The Prime Minister outlined both challenges and opportunities for Bhutan due to GST in India
A presentation by the Ministry of Finance for the Bhutan Chamber of Commerce and Industry (BCCI) showed that the government would forego Nu 14 bn in total revenue due to India’s Good and Services Tax (GST) in the upcoming 12th five year plan.
The meeting chaired by the Prime Minister and attended by the Finance Minister and Minister of Economic Affairs along with their respective secretaries and directors was primarily to inform the BCCI of what the government is doing and also get feedback from the business community.
Of this the bulk of it would be through losses of Nu 12 bn in the Excise Duty Refund and another Nu 2 bn in reduced sales tax and green tax.
Earlier, before GST, the Indian government collected excise duty for exports of consumer goods and raw materials to Bhutan and then refunded it to the Bhutanese government every year. However, with GST India no longer has excise duty for exports.
With reduced prices of goods being exported to Bhutan, the sales tax and green tax which is charged on the price of the imported goods would also go down.
The government has also estimated that imports in 2017 would go up by another Nu 8 bn meaning wider trade deficit.
The increased imports due to lower prices are expected to also hit the rupee reserves.
The negative impact could also been seen in terms of the fact that Bhutanese cement is now 6 percent more expensive than Indian cement while steel industries also saw a 3 percent increase in export prices.
On the positive side the Ministry of Finance said that the top ten import commodities would become cheaper by 14 percent while prices of most consumable items are expected to fall by around 5 percent on an average.
Raw materials are also expected to become cheaper for manufacturers. There will be no impact on the prices of essential goods like rice, oil, vegetables, salt, sugar, milk etc.
Apart from that the tax burden for the trading sector is expected to drop by around five percent at the point of entry.
It was also highlighted that in order to get GST exemption businesses would be encouraged to do electronic filings and the sourcing of goods from GST certified businesses in India would increase.
The Prime Minister Lyonchhen Dasho Tshering Tobgay said that it was an opportunity for businesses along the border with India to get more competitive as their GST exempt goods would be cheaper drawing not only Bhutanese shoppers but also Indians.
The PM, however, requested the business community to make sure to not only get GST exempt imports through proper GST certified dealers, but also pass on the GST benefits to consumers in Bhutan.
He called on the Bhutanese industry to take advantage of the fact that the 12.5 percent excise duty on raw materials had been removed which had been a long standing industry demand. The PM said that this was a chance for the industry to be more competitive.
The main highlight of the meeting was that after the government gave an update on its activities on the GST front it calmed many frayed nerves in the business community, that were apprehensive of what would happen.
The PM said for the cement industry which involves two government giants Dungsam and Penden apart from Lhaki one way would be to give priority to Bhutanese cement in hydro projects in Bhutan as Bhutan was still importing too much cement.
In response to a query from the Construction Association of Bhutan (CAB) the Finance Secretary Nim Dorji sad that given the fall of prices in construction items there would also be a consequent fall in the price of construction projects in Bhutan. He said that so far the contract documents took care of change in prices with the focus being price escalation but this time around the opposite would be applicable.
Lyonchhen also asked a committee of the Ministry of Works and Human Settlement, Ministry of Finance, CAB and Ministry of Economic Affairs to address the issue of GST’s impact on the Construction sector.
The government also presented the action taken on submissions by the private sector on the GST.
One was on the exemption of GST for Bhutanese exports to India which the PM said is not feasible as GST is applicable to all imports into India and also within India. Lyonchhen said that compared to other third countries Bhutanese exporters still enjoyed the advantage of not having to pay custom duties for export to India.
He reminded the gathering that so far a lot of Bhutanese industries had enjoyed and thrived on the lower tax difference in Bhutan which India had allowed for Bhutan as a friendly country. The PM said the only difference now is that tax advantage is now gone and the playing field is now more level.
On the private sector’s request of deferring the GST for Bhutanese exports from the point of entry to the point of sale in India the MoF said that requests had already been made to India in three June and July meetings. The matter is under consideration given that India itself is still implementing the GST.
The private sector also requested the exemption of GST on export of services to Bhutan with payment to be made in rupees instead of convertible currency. The matter has been put up to the Indian government and is under consideration.
Similarly request has also been made to India for GST exemption on transport services for goods imported to Bhutan as there is no continuous railway line into Bhutan.
The MoF said that the private sector’s proposal for refund of sales tax and custom duty on import of secondary raw materials is covered in the fiscal incentives.
The MoF is also reviewing the BCCI proposal to increase the revenue base for the government by introducing service tax for consultancy and transport services and sales tax on consumables and FMCG products like processed foods, toiletries, soft drinks etc.
Lyonchhen directed the Ministry of Finance and the Ministry of Economic Affairs to ensure that GST benefits are passed on to consumers and that there are no diversions in the border areas.
The PM also said that the private sector can keep approaching the government for any issues.
One issue that was highlighted during the meet was that several Indian custom checkpoints are not yet aware of GST being exempt for Bhutan and so they are levying GST for exports to Bhutan.
Here the MoF said that there is confusion within India on GST as it was at an implementation stage and so custom checkpoints are playing it safe.
The MoF said that based on the third meeting with the Indian government in July another notification had been sent to all custom check points on the Indian and Bhutanese border.
Another issue that emerged was on the impact of GST on the Ice Beverages Bhutan based in Samtse that employs around 100 people. This is because the GST is among the highest in this bracket. The PM asked the company to meet and put up a relevant proposal.