The National Reading Year initiative received a rude jolt when book stores in Thimphu and across Bhutan started getting charged with an additional 20 percent customs tax in addition to the five percent sales tax they were already paying for importing books from India.
In response 11 bookstores in Thimphu gave a signed petition to the government requesting for the removal of this 20 percent customs tax which they were not paying earlier as all the books were imported from India.
Now, the Prime Minister Lyonchhen Tshering Tobgay has personally stepped in and has asked the Ministry of Finance for a report on the issue.
Lyonchhen said, “The government is trying to promote literacy and education and so this decision to tax books couldn’t have come at a worse time.”
He said, “The government is eager to keep the status quo (no customs tax) as the government’s priority is the National Reading Year.”
The PM said that even the Finance Ministry had not been made aware of this decision to tax books in the National Reading Year.
The Prime Minister did not say it but the probable finger of blame will land on the Department of Revenue and Customs (DRC) under the Ministry of Finance. It was the DRC that started charging additional taxes on the books from earlier this year.
The PM not mincing any words said that policy decisions and especially on what items to tax are the prerogative of the elected heads and any bureaucrat taking such decisions should always consult the government.
The Prime Minister said the government is awaiting the report and it will immediately do away with the tax if there are no legal implications.
There is some disquiet within the government that the DRC by making such a move could now potentially make it difficult for the government to undo things if there are legal implications.
There is also anger within the government that such a tax has been imposed during the National Reading Year 2015 which is an initiative of the Ministry of Education in honour of His Majesty the Fourth Druk Gyalpo’s 60th anniversary celebrations. In fact His Majesty the King at the invitation of the government had personally inaugurated the National Reading Year on 31st December 2014 and His Majesty had also encouraged students and everyone to read.
The Bhutanese found that two factors contributed to the imposition of 20 percent tax on books from around April – May 2015 onwards.
The first factor was that the Anti Corruption Commission (ACC) was conducting major investigation and surprise checks at the Revenue and Customs office in Phuentsholing around the same time period.
In order to make up for ACC’s investigation into years of alleged corruption, customs officials then started doing stricter checks of imports and to play it safe erred on the side of caution by levying taxes on almost every item coming in.
The second factor was on the issue of the interpretation of section 4 of the Sales Tax, Customs and Excise Act of the King of Bhutan 2000. Here again unlike in the past the DRC decided to again interpret the provision in as conservative a manner as possible.
The matter of taxes was first brought to light by Kunzang Choki the owner of Junction bookstore in Thimphu.
She found that when she claimed her book consignment from India on 28th May 2015 for the first time ever customs asked for documents to show the print location of each and every book. She was told that all books not printed in India would attract an additional 20 percent customs duty in addition to the existing five percent sales tax.
She pointed out the companies that publish the books are international companies that are not based in any one country. The distributors that book stores in Bhutan purchase from are the Indian branches of these companies such as, Penguin Random House India, HarperCollins India, etc.
However, when she wrote to the DRC in Thimphu the DRC in a written reply quoted section 4 of the Sales Tax, Customs and Excise Act of the King of Bhutan 2000 to justify its decision.
The DRC letter says “No customs duty shall be levied on goods of Indian origin imported into Bhutan in accordance with the existing “Agreement on Trade and Commerce” between the Kingdom of Bhutan and the Government of the Republic of India.” However the importer has to submit along with the invoice of the goods, the excise duty invoice which is issued by the Directorate General of Inspection, Customs and Central Excise, GoI, which authenticates, that the; goods are of Indian origin and Excise duty levied on Indian manufactured goods, has been paid to GoI by the importers.”
However, what DRC failed to note was that the books had already factored in the cost of paying custom import duties by Indian importers.
Kunzang said that since Bhutan is a small market despite repeated requests the large Indian companies would never bother to send the details of the taxes they had already paid on the books.
She said, “It is clear that our books are imported from India as demonstrated by our invoices and the price tags on the books. Therefore, we are importing books from India and not from a third party.”
She also said that as the books are purchased from Indian distributors, the books are priced in INR and it is not viable for book stores in India to sell the books at Indian Maximum Retail Price (MRP) while paying the international Customs Duty and Sales Tax.
She said that the simple fact that the MRP was Indian showed that the book sellers were not trying to import in books from third country on which no taxes had been paid.
Other bookstores who also notice similar issues then got together with Junction and put up the letter to the government.