—especially ones as wide-ranging as GST—often cause short-term price disturbances. Bhutan’s experience is no exception.
GST applies broadly across goods and services, and during the transition, businesses face new compliance costs, uncertainty around input tax credits, and frequent adjustments in tax interpretation. These costs are often passed on to consumers, contributing to inflationary pressure.
A local economist estimated that GST was expected to raise prices marginally—by about 1 to 2 percentage points. “However, due to weak advocacy and ineffective implementation, prices are currently being increased by around 5%,” the economist said.
This gap, experts argue, is not purely a tax issue but an implementation problem—driven by confusion, opportunistic pricing, and weak enforcement.
Old Stocks, New Taxes, Higher Prices
One key driver of current inflation is the treatment of old inventories. Many businesses are selling goods imported before January 1, 2026, on which various sales taxes were already paid. Under GST, these goods are taxed again at the point of sale, with no clear mechanism to claim credits on past taxes.
Economists argue that allowing a flat 5% input tax credit on old stocks could have eased the transition and reduced inflationary pressure. “Even if it was difficult to calculate exact taxes paid earlier, a uniform credit would have softened the price shock,” one expert said.
Without such measures, businesses have embedded old taxes into costs and added GST on top—driving prices higher.
Growth Impact Expected to Be Limited
Despite inflation fears, economists remain cautiously optimistic about Bhutan’s broader economic outlook. Since GST applies uniformly across the economy, overall growth is not expected to be significantly affected.
However, higher-than-expected price increases could temporarily dampen consumer spending, especially in the coming quarter. Sectors such as wholesale, retail, and transport may see a slowdown as households tighten budgets.
Bhutan’s growth, economists note, is currently driven largely by the supply side—particularly hydropower and construction—which should help cushion the overall impact. Still, inflation-driven hesitation in consumption could cool economic momentum in the short term.
Are Businesses Profiteering?
Another troubling concern is whether some businesses are using GST as a cover for unjustified price hikes. Economists point to goods and services whose prices should have fallen under GST—but haven’t.
Items such as fruit juice, hotel services, cable television, and doma were expected to become cheaper. Instead, prices have risen, raising red flags about profiteering.
Experts say this highlights weak enforcement of the anti-profiteering clause under Section 24 or Schedule X of the GST framework. “If tax benefits are not passed on to consumers, then GST becomes inflationary by design,” one economist warned.
They argue that the Consumer Protection Department and the Department of Revenue and Customs (DRC) must act decisively to monitor pricing and penalize violations.
Government: Impact Is Limited
Officials acknowledge public concerns but insist that GST’s inflationary impact is modest and temporary.
Kuenzang Thinley, Collector at the GST and BITS Project Office under the DRC, said international evidence suggests GST contributes only about 1% to inflation. “GST can contribute to inflation, but the impact is limited,” he said.
The government had also pre-emptively reduced income tax rates to offset the expected rise in prices, aiming to protect household purchasing power.
Moving On
With GST still in its infancy, experts stress that there is ample room for correction. Stronger enforcement, clearer communication, and widespread public education are critical to restoring confidence.
“The government must explain not just why GST exists, but how it works—how prices are formed, how credits apply, and what consumers should expect,” one economist said.
For now, the verdict is mixed. Yes, GST can contribute to inflation—but how much depends less on the tax itself and more on how well it is implemented. The coming months will determine whether today’s price shock settles into stability—or hardens into a lasting burden for Bhutanese households.
Sangay Rabten
From Thimphu
