GST: Protecting domestic products a major concern

Rajesh Rai  | Phuentsholing

If the Goods and Services Tax (GST) law is passed, protection of the domestic manufacturers and their products is the primary concern among the private sector players. This was raised during the GST consultation and awareness meeting the Phuentsholing business group had with the Finance Minister Namgay Tshering and his team on January 18.

Business specific questions were raised.

A hume pipe manufacturer based in Pasakha, Kipchu said his pipes would lose competition considering the seven percent GST on the same product from across the border. Currently, hume pipes are taxed at 10 percent Bhutan Sales Tax (BST).

“I manufactured about 2,000 hume pipes and haven’t even sold 200,” he said, adding the GST would bring down the market he is already struggling with.

Kipchu said this happened despite his pipes being BSB-certified. He lost the business because hume pipes from across the border were substandard in quality and thereby cheaper. He said there were two hume pipe manufacturers in the country, which were yet to get BSB certification.

Should he also provide the substandard pipes, Kipchu said he would be able to give a discount of 50 percent compared to 30 percent off the hume pipes from across the border that Bhutanese imported today.

“There is a strong need to check and balance this,” Kipchu said.

A brick manufacturer also said locally manufactured bricks were already struggling with the invasion of the imported ones. Bricks from across the border were cheaper due to the substandard quality.   

Talking to Kuensel, a concrete brick manufacturer, Tenzin said no matter whatever the tax would be levied on the bricks, the danger lies on the import bills going to the customs offices, that could be manipulated.

“This is same with other products as well,” Tenzin said. “A system should be put in place to ensure everything is checked.”

Wood-based manufacturers also raised similar concerns with regards to substandard products being imported. Currently, wood products from across the border are charged a 10 percent BST. GST would give it further advantage with seven percent.

Questions regarding the Fiscal Incentives (FI) were also raised during the consultation meeting on January 18. Participants said the GST Bill was ambiguous and lacked details about how exactly it would enhance the economy.

Association of Bhutanese Industries (ABI) president Pema Tenzin said FI was the only document that protected the manufacturers. “But it is limited,” he said.

Finance ministry officials said that the FI would anyway expire by the end of 2020 and that it would be further strategised, reviewed and amended.

About GST making imported goods more or less expensive, it was explained: “In some cases, prices will go down, in some they will go up, and others will remain the same. Currently, there are multiple sales tax rates (11 different rates), most being above the GST rate of seven percent.”

GST would also have a special exemption on the manufacturing industries to protect domestic production, such as construction, agro, dairy products, and others.

Ministry officials said that there would be special intervention for exemptions in terms of manufacturing industries and that still many areas need consideration. However, officials said that manufacturers should comply to be able to provide and cover 70 percent of the domestic requirement.

Finance Minister Namgay Tshering said that GST’s important objectives were to protect the local products and enhance export.

The minister also said that there were chances of market distortion if imports were taxed heavily.

“If we cannot meet the local demand, there have to be import,” he said, adding that raising taxes on certain imports at this time would only tantamount to unwarranted inflation that would burden the country’s economy.

Citing the example of the hume pipes, Lyonpo Namgay Tshering said that the ministry would work it out with the works and human settlement ministry. “No substandard quality materials should come,” he said.

Meanwhile, should the Bill be passed, lyonpo said the government would then take about a year to roll out the new tax regime.

Lyonpo said that Nu 600 million (M) would be invested for the digitisation work. “Thimphu TechPark Ltd under the DHI would take it up,” he said.

After passing of the Bill, lyonpo also said that there would be awareness programmes, training, and capacity development across all sectors. “Everything would be equipped as required for this shift from BST to GST,” he added.

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