The shift in valuation of Bhutan Sales Tax (BST) on import of vehicles from point of entry to point of sales has raised eyebrows with some questioning the legitimacy of such a move.

This move by the finance ministry is intended to minimise the impact of Indian Goods and Services Tax (GST), as exports from India will not be levied GST, which could result in vehicle prices falling by at least 14 percent, the excise duty component imposed earlier.

However, finance secretary, Nim Dorji said that the Office of Attorney General (OAG) has issued its legal opinion, which stated that shifting the BST valuation point at the point of sale from the point of entry is legitimately permissible by ministry of finance under the prevailing statutes.

The Sales Tax, Customs and Excise Duty Act states that sales tax shall be collected at the time of import or at the point of sale in accordance with the valuation rules prescribed by the Ministry of Finance from time to time. It also states that the finance ministry shall prescribe, from time to time, methods of valuation for both imported and exported goods and authorises the ministry to frame rules necessary for effective implementation.

The rules on Sales Tax, Customs And Excise Act 2000 states that valuation for the purpose of levying sales tax at the point of sales shall be based on the price of the goods and services sold at the time of sales but excluding discounts.  Where the price of the goods sold for the purpose of levying sales tax is undervalued or is not as per the actual sales price, valuation shall be determined by the Department.

“In order to ensure that there is no difference of opinion in interpreting these legal provisions, the government also resorted to seeking guidance under Article 21 Section 8 of the Constitution,” finance secretary said.

Article 21 Section 8 states, “where a question of law or fact is of such a nature and of such public importance that it is expedient to obtain the opinion of the Supreme Court, the Druk Gyalpo may refer the question to the Supreme Court for its consideration, which shall hear the reference and submit its opinion to Him.”

“Only after completing the above processes, the finance ministry has notified on August 10, the shifting of sales tax collection from point of entry to point of sales,” the finance secretary Nim Dorji said.

The Constitution states that taxes, fees and other forms of levies shall not be imposed or altered except by law. The Supreme Court’s judgment on the first constitutional case has stated that under no circumstances, the authority to impose or alter taxes may be delegated to the Executive and that the imposition or alteration of taxes must comply with the legislative process for making laws at all times.

However, Gasa council member Sangay Khandu said that the shift in BST valuation point appears to be a control measure nonetheless and one that involves tax alteration. “The timing, intent and impact corroborate tax alteration,” he wrote on his blog. “I do not question the merit of the decision.”

The same argument had also come up with regard to fiscal incentives.

Sangay Khandu wrote that governments use fiscal policy tools to manage the economy and taxes are an important and legitimate tool. “The concern surrounds the non-compliance to legislative process in altering taxes.”  While it is not the Council’s stand, he said that the executive decision by the government in changing tax evaluation from the point of entry to the point of sale has resulted in an increase in tax.

A lawyer, requesting anonymity said that this requires further deliberation since shifting the valuation point is resulting in a change in the total tax amount.

Some observers pointed out that in any case the prices of vehicles are declining because of GST and it is neither placing undue burden to the people nor hurting the economy.

Another lawyer, also requesting anonymity, said, the finance ministry’s decision should be legal since the law already states that the government may impose tax at point of entry or point of sale.

“The Constitution only restricts revision or alteration. In the present case, the government has only shifted the modality,” he said. “Alteration does not hold water because there is no change in tax.”

Tshering Dorji