GST proposed to be implemented from1st July 2022 under new amendment

Goods and Services Tax (GST) Act that was passed in the Third Session of the Parliament in 2020, meant to be implemented by July 2021 will now be deferred. Finance Minister, Namgay Tshering, proposedto defer the implementation of GSTfor another one year, and the deliberation is to be tabled in the coming week of the Parliament session.The reason for proposing deferral was because when the GST Act was passed during a pre-COVID-19 era in January 2020.

Lyonpo said thatsince GST is an online procedure or auto machine system, it needs a very good system to capture every transaction of the taxes being paid.Therefore,a Bhutan Integrated Taxation (BIT) system is being developed.

There were plans to buy the BIT software system from the market, butsuch a readymade and expensive software isnot sustainable or suitable for Bhutanese standard. Therefore, the Prime Minister has directed the Ministry of Finance (MoF) to develop an indigenous system for Bhutan, and Thimphu Tech Park limited (TTP) is working on the software development.

The advantage of giving the system’s development assignment to TTP is to limit the outflow of money to the other country, secondly todevelop own capacity or IT experts so that in long run, the country will have a capacity to develop even complicated software’s and also because in future if other country need such software’s Bhutanese can go out and work abroad todevelop a human capital, added Lyonpo Namgay Tshering.

Building afirst of its kindGST system in Bhutan is said to be very complicated, and a costing Nu 600 million. Nu 350 million has been spent on the system.TTP has linked up with one of the leading IT companies inArmenia, well versed in building a similar system in their country. TTPhad expected to learn from the expertsfrom Armenia and at the same time develop the system. However, due to the COVID-19 pandemic, the experts from Armeniahave not been able to come to Bhutan.

“Since major portion of the package is knowledge transfer, experts from Armenia could have built the system and sent it, but we want them to be here working with TTP on the same desk so that our people will learn, and in long run, if there is any technical hiccups, we don’t have to depend on external expertise, since we will then have system architect within ourselves,” said Lyonpo.

Volatile economic situation in the country and economic recessionsin other countries due to COVID-19 have caused people to lose the confidence to invest.

“Is it a right time to introduce a new tax measures when the economy is inflated? Of course, it is not. Imposing additional tax liabilities on individual will create a panic in society, so it is not a right time to implement it during the peak of the crises when every country is trying to bring down the taxation.For that purpose, we had to defer it for another one year but within one year we are 100% sure that we will be able to introduce GST, and once it is introduced, it will be one key component or a strategy, namely medium-term revenue strategy for our country to have adequate resources, and also to have sustainable domestic resources to generate additional resource,” said Lyonpo.

As per the proposal to the Parliament,it is learnt that GST shall be rescheduled to implement on 1st July 2022. GST consists oftwo main components,firsly registration for the tax payers system, which is said is completed and a demo will be done to the government on 8thJune.

The second GST component is automatic payment and refund system, which will be initiated in the next six months, which is a very important in the BIT system.

Since the GST system is a new context,Lyonpo said that the need to sensitize the business community to further understand the value and benefits of GST is vital for the government, consumer and for the businessmen. People also need to be trained on how to operate the system, and do the billing during transaction of the goods.

The main motive behind introducing GST in Bhutan is to modernize the sales tax in the country. Currently conventional sales tax with many different tax slaps for every commodities is used, therefore, GST aims to replace it and standardize the GST rate.

The Parliament has passed the GST Act and the standard applicable GST rate is said to be 7%, whereas in the some countries the GST rate is said to be 10% and some even 12%.

The other motive to introduce GST is to broaden the tax base so that within the tax net there will be larger number of tax payers. It doesn’t mean that we are going to impose additional tax liabilities on the tax payers, said Lyonpo.

GST is said to be main tool to address the tax leakages, or in other words, help the government to seal the tax leakages once implemented.

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