While India’s goods and services tax (GST) has cut the competitive edge of Bhutan’s export-oriented industries, Bhutan still has a few advantages, the Prime Minister Tshering Tobgay said.
The government, he said, must accept what GST has done. It has created a level-playing field between Bhutanese manufacturers and that of India.
Prime minister said that local industries like cement manufacturers have dwelt on profitable environment for decades. “It does not happen in any country,” he said, referring to the exemption on the excise duty the export-bound local products enjoyed. This was possible because of the free trade agreement with India, he added.
GST has subsumed all state and central level taxes, including the excise duty.
“It is natural for every country will protect their products,” prime minister said.
He said that for Bhutan, India imposes only GST, which creates a level-playing field. However, for goods flowing to India are slapped with import tariff in addition to the GST.
While India may have access to cheap labour, he said Bhutan has no labour strikes and political stability. “For power intensive industries, cheap power is a huge gain and the cost of fuel has decreased by at least 16 percent.”
Prime minister said that on closer look local products should be as competitive as Indian products in India.
However, he said that there are some manufacturing industries in the country built around the earlier excise regime. This means some industries have no other advantage but the gains on the tax front, which is no more the case.
“It is going to be difficult for such industries,” prime minister said, adding that the government is working closely with Indian counterparts to address such issues.
The government is also reviewing the proposal that the Association of Bhutanese Industries submitted. Prime Minister has also written to finance and economic affairs ministry to study the impact of fuel price reduction in the economy.
Dungsam Cement Corporation Limited and Ice Beverages have experienced production drop by huge margin after GST.
As for the Ice beverages, in addition to 28 percent GST, cess of 12 percent is levied. The effective tax rate after GST comes to around 40 percent as compared to 14 percent in the previous regime.
For DCCL, although there is some sort of level-playing field on the tax front, subsidies and refund on central GST (CGST) are extended to its competitors in the North Eastern states of India. This has tilted the competitive edge in favour of Indian manufacturers.