The Bhutanese Leading the way.
The Ministry of Finance in a circular effective from 11th August 2017 has said that vehicle dealers in Bhutan can now import vehicles from India which have the Goods and Services Tax (GST) exemption. This would make cars theoretically cheaper in Bhutan by around 12 to 13 percent for smaller cars and upto 20 percent for bigger cars.
However, the the government in order to make up for the revenue lost from the excise duty, prevent a big increase of car imports and depletion of the rupee reserves, is moving the sales tax from the point of entry to the point of sale.
This, in short, means while the tax rates will remain the same the tax amount will go up. Vehicle dealers are already working the tax calculations to see if the ultimate tax amount will remain the same or there will be a marginal drop.
Currently, when a car is imported it is taxed only at the point of entry or the cost price of buying the car by the Bhutanese importer which could be a vehicle dealer.
However when a tax is imposed as the point of sale it would not only include the cost price of import but also the profit margin of the dealer along with all other associated costs like transport, insurance etc.
For example a car imported by a dealer at Nu 400,000 at 25 percent sales tax may have to incur Nu 100,000 in additional sales tax at the point of entry in Phuentsholing. However, with the point of sale tax the dealer will not have to pay the point of entry tax but he would have to pay the higher point of sale tax. So at the point of sale the price of the car including the dealers profit and associated costs would be around Nu 600,000. Here the same 25 percent tax would attract a higher Nu 50,000 amount then the point of entry tax.
The government took this route as it does not have the power to alter the rate of taxes, the authority for which is only vested with the Parliament. The Parliament is only scheduled to meet in the winter session which was too far away to respond to the developing GST situation. The only other alternative would have been vehicle dealers continuing to stop the import of vehicles pending clarity on the issue.
