The Bhutanese Leading the way.
One of the important legislations under the wider tax reforms is the Excise Tax Bill 2025 that places Excise Tax on Tobacco and related products, Alcohol and alcoholic beverages, Pan Masala or Supari, Aerated waters (Carbonated drinks) and Vehicles.
The cumulative effect of the flat 7% Goods and Services Tax (GST) and the Excise Tax is that vehicles become cheaper due to lower tax but alcohol, tobacco and carbonated drinks prices go up.
The 7% GST while replacing the Sales Tax lost out the higher Sales Tax charged on the above items for revenue, health and environmental reasons.
Initially the GST Act 2020 placed the above goods and many others like sugar, baked goods with sugar, noodles, fruit juices, chocolates, cookies, pasta, ice cream, mineral water, vinegar and plastics under the Excise Equalization Tax (EET) coming to a total of 157 items.
However, in recent times realization quickly dawned that most of the above EET items would disadvantage Bhutan’s own home grown businesses and factories and particularly those in food processing like juices, cookies, chocolates, bakeries and a host of other industries compared to foreign imports not facing the same EET of mainly 20% over and above the 7% GST.
It was also felt a person who eats noodles will not stop eating it only because the tax is a little higher, which was the original intent from the health point of view, as it will only make it a little more expensive.
It was also felt that these mainly food and consumer items were truly not excisable items unlike alcohol, tobacco, pan masala, carbonated drinks and vehicles. The Excise concept also did not go along with GST.
The latest GST amendment therefore dropped the majority of the 157 EET items which means now only GST is applicable on them and the only truly harmful items from the point of view of the health and environment was moved into a separate Excise Tax Bill.
The impact of the GST and Excise Bill shows that the price of most vehicles should drop between 8% and 4% due to the lower tax impact compared to the higher Sales Tax before.
The Department of Revenue and Customs (DRC) did an exercise and found that Alto’s selling price should drop by 6% from the current Nu 846,793 to Nu 796,877. This is because the sales tax was Nu 290,609 compared to the new 7% GST and 35% Excise Tax of Nu 231,321.
Similarly, the selling price of the Fronx should drop by 8% from Nu 1,116,813 to Nu 1,024,657.
A Seltos selling price should also drop by 8% from Nu.2,116,116 to Nu 1,931,668.
However, bigger the car the smaller the drop as vehicle dealers playing the volumes game kept a higher profit margin for lesser selling bigger cars and a smaller profit margin for higher selling smaller cars.
A Creta price should drop by 4% from Nu 1,979,697 to Nu.1,907,235.
A Toyota Hilux price drops by 2% from 9,978,863 to Nu 9,810,847.
In the case of Landcruiser the opposite happens as the price increases by 0.31% from 25,173,719 to Nu 25,251,990.
An official, however, clarified that the above should not be taken as the final figures as the actual selling price will depend on the level of profit margin a vehicle dealer wants to keep, cost changes from the factory and moreover the prices apply for the time period when the study was done.
Despite this the exercise gives consumers an idea of what to expect. When vehicle dealers import a vehicle, they have to pay the GST and Excise Tax at the entry point which is Phuentsholing.
Under a new system when vehicles are to be registered with BCTA the BCTA will get access to the GST and Excise Tax paid at the point of entry. The invoice given to a customer should ideally also have a break of the taxes paid in it.
The Competition and Consumer Affairs Authority (CCAA) will be expected to keep an eye on the prices of vehicles too.
The excise tax on vehicles is imposed to address environmental pollution and to encourage the use of eco-friendly vehicles.
While the taxes on vehicles are straightforward there has been some confusion on the excise tax on alcohol.
Excise tax on alcoholic beverages will be imposed based on the amount of pure alcohol contained in the product, rather than the total volume of the beverage. It applies to both imported and domestically manufactured alcohol.
As per the Excise Bill a liter of pure 100% alcohol content will attract a tax of Nu 1200 or Nu 12 per 1% of alcohol content.
Here again an exercise was done by the DRC. For example, the current selling price of a 750 ml Bhutan Grain Highland Whisky with 42.8% alcohol content is Nu 325. To calculate the Excise Tax the 750 ml is multiplied into the alcohol content of 42.8% to derive the pure alcohol content of 321 ml. This 321 ml is multiplied into 1,200 which gives the excise amount of Nu 385.
This means selling price of Highland will increase from the current Nu.325 to Nu.643 with the assumption that ex-factor price remains the same along with the other costs.
Using the same logic the price of a 750 ml K5 Whisky with 42.8% also attracts an excise tax of Nu 385. This moves the K5 selling price from Nu 1,050 to Nu 1,299.
The above means the items of high alcohol content drinks like all whiskies, rums, vodka etc. will see higher price rises per bottle. It is hoped that this will at least lead to regular drinkers drinking less.
Beer will also see a price increase but not as drastic given its lower alcohol content. A 500 ml Druk 11,000 can with 8% alcohol will increase in price from Nu 65 to Nu 90.
Excise tax is levied on alcohol and alcoholic beverages due to its negative effects on health. By taxing alcohol based on its pure alcohol content, the system ensures that beverages with higher alcohol strength are taxed more, regardless of their cost and brand.
Like in the case of alcohol the excise tax is levied at a fixed rate of Nu. 2000 per kilogram (KGM) of pan masala. It applies to both import and domestic production. This means a Nu 80 Rajanigandha packet of 17 grams will increase in price from Nu 80 to Nu 110.
The Excise tax on pan masala is imposed due to its negative effects on health.
In the case of tobacco, the excise tax on cigarettes and biris will be Nu 10 per stick. For example, one packet of Gold Flake Cigarettes which contains 20 sticks will see its price go up from the current Nu 300 to Nu 420.
The excise tax on cigars will be Nu 40 per cigar. The excise tax on Khani will be Nu 1500 per kilogram. The proposed selling price will increase from Nu.20 to Nu.33 for one packet of Khani (Chewing Tobacco) of 10 grams.
The excise tax on e-cigarettes device and refill tobacco is 100% ad valorem, or excise tax calculated as percentage on the product’s value.
Tobacco consumption is a leading cause of non-communicable diseases (NCDs) such as lung cancer and heart disease. Treating these tobacco-related illnesses imposes a substantial financial burden on the Government. Excise tax on tobacco products is imposed to discourage their consumption and reduce associated health risks
The excise tax on aerated water is 50% (ad valorem rate) based on the product’s value. It applies to both imported and domestically manufactured goods. This means a 300 ml Coca Cola will see its price increase from Nu 25 to Nu 28 per bottle.
The excise tax is imposed on all aerated water to discourage consumption due to its negative impact on health.
