Bhutan is facing a bouquet of trade and economic challenges brought about by the implementation of the Goods and Services Tax (GST) in India, that subsumes multiple taxes into one.
The relevant thing for Bhutan is that it makes it cheaper to import from India and more expensive to export to India.
This would mean an increase in imports from India which have the potential to deplete Bhutan’s carefully built up rupee reserves over a period of time.
A serious consequence is Bhutan’s exports becoming uncompetitive in a very price sensitive Indian market due to GST, which would hit Bhutan’s industrial sector.
Apart from the import and export challenge the government is set to initially lose up to Nu 1.4 bn a year in revenue since there is no more excise duty refund under GST.
This loss will go up to Nu 2.9 bn a year once GST is gradually introduced for petroleum products too.
The above would sum up the overall GST challenges confronting Bhutan.
At the moment, time and diplomacy is of the essence. The government has already sent two delegations to New Delhi to try and get around this issue by seeking to not only understand GST but also get some kind of exemption.
New Delhi will have to help given that there are bilateral provisions in GST that allows for certain exemptions.
If the exemptions do not happen then at least as far as imports are concerned the government of the day may want to revise its taxes on a host of non essential items like vehicles and luxury goods.
The export front will be trickier, and here both the government and the respective industries will have to step up to the plate to meet the challenge.
After getting a good understanding of the issues, the government must see how it can help effectively so that some of our industries don’t go bankrupt otherwise it will have a domino effect on our financial sector, that gives loans to the industries in a big way.
The industrial and other sectors must understand the GST game and not only adapt well but also become more competitive to survive a more difficult export market.
Though it is a taboo subject for some, if things get bad and Bhutan’s economic welfare is at stake, we must consider using electricity subsidies in an intelligent manner for our vulnerable industries.
“Every man lives by exchanging.”