The government of India (GoI) released Nu 4.001B in excise duty refund (EDR) for 2016, yesterday and informed that it is expediting the refund for 2017, which will be the last EDR Bhutan would receive.
The refund is an increase of more than Nu 1B from the previous year. Bhutan received Nu 2.91B in EDR for 2015.
Finance secretary, Nim Dorji said EDR is included in the budget as domestic revenue and its timely release is important to makeup for the fiscal deficit. He also requested to expedite verification of EDR for 2017, as it is the last month to end the fiscal year as well as the 11th Plan.
Deputy Chief of Mission from the Indian Embassy, who handed over the cheque, Esha Srivastava said the Indian external affairs ministry is working hard to complete the process soon.
Excise duty is an inland tax on a good produced for sale, or sold, within a country.
Before the introduction of goods and services tax (GST) in India, most commodities were subject to excise duty. Specific exemptions were granted to Bhutan by way of issuing notifications by the GoI on goods of special interests like petroleum products, metallic waste products, food items, tools, spares and accessories, medicine and medical equipment among others.
Except for imports made by hydropower projects, exemptions on excise duty are not given at source but later refunded to the government. This is also in line with Indo-Bhutan trade agreement, which states that both the governments must provide appropriate refund in respect of excise duties on goods exported to the other country.
For instance, Bhutanese importers and dealers are levied excise duty while importing fuel or vehicles, which is then passed to the consumers. The EDR then comes to the government as domestic revenue. EDR from India forms about 11 percent of the national revenue to Bhutan.
GST has now subsumed the excise duty and host of other taxes in India. Further, the GST law states that all exports going out of India will be zero taxed, which means that EDR until mid 2017 will be the last refund for Bhutan. However, the direct benefit of the excise duty, which is about 14 percent, is now passed to the consumers. This is how the fuel price dropped by more than Nu 10 in November last year.
The major portion of EDR for 2016 comes from the import of petroleum products worth Nu 1.74B, followed by import of vehicles (Nu 690M) and machinery (Nu 366M).
In 2010, the country received Nu 2.03B excise duty refund from GoI. Following the import ban on certain goods after the rupee shortage hit the economy, the excise duty refund in 2012 dropped by Nu 282M and in 2013 the government claimed Nu 1.7B refund.
After the import ban was lifted, excise duty refund increased to Nu 1.94B in 2014 and almost reached Nu 3B in 2015.
While the loss of EDR is expected to affect the country’s revenue, as per the initial 12th Plan documents, domestic revenue in the 12th Plan is projected to increase by more than 103 percent compared with 11th Plan because of the commissioning of hydropower projects. However, the grant portion is expected to decrease by 20 percent.