…provided traders pass the benefit to consumers
As the goods and services tax (GST) subsumes the excise duty and exempts exports going out of India, price of consumables and raw materials imported from India would fall by at least 10 percent.
This means Indian goods would be cheaper in Bhutan than in India. For instance, the price of vehicles not exceeding 1,500 cc engine capacity is expected to fall by 14 percent and engine capacity of 1,500 cc and above by 25 percent.
“Technically, almost all goods coming into the country will become cheaper because exports going out of India is imposed zero GST and the excise duty is now gone,” Naman Sidarth, a consultant with ImsTaxoservice, India said.
Within the Indian domestic market, state GST (SGST) and integrated GST (IGST) are slapped. This makes exports from India cheaper. Although some goods like leather bags and watches in India have become dearer after GST, it will not affect the export price.
However, sources said Indian exporters are facing some glitches and confusion while following the due process and that they could land up charging the Bhutanese traders prices inclusive of GST.
This is because Indian sellers have to pay GST in advance even if the goods are to be exported. However, upon producing a proof that goods supplied are for export, the Indian seller will get the GST refund. This applies for both manufacturers and retailers in India.
To avail of GST exemption at source, Indian manufacturers could also avail of a bond or a bank guarantee stating that goods are meant for export.
Naman Sidarth said that Indian sellers may charge the price inclusive of GST and later refund the Bhutanese buyer upon receipt of GST refund.
“This may not be convenient for one-time trading,” he said.
Traders in Jaigaon said that they haven’t received the new pricing from the manufacturers and that there are many confusions to address. A merchant said that it may take a week to comply with the new regime.
While goods brought in from India are bound to become cheaper, the question is will the benefit be passed down to the consumers. The maximum retail price would be inclusive of GST and selling Indian goods at MRP in Bhutan would not make sense as there is no GST on exports coming from India.
Bhutanese exports going to India will suffer under the new tax regime.
Earlier, Bhutanese goods would enter India freely without any tax and value added tax (VAT) was levied at point of sale. Indian buyers now will have to pay GST at Jaigaon customs if goods enter through Phuentsholing. They will not get the refund but can avail a credit, freeing them of tax at the point of sale or resale.
The whole tax reform in India has made Indian industries competitive and has upper edge compared to Bhutanese industries.
Members from the private sector said that for Bhutanese industries to survive the odds, the government should propose the Indian government to exempt the GST on imports from Bhutan. The other option is to request the Indian government to defer the GST from point of entry to point of sale or resale, which is similar to the earlier VAT regime.
Unlike the goods, services imported from India are not duty free as it was in the past. A businessman said that both the private sector and the government procure billions worth of consultancy services from India ranging from interior design, accounting to hydropower services, and information technology.
These services are now getting dearer by 18 percent. Services will not qualify as export, unless the fees are paid in foreign currency.
Representatives from the private sector said that within the country’s tax regime, the government should provide refund on BST paid on the import of raw materials if the manufacturers re-export the finished goods back to India.
“It definitely calls for a major reform in our indirect taxation if we are to protect our economy,” said another businessman. “BST, on consumables and other goods can also be revisited, as imports are getting cheaper.”
It is likely that the impact will be felt on the trade balance and in the current account of the country, putting more stress on the INR reserve.
Meanwhile, finance minister Namgay Dorji said that a team from the ministry is in New Delhi to study the scenario. Indian government has in principle agreed to exempt GST at source for Bhutanese goods.
An official from ministry of finance said that Bhutan would also explore the feasibility of GST regime. In the interim, however, measures to minimise the impact within the current BST regime is being explored.