Thukten Zangpo  

Finance Minister Namgay Tshering proposed to defer  the implementation of the Goods and Services Tax (GST) to July 1, 2024 in the National Assembly on June 8.   

The GST (Amendment) Bill of Bhutan 2022 was tabled in the House for first and second readings. The GST which was deferred for implementation in the summer session last year was supposed to come into effect on July 1 this year.

The implementation of the GST was deferred because the software component, Bhutan Integrated Taxation System (BITS) was not ready. BITS is one of the critical components for the successful implementation of the GST.

Lyonpo said the deferment was proposed given the country’s unfavourable economic situation and the operational readiness of the IT system, BITS.

He said that the economic situation in the country was badly affected by the Covid-19 pandemic and the recent Russia-Ukraine war had further aggravated the economic situation. “The country’s economy is in contraction and the recovery of the economy to the normal situation would take some time.”  

Lyonpo also said Bhutan is experiencing one of the highest inflation rates, 7.4 percent in 2021 and 5.6 percent as of March this year.

He said that Bhutan being an import-driven country, global commodity price shocks are uncontrollable and most of the items imported fall under the 5 percent sales tax bracket which would be increased to 7 percent after the implementation of GST. 

“Introduction of the GST during such a time is not appropriate as it would have an adverse impact on the business entities and public at large,” Lyonpo said.

He also said that BITS was contracted to the Thimphu TechPark Limited, however, the agency could not deliver the required BITS solution and the contract was terminated. Lyonpo said that the tax registration system has been completed, however, tax compliance and refund systems were not at par with the government’s expectations.

“The deployment of a new vendor for the BITS development and its complete delivery of the system is estimated to take at least two years,” he added.

The government had spent Nu 220 million (M) on developing BITS, Of the total spent, Nu 30M was provided to Armenian developers. The total allocated budget was Nu 570M.

Supporting the deferment of the GST implementation, Bartsham-Shongphu MP, Passang Dorji (PhD) said that the main reason for the deferment was that the BITS was not ready.

He said he was doubtful about the BITS development to be completed in the next two years and asked whether the government looked for competent domestic private IT firms for the development of the BITS.

Drametse-Ngatshang MP, Ugyen Wangdi, said that Bhutan has been an import-driven country before the pandemic, and commodity price shocks are still uncertain at that time.

He added that there are risks of GST becoming a history if it is not able to be implemented. Ugyen Wangdi said that if the expertise were not able to come then, the expertise will not be able to come next year.

For the convenience of the next government, he asked for the implementation date to be kept indefinite.

Lyonchhen Dr Lotay Tshering said, “BITS is ready; however, we did not get the quality of the system we wanted.”

He added that Thimphu TechPark was awarded the work to develop the system by partnering with the Armenian company. Lyonchhen said that the government wanted to build a system within the country to build in-country skills and expertise.

The Speaker of the National Assembly, Wangchuk Namgyel said that the Bill being a money Bill, could not be deferred indefinitely and was referred to the Legislative Committee for review.

The third reading of the Bill will be on June 20.