The Indian government has informed that exemption of the Goods and Service Tax (GST) on Bhutanese exports was not possible.

At the weekly press meet on January 2, Finance Secretary Nim Dorji said that during a high-level delegation meet in India in February 2018, Bhutan had suggested for an exemption of GST on Bhutanese exports in the Indian market.

“The Government of India after reviewing our request has come back indicating that exemption of GST under the GST law is not even permissible even within India,” he said, adding that therefore it was not possible to exempt GST on Bhutanese export.

He said there is an import tax credit system under the GST where the moment Indian importers import Bhutanese products, it goes into the GST system and they would start getting tax credit.

“Therefore, if we break the chain in the GST input tax credit system, the producers in India will not get the actual benefit.  If they start exempting Bhutanese products from GST, there may not be any importers because they will not get the benefit from the GST system.”

He explained that with GST, export from Bhutan to India has been adversely affected because the goods exported from Bhutan have to now pay custom taxes, taxes at the state level and central tax, the same taxes as applied on Indian goods in India market.

For instance, export of cement attracted only 14 percent tax in India but after the GST, cement was catagorised under 28 percent GST, which has added to the cost of Bhutanese export.

On the import side, prior to GST, Bhutanese importers paid excise duty in India, and then excise duty was claimed as refund by the government, which was considered as revenue at home. It constituted about 10 percent of domestic revenue until last year.

“However, recognising the state visit of Prime Minister, and the support towards strengthening bilateral trade and economy linkages, the Nu 4 billion is a very big support to make our export industry competitive and also capture Indian market besides other markets. We have huge potential and opportunity to promote our export market,” he said.

During the prime minister’s state visit last month, the government of India committed to provide a transitional Trade Support Facility of Nu 4 billion over a period of five years to strengthen bilateral trade and economic linkages.

Lyonchhen Dr Lotay Tshering said India indicated very strongly and clearly that waiving of GST may not be possible.

“This money (Nu 4B) is for the government to prepare ourselves to value add our products and make them more competitive in the global market particularly for Indian market,” Lyonchhen said. “We should consider using it very efficiently.”

Lyonchhen said the government would make sure that a system is put in place in advising traders, future traders and on how to choose the products and businesses, among others.

“I don’t see this money going into the pockets of our traders. We will also give them enough room and incentives to value add their products to come up with better products.”

Lyonchhen also said that asking for GST exemption is nothing but a kind of a kidu culture where many are getting spoilt. Instead, he said, it is time Bhutanese traders produce good quality Bhutanese products to compete in the market.

“Its time for us to match the quality of our products in that countries’ market so that our goods are preferred over their goods. In which case, we will not be worried about GST,” Lyonchhen said. “Until now all the profits were from the subsidies and not from the quality of the products.”

Lyonchhen added that if the mindset is changed by learning more, adding value to products to make them more competitive in the international market, in the next five to 10 years, export would improve and Bhutan wouldn’t have to depend on kidu and exemption.

Economic affairs minister Loknath Sharma said with this support for export promotion, the ministry would form a committee or task force including members from the finance ministry to work on the modalities on how the government could help facilitate and promote trade.

“Technically, the goods coming from India is zero taxed so the prices should be cheaper in Bhutan but local vendors are procuring goods from middlemen and not from the manufacturer. This is why the prices of Indian products are high in Bhutan.”

Yangchen C Rinzin