To ensure that car dealers do not further overcharge customers, the Department of Revenue and Customs (DRC) now mandates that vehicle dealers submit comprehensive documentation, including import declarations, manufacturer invoices, and customer sales invoices.
In response to the fraudulent practices by the 11 car dealers discovered recently, all vehicle dealers are now required to submit critical documentation, including the import declaration, manufacturer/principal company invoice, and sales invoice, directly to DRC.
This documentation will be subject to rigorous verification and is now a requirement for vehicle registration with the Bhutan Construction and Transport Authority.
These steps aim to enhance transparency, compliance, and accountability in vehicle transactions.
Additionally, sales invoices must clearly itemize Green Tax (GT), Customs Duty (CD), and sales tax (ST), ensuring customers are fully informed about the tax components they are paying.
Following the lifting of the vehicle moratorium, a surge in vehicle purchases triggered widespread public dissatisfaction over soaring prices, with many attributing the hikes to excessive taxation.
Responding to these concerns, the government directed DRC to conduct a comprehensive review of vehicle pricing structures to identify the factors driving market prices.
DRC undertook a detailed analysis, scrutinizing import declarations, manufacturer or principal company invoices (submitted at the point of entry), and dealer sales invoices (issued to customers).
The investigation revealed significant discrepancies in the application of GT. Specifically, the GT paid at the point of entry, as recorded in import declarations, was noticeably lower than the GT charged to customers in dealer sales invoices.
This mismatch highlighted that customers were being charged a higher GT than what was originally paid during importation.
After further investigation, DRC found 11 car dealers guilty of inflating Green Tax amounts, resulting in a collective refund of Nu 30.9 million to 4,345 customers and instructed the dealers to refund the overcharged amounts by 15th February 2025.
The investigation uncovered discrepancies in tax computations leading to excessive charges for vehicle buyers.
Sales tax (ST) on vehicles is levied at the point of sale, meaning it is charged when vehicles are sold to final customers.
Dealers are then required to remit the collected ST to the government revenue account and submit a detailed statement to the respective regional office for verification.
Simultaneously, as part of the transaction process between dealers and buyers, a sales invoice is issued to customers.
This invoice specifies the sales price of the vehicle and includes a breakdown of GT and CD paid at the point of entry, along with the sales tax.
Among the dealers, Zimdra Motors owes Nu 14.325 million (mn) for 1,120 vehicles, STCBL has a refund obligation of Nu 9.479 mn for 857 vehicles, Bhutan Hyundai owes Nu 4.987 mn for 1,736 vehicles, Bhutan Isuzu owes Nu 770,943 for 165 vehicles, Shingkhar Auto is required to refund Nu 523,537 for 190 vehicles, Samden vehicle owes Nu 322,458 for 37 vehicles, Zimbi owes Nu 219,286 for 18 vehicles, Singay Agencies owes Nu 130,949 for 185 vehicles, Leksol Motors owes Nu 28,826 for 5 vehicles, TCD owes Nu 25,000 for one vehicle and Freedom Motor owes Nu 1,739 for 32 vehicles.
DRC has issued a public notice urging individuals who purchased vehicles between January 2019 and November 30, 2024, and were charged excess Green Tax, to claim their refunds from the respective dealers. Buyers should verify their purchase dates and invoices to determine eligibility and contact the dealers.
DRC also stated that such discrepancies like those observed in vehicle pricing are unlikely to occur in electronics or household items.
For most goods entering the country, such as electronics and everyday household items, ST and CD are charged at the point of entry and factored into the final sales price.
However, vehicles are an exception to this process. While GT and applicable CD (for goods originating from third countries) are charged at the point of entry, sales tax on vehicles is levied at the point of sale.
Given this framework, it is unlikely that discrepancies, such as those observed in vehicle pricing, could occur in other goods.
For goods like electronics or household items, a logical approach to determine the seller’s profit margin would involve deducting the cost of the goods, applicable sales tax and customs duty, and logistical and incidental expenses from the final sales price.
The remaining balance represents the profit margin of the seller. This structure inherently minimizes the possibility of similar pricing anomalies in these categories of goods.
While people appreciated the government for finding out the above information there were some who came on social media demanding legal action against the vehicle dealers and not just refunds.
The vehicle dealers’ say
A vehicle dealer, on the condition of anonymity, admitted that customers have been overcharged Green Tax, but this was part of the vehicle sale economics in Bhutan, and also caused in part by fluctuating vehicle prices.
The dealer said, “Say, a person orders a Nu 1 mn car from me and pays a deposit but when I import the car and the price goes up, I cannot hike the price and will have to absorb the increased price.”
He said that similarly when a customer orders a car at a certain price and the price goes down, he still charges the same higher price as he has to cover the loss from the above deal.
“All in all, my company has lost a higher amount for customers car prices going up then we recovered from those whose car prices went down after ordering,” said the dealer.
The dealer said that for a Nu 1 mn vehicle if the green tax is 10% and comes to Nu 100,000 but after a customer orders it the vehicle price may drop to Nu 950,000 and so the Green Tax should be Nu 95,000 but the customer is still charged Nu 100,000 as part of the logic given above.
The dealer said that when the tax assessments were being done by DRC for vehicles from 2019 onwards years ago, DRC already knew that excess Green Tax had been charged and it was treated as revenue and taxed by DRC. He says DRC even imposed fines on some sales tax not being paid due to higher Green Tax being shown.
The dealer asked why was the matter not brought out at that point by DRC, and warnings not given to vehicle dealers to not charge excessive Green Tax, instead of just taxing it as revenue.
He said the matter is only being brought out now in the public domain as people are unhappy with high car prices.
The dealer asked, “For a Nu 1 million car, the government charges Nu 450,000 as vehicle tax and Nu 100,000 as Green Tax, and that is why the cost of vehicles are so high.”
The dealer also said that what sowed confusion was that the tax rates on hybrid vehicles kept changing rapidly from 10% to 5% to 2.5% and that left vehicle dealers confused.
The dealer said that Euro 6 vehicles have lower emissions and are more expensive and should be charged less Green Tax by the government, but these vehicles are charged the same as higher emission vehicles like Euro 4 and others.
Another vehicle dealer said that the main issue for the overcharging was due to the exchange rates fluctuating, and not completely because of fraudulent practices.
They said for third country vehicles, they have to import from countries such as Thailand and Japan for which they have to pay the amount in USD.
“We do not directly sell our vehicles all the time. We put up tenders and quotations before placing an order. The exchange rate at that period of time is used to determine the tax, and the total price of the vehicle. At any point after the tender, if the exchange rate fluctuates, we cannot change the price and the determined tax because it has already been set and paid for,” said one of the 11 car dealers.
In order for a vehicle to arrive, it takes around four to five months, and the car dealer said that if the exchange rates changes that time, they cannot do anything.
“People have come up to us, saying they need a full refund on the Green Tax instead of the overcharged amount, which sometimes is the rounded amount of Green Tax for their vehicle”, they added.
They said that there are certain instances where the company rounds up the amount of Green Tax. For example, if the Green Tax for a Land Cruiser is 35%, then 35% of the vehicle price will be added on top of the original vehicle price.
If the Green Tax is Nu 148,000 they round it up to Nu 150,000 and some customers have come to ask for a full refund of their Green Tax and not just the excess amount.