The Bhutanese Leading the way.
On the day that the Tax Bill was introduced in Parliament on 8 November, 2022 the Finance Ministry issued a notification signed by Lyonpo Namgay Tshering saying that the revised Customs Duty, Sales Tax and Green Tax rate will be applicable on imports made on or after 8 November.
The notification also asked all heavy vehicle dealers and two wheeler dealers to collect the revised taxes at the point of sale.
This is because as per the Public Finance Act, a money bill becomes effective the day it is tabled in the Parliament.
So, accordingly, at the Phuentsholing border the taxes were increased or decreased in the customs system on the morning of 8 November.
A source said that one trader even paid Nu 13.2 million (mn) as tax.
If at all, the taxes on items drop after the final deliberation in parliament, Customs are supposed to refund the excess tax and if it remains status quo, there are no further issues.
However, through an other order issued by the Finance Minister on 10 November the above order was withdrawn and Customs was asked to to keep the existing rate in the system until it is passed by the Parliament.
The notification said the Ministry of Finance would like to notify that, since the proposed Tax Bill of Bhutan 2022 is still under deliberation in the Parliament, individuals and importers shall continue to pay the Sales Tax, Customs Duty and Green Tax at the existing rate (old rate) both at Point of Entry and Point of Sale.
However, in exercise of the power conferred under Section 46(B) of the Public Finance Act (Amendment) of Bhutan 2012, the revised tax rates shall be applied retroactively from 8th November, 2022 once the Bill is passed by the Parliament.
The MoF reminded all the importers to refrain from unnecessary price speculations and hoarding of goods. The Ministry said it would like to remind the general public that individuals or importers attempting to hoard or deflect goods shall be dealt strictly as per the law.
However, this tax retraction led to pandemonium at the border and reports from Jaigaon indicate that traders in Jaigaon are preparing for huge consignments of tobacco and other products into Bhutan after hearing that taxes have been brought down again so that these goods can be sold at higher prices after the finalization of tax.
This is speculation and hoarding which the notification warned people against, but is now happening on a large scale.
“If it is just tobacco, it will be easier to collect later but there are so many items,” said a source.
The reason there is so much hoarding going on now is that Jaigaon traders and even importers in Bhutan know that it will be literally impossible for the DRC to collect retrospective tax from the importers given the large number of items and the volumes involved.
This is also a perfect time for those who have links to deflect large amounts of goods like tobacco and others to earn a handsome profit later.
This will mean that the government will be losing millions in tax.
Another problem is that since traders are not aware of the final tax rate just now, they don’t know at what rate to sell including the tax component.
“If they sell by adding 50 percent tax right now, and later if tax rate remains 100, they will have to bear additional 50 percent which is difficult since they only collected 50 percent from customers. If they sell including 100 percent tax rate and if the rate drops to 50 percent, they will only need to pay 50 percent tax to government thereby benefiting by 50 percent extra on top of the profit margin,” said the source.
Critics are saying this whole chaotic scenario is created due to lack of proper planning by the government.
Sources said that Customs in Phuentsholing are not even informing the traders that tax will be collected later and this raises the question of how will traders pay later when the tax rate is applied retrospectively.
The end result is that there will be imports in huge quantities and hoarding to later sell the products after the final tax rate at huge profits.
The paper talked to a Department of Revenue and Customs (DRC) official who admitted that practically it will be difficult for the customs to both collect retrospective tax later and also also give refunds for the tax reduced items.
The customs officer said for those who want refunds later on tax reduced items they should keep receipts to show they passed on the benefits to customers, but he admitted this would be difficult.
The DRC official said that it will now be an uphill task to collect both retroactive taxes for items whose rates are going up and also issue refunds later for those who tax rates are coming down.
If the Finance Ministry or the Parliament for that matter does not move fast, then each day would mean huge hoarding and deflection of goods that will result in millions worth of revenue loss on a daily basis, especially on products like tobacco among others.
