Will GST curb tax evasion in Bhutan too? – DharmA Nath Gupta

The GST (Goods and Services Tax) has been the biggest major indirect-tax reform in independent India. It is envisioned that one indirect tax for the whole nation will make India one unified common market. There is no denying the fact that tax collections have increased due to increase in the database and number of tax payers in India following the imposition of GST.

The GST will unquestionably have implications to Bhutan too given that Bhutan imports almost over 80 percent of its goods from India. In recent years, we have been seeing across numerous articles in various newspapers on how Bhutanese importers evaded taxes. These importers basically evaded taxes by undervaluing the amounts at which goods were bought and sold at. For example, goods that were bought at Rs. 100 by Bhutanese importers from India were reflected in the bill as Rs. 50 so that import or custom duty of or against Rs. 50 could be paid to the customs office. So India’s biggest loophole in the earlier trade practices, which was under reporting of goods being bought and sold at, had ripple effects on Bhutan’s trade too.

Another major issue, which Bhutan confronted earlier, was the exaggeration of imports. Before the implementation of GST, Bhutanese traders used to import goods which were VAT (indirect tax) exempted or VAT free. The exemption of VAT (indirect tax) made goods cheaper for them compared to what Indian traders paid for the goods after paying VAT (indirect taxes). For example, a product which was priced at Rs. 100 when imported to Bhutan should cost Rs 100 as well since it was VAT exempted.

However, Indian traders when buying the same product priced at Rs. 100 needed to pay VAT as well. This would take the cost price of the product to almost around Rs. 114 for Indian traders. So instead of getting or bringing the goods to be sold in Bhutan’s market, it was also profitable for Bhutanese traders to have the goods sold in India. This was a typical illegal trade practice, wherein the imports were done in the name of Bhutanese traders, but the goods never reached Bhutan or Bhutan’s market. Instead goods were resold illegally in India. This could perhaps be also one of the reasons, which lead to hyper increase in Bhutan’s import and thus adding to the real current deficit for the country.

The implementation of GST has not only taken this opportunity away from the Indian traders, but even the Bhutanese traders too since they have to pay indirect taxes (GST) at the point of sale now. In the new GST regime, it is simply difficult to push undeclared goods in the value chain illegally. There is also improved compliance as the suppliers have to register and comply with GST mechanism. This is the first time ever where there is an official indirect taxation recording and tracking system online in India. The GST network platform is monitored closely by tax administrators, thus resulting in lower chances of tax evasion.

Eventually, it is hoped that improved trade practices and new tax reforms in India, which is Bhutan’s biggest importer, will have positive impacts on Bhutan’s trade too and curb the tax evasion in Bhutan as well.