While the delay in commissioning of the hydropower projects is projected to distress the domestic revenue, the introduction of goods and services tax (GST) in India could have a direct implication on the country’s revenue from excise duty refund.

Excise duty is an inland tax on the sale, or production for sale, of specific goods or a tax on a good produced for sale, or sold, within a country.

The Indo-Bhutan trade agreement states that “each of the governments agrees to provide appropriate refund to be mutually decided annually in respect of excise duties on goods of its origin exported to the other.”

Although most of the commodities are subject to excise duty in India, there are specific exemptions issued by way of notifications by the Government of India (GoI) on goods of special interests like petroleum products, metallic waste products, food items, tools, spares and accessories, medicine and medical equipment among others. Further, since imports made by Hydro Power Projects in Bhutan are exempted from excise duty at source, no excise duty refund claims are made for imports made by these projects.

The excise duty refund from India forms about 10 percent of the national revenue to Bhutan. However, the government has been claiming the refund thus far and the benefit from refund could not be passed down to the consumers.

With GST, the excise duty is subsumed and all exports going out of India will not be slapped with GST.

This means there is no tax on imports Bhutan makes from India and traders and retailers would benefit directly, and consumers too.

For example, car dealers are slapped 14 percent excise duty, which is passed to the customers and the government claims the refund. Now with GST, this 14 percent will be zero and customers will reap the benefit fully. This is why prices of all goods imported from India are bound to drop.


The flipside is that the country’s revenue would be hit because the excise duty refund would decrease substantially. The only refund would pertain to petroleum products as the Indian government kept the petroleum product outside the scope of GST.

From another perspective, more excise duty refund has always translated to more imports. For instance 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. This was attributed to increased vehicle imports and consequently the petroleum products.

Import of high-speed diesel (HSD) and motor spirit (MS) petrol in 2015 increased by 4,551 kilolitres (KL) and 2,364KL compared to 2014. Also, import of vehicles increased from 2,919 in 2014 to 7,075 in 2015. The increase in import resulted in  increased excise duty refund by Nu 348M during the period.


At the beginning of the 11th Plan, the domestic revenue in the planned period was projected at Nu 139 billion. However, another projection made in December 2015 during the mid – term review of the annual performance agreement revealed that the country could only generate about Nu 123B, resulting in a shortfall of Nu 16B.

This is attributed to the reprioritisation of the hydropower target since a majority of domestic revenue comes from export of electricity.

It is a constitutional requirement that domestic revenue should be able to cover the entire current expenditure of the country. But the case of sluggish revenue growth and rising expenditure could threaten meeting this constitutional mandate in the long-term.

The current expenditure in this fiscal year is projected to utilise 82 percent of the domestic revenue.

Bhutan could also face scarcity of external grants and aids as the country graduates from the list of LDC. The grant portion is expected to decline from Nu 68.5B to Nu 54.4B in the 12th Plan.

On the expenditure side, it was also revealed that the government had to undertake non-planned activities like the formation of new state enterprises.

While there are criticisms that tax exemptions would impact the revenue, tax revenue in the next planned period is projected to increase by 66 percent from Nu 165.5B from Nu 99.8B in the current Plan.

In 2015, the government had to forego almost Nu 5B from various exemptions and incentives. This comes to almost 20 percent of the total domestic revenue for the fiscal year 2014-15.

The government also had to forego Nu 676M from vehicle tax exemption, which is an increase of Nu 492M compared to the previous year. Tax exemption from hydropower projects amounted to Nu 618M.

In addition, the government had granted tax exemption to rural businesses, raised the personal income tax ceiling and continues to grant subsidies. While all these may have revenue implications, a finance ministry official said that improved tax administration and introduction of RAMIS would ensure less revenue leakage over the time.

The budget report has projected an increased tax revenue from Nu 21B in 2016-17 fiscal year to Nu 24B in 2017-18.

The country’s total domestic revenue in the period is projected to increase by 19 percent to Nu 34B. However, it must be noted that state owned enterprises are the largest contributors to the national revenue from its dividend and taxes, forming almost 50 percent.

As per the initial 12th Plan documents, domestic revenue in the 12th plan is projected to increase by more than 103 percent while the grant portion is expected to decrease by 20 percent, when compared to the 11th Plan.

Tshering Dorji