The National Assembly’s Economic and Finance Committee (EFC) recommended better tax policy, import substitution, and focusing on industries and businesses to improve the balance of trade.
The committee’s reviewed how to improve the balance of trade, foreign reserves and facilitation of export and import business.
The chairperson of the committee, and Gangzur-Minjey MP, Kinga Penjor said that the committee identified 20 issues of which some were resolved and a few were forwarded to the concerned agencies during the consultation with the relevant agencies.
Enhance competitive advantage through tax policy
The committee observed that the implementation of the Integrated Goods and Services Tax (GST) in India has impacted exports considerably in general. The imposition of 12 percent to 28 percent as GST and 1 percent as Cess Tax has influenced highly the export of Bhutanese goods.
For instance, the export of cement to India loses a competitive advantage due to the imposition of GST and cess tax. On the contrary, there is a levy of only 5 percent of Bhutan Sales Tax (BST) while importing cement from India.
In Thimphu, Penden cement costs around Nu 467 a bag and imported cement costs around Nu 420 a bag.
Kinga Penjor said that the recent revision of power tariffs led to an increase in the cost of production in local heavy industries.
“The recent hike of power tariff of more than 35 percent from September 1, 2022 by the Bhutan Power Corporation (BPC) has approximately escalated the power cost by 10 to 12 percent which used to be 6 to 7 percent,” he said.
The committee recommended addressing GST differences through a Preferential Trade Agreement, reforming BST for competitive advantage and revisiting to lower the high voltage power tariff.
Economic Affairs Minister Loknath Sharma said that Bangladesh has been exporting 18 items of goods to Bhutan without tax, and Bhutan and Bangladesh have signed a preferential trade agreement.
Lyonpo said that Bhutan was also in the process of signing a preferential trade agreement with Thailand and Nepal.
“If we request a tax subsidy for imports from other countries, they also expect a tax subsidy for export. Since we are import-oriented, it will impact us,” Lyonpo said.
Lyonpo also said that the electricity rate was already at a subsidised rate and the government had already prepared the domestic tariff projection for 2040.
Kinga Penjor said that the waterways and railways were safer and cheaper means of transport as compared to roads. It was observed that infrastructure particularly, the load-carrying capacity limit of existing bridges deter the transportation and logistics within the country as well.
“Despite setbacks, the Ministry of Economic Affairs is negotiating railway linkage via India to Bangladesh and also, got six additional ports of call for boulder exporters,” Kinga Penjor said.
The committee recommended expediting railway links and waterways, exploring ropeways and enhancing bridge load-carrying capacity.
To promote import substitution, local industries have to be supported. The committee observed that the domestic market remains a major concern for local industries to compete with foreign products.
Kinga Penjor said that Bhutan needs to reduce foreign dependency through local productions such as cement manufacturers, Hume pipe, AAC blocks and bricks, wire mesh, wood-based, and agriculture and livestock products, where inferior quality products were being imported and local products become comparatively expensive.
The committee observed that completing the formalities to acquire licenses, clearances, loans and renewal certificates is cumbersome. There is also inconsistent application of rules and procedures by the concerned officials leading to confusion, inconvenience, and loss of time and resources to the business community.
The committee recommended promoting and supporting local products through policy interventions, encouraging the production of cereals, particularly wheat and barley and intensifying the single-window service system in order to avoid cumbersome procedures.
The deliberation on the remaining committee’s recommendations on industries and business will continue on Monday.