Following the revision of the GST for Bhutan
In a major alteration to the Goods and Services Tax (GST) for Bhutan, the Indian government on October 27 declared that the import of services to Bhutan from India would not be taxed.
India’s Department of Revenue announced the amendment for Bhutan and India through notification No 42/2017 – Integrated Tax (Rate).
This is a big relief to the economy as there was a huge outflow of Indian Rupee (INR) with the taxing system on. Prior to the exemption, after GST was introduced on July 1, 2017, all procurement of services from India had become expensive by 18-20 percent. Work contracts and other services accounted for 12 percent GST that included contract works for construction of roads, repair of machineries, hiring, hydropower, and consultancy.
For example, a large outflow of INR was expected in importing audit services as the cost had shot up by 18 percent. This means, if Bhutan imported services worth Nu 100, Bhutanese importers would have had experienced an extra burden of Nu 18 without any value addition to the economy.
Services such as transportation, auditing and charter, engineering, and consultancy are some of the major services imported. With the introduction of GST on July 1, all sectors that imported services were hit.
Following this, the private sector had requested the government to pursue for exemption from the Indian government.
Later in September, the Central Board of Excise and Customs (CBEC), India, exempted supply of services related to transit of cargo to Bhutan and Nepal. This move relieved Bhutanese businessmen importing from third countries as they were paying 18 percent tax on services.
However, there was nothing on the supply of services from India to Bhutan. In an announcement on October 4, 2017, the CBEC declared “the supply of services, however, to Nepal and Bhutan will be deemed to be export of services only if the payment for such services is received by the suppliers in convertible foreign exchange.”
Programme officer with the Association of Bhutanese Industries (ABI), Pema Namgyel Ghalley said that industries had to pay 12 percent even when services were brought to repair and maintain machines at the industrial estate.
“This is a huge relief,” he said, adding that Bhutan imported most of the services from India. “It will benefit the economy.”
Transportation, Pema Namgyel Ghalley said, was the major relief. Industries and all other traders in the country use Indian trucks to ferry goods until Phuentsholing or beyond into the country. Railways are other services.
The programme officer also said that the association has submitted to the government asking if the mode of payment of GST could be changed to “the point of resale” from “the point of sale.”
Rajesh Rai | Phuentsholing