The Bhutanese Leading the way.
While there has been a lot of focus on the impact of GST on goods, the main impact is on the service sector which mostly never had sales tax before except for some tourist rated hotels, restaurants and cable services.
Bhutan’s service sector is mostly small units but provides the most employment. The GST has not only increased the cost of services by 5% but also created a major compliance burden and cost.
For example, many small service companies do not have full time accountants and so the compliance cost will be high at a time when the economy is not doing very well. Many service companies in the registration bracket fear losing clients to smaller companies who do not have to charge 5% GST.
The Bhutanese asked the Ministry of Finance about the mitigation measures on this front.
Here the Department of Revenue and Customs (DRC) Director General Sonam Jamtsho said, “The concerns raised by service sector businesses are valid, given the early phase of GST implementation. The Government recognizes that while GST is a necessary structural reform, its transition impacts, especially on small service providers must be managed carefully. Accordingly, several mitigation measures are already built into the GST framework, with others being strengthened during implementation.”
The DG said, first, the GST registration threshold itself is a key mitigation measure. Small service providers below the threshold are not required to register, file returns, or charge GST. This protects micro and small operators from compliance burdens while allowing them to continue operating informally until they are ready to scale.
Second, simplified compliance mechanisms are being emphasized for small and medium service providers. GST filing has been designed to be digital, standardized, and periodic rather than transaction-by-transaction, reducing the need for full-time accountants. The Department of Revenue and Customs (DRC) s also rolling out simplified guides, sector-specific training, and help-desk support to lower compliance costs.
The DRC DG said fears of unfair competition are expected to ease as GST stabilizes. For business-to-business transactions, GST-registered clients prefer registered service providers because GST paid can be claimed as input tax credit. Over time, this encourages formalization and levels the playing field rather than disadvantageously compliant firms.
Fourth, transitional support and monitoring are ongoing. The Government is closely monitoring compliance costs, pricing behavior, and sector-specific impacts.
The DG said that where genuine hardship is observed, especially in employment-intensive service sectors, administrative easing, phased enforcement, or targeted capacity-building measures can be considered without compromising the integrity of the GST system.
The DG said GST must be seen as a medium to long-term reform. While the initial adjustment may feel burdensome, GST ultimately benefits service providers through tax neutrality, elimination of cascading taxes, and improved market transparency. As systems mature and familiarity improves, compliance costs are expected to decline significantly.
