The Bhutanese Leading the way.
Bhutan’s GST experiment is increasingly looking like an expensive solution in search of a problem. Four months into implementation, the numbers already raise serious doubts about whether the country should continue down this path.
The government’s own figures show that GST collected Nu 3.17 billion in net revenue over four months and six days, averaging around Nu 755 million a month. That is below the average monthly sales tax collection of around Nu 800 million under the previous Sales Tax system, despite GST covering a much broader tax base that now includes more services and even many basic goods.
This is the core contradiction. Bhutan was promised a more efficient, modern and higher-yielding tax system. Instead, the country got lower collections, higher compliance burdens and widespread complaints about inflation.
The irony is that most GST revenue is still being collected at the import stage, much like the old sales tax system. If the bulk of taxation already happens at the border, then Bhutan must ask why it needs an enormously complicated multi-stage tax regime requiring thousands of businesses to file returns, maintain digital records and navigate refund systems.
The Ministry of Finance argues that GST is a “structural transition” and that stabilization takes time. That is fair to an extent. However, Bhutan is not India, Australia or Singapore with massive economies and deep administrative capacity. Bhutan is a small, import-driven economy dominated by micro and small businesses that are already struggling with weak demand, youth migration and rising costs.
Even India’s GST experience should serve as a warning rather than inspiration. India’s GST became infamous for complex filing systems, endless rate disputes, compliance costs and administrative confusion for small traders. Bhutan has imported the headaches without having India’s scale.
A tax system must fit the reality of the economy it serves. Bhutan’s older sales tax regime was simpler, easier to administer and, based on current figures, appears to have been more productive relative to the burden imposed.
At a time when businesses need breathing space and consumers are already squeezed, Bhutan should seriously consider scrapping GST and returning to a streamlined sales tax system that is simpler, cheaper and more suited to the country’s economic realities.
“Common sense is seeing things as they are; and doing things as they ought to be.”
Harriet Beecher Stowe