While the Goods and Services Tax (GST) in India will have a revenue implication of Nu 14B in the 12th Plan, the trading sector is to benefit the most.

For this to materialise, the retailers have to pass the benefit to consumers and import commodities from the GST registered suppliers in India.

This is because the excise duty component was imposed on imports from India in the earlier regime and the government claimed the refund. With the new GST regime, the excise duty is subsumed in the GST and GST for exports is zero-rated.

However, for essential items, there already existed zero tax and would not make much difference.

During a consultative meeting between the government and the private sector yesterday, the director general of revenue customs department, Younten Namgyel said prices of top 10 import commodities would fall by 14 percent on an average. “Prices of consumables goods are expected to drop by around five percent on an average,” he said.

While raw materials for industries is supposed to become cheaper, industries like steel, cement and ferro silicon would face the brunt.

It is estimated that around 78 percent of taxes on import are paid by the trading sector. The government will have to face a revenue implication of Nu 12B from the excise duty refund and another Nu 2B from sales tax and green tax.

The director general of the revenue and customs department, Younten Namgyel, also said that informal trading across the border could be addressed with the GST. He said that to get the benefit of the zero-rated GST, the buyers in Bhutan would have to trade with a GST registered supplier in India.

As the entire GST is channelised electronically, formal banking channel will have to be used. Should Bhutanese traders conduct business with non-GST registered suppliers, it will have to bear the cost of GST.

On the flipside, as goods become cheaper, Younten Namgyel said that imports from India would get cheaper, leading to more import and widening the trade deficit. “This could add pressure to the country’s rupee reserve,” he said.

Lyonchhen Tshering Tobgay however, said, that the government will ensure that the benefit of GST on the imports will be passed to the consumers while the IGST Act of India authorises the government to pass the GST on select goods.

Hiting the manufacturing sector

It was highlighted that the manufacturing industries in Bhutan that produce cement, steel and ferro silicon could experience a tax differential of about 13 percent.

For instance, cement export to India in the earlier regime was subject to 14.5 percent value added tax at the point of sale. Now the GST of 28 percent would be applicable at the point of entry, leaving a difference of 13.5 percent. Likewise the steel industries in Bhutan will experience a tax difference of 12.5 percent. This will result in increase of export price by six percent and three percent respectively.

However, Lyonchhen said the government cannot request the Indian government to exempt GST for Bhutan exclusively because goods entering from Bhutan are treated same as goods produced within India. “When GST exemption is not given to their local industries, how can Bhutan ask for exclusivity,” he said.

As raw materials get cheaper, he said the industries in Bhutan should be competitive. He clarified that industries are losing the upper edge because of tax reform in India. In the earlier regime, goods from Bhutan had an upper edge as 17 different central, state and union taxes were levied within India. The GST has subsumed all these taxes into one form, meaning that Bhutanese goods no longer enjoy the benefit as it used to. “This is an opportunity,” he said adding that the private sector has requested the government to do away with excise duty refund and that it is now happening.

On vehicles

The Ministry of Finance has issued a notification stating that sales tax on vehicle import will be levied at the point of sale from the point of entry.

While the country has no authority to dictate the GST levy, it has the obligation to rationalise the tax regime and its rules within.

A notification from the finance ministry directed a change in valuation of sales tax from point of entry to point of sale. This means that the prices of vehicle could either increase or decrease. For instance, in the earlier regime, the BST, customs duty and green tax were all applied to the ex-factory price or at the point of entry.

Now the shift of sales tax valuation to point of sales means that customs duty and green tax could be double taxed. This is because the vehicle dealers, in the earlier regime paid all the taxes and selling price is determined adding to it the transportation and profit margin.

If the sales tax is levied at point of sales, it means that the customs duty, green tax, dealers’ profit, transportation cost and other contingency risks covered becomes the new selling price and sales tax is slapped on this new amount. However, Indian manufactured vehicles are exempt from sales tax, meaning that foreign cars could become more expensive.

The director general said that this is an opportunity for Bhutan to streamline the sales tax valuation in keeping with best practices.

While finance secretary Nim Dorji said that this was done to maintain the price stability of cars and curb the growing imports, Ugen Tsechup Dorji, the chairman of the Zimdra automobiles said that the rationalisation is misplaced.

Citing an example of Maruti cars, he said that the notification would make a Maruti van expensive by Nu 37,000 and decrease the prices of SUV like Brezza and Bolero by about Nu 70,000.

Tshering Dorji