GST to be introduced from 1st July 2025

The Goods and Services Tax (GST) system will be implemented from 1st July 2025 according to the Ministry of Finance.

The GST Act was passed in 2020 but the online BITS system was not ready and so it got another extension in 2022 with an Amendment with enforcement to happen only once the Parliament grants approval.

The GST Amendment Bill of Bhutan 2024 is coming up in the upcoming winter session of Parliament to make certain changes and lay the legal groundwork for the implementation from 1st July 2025 onwards.

The original Act had a single GST tax rate of 7% for all goods and services by subsuming the current sales tax. GST will allow to reform both direct and indirect taxes that people often find burdensome. As a consumption tax, GST will ensure that those who consume goods and services are responsible for paying the associated taxes. It will also avoid double and triple taxation.

It will reduce the tax burden, and at the same time lead to higher tax collection by making it more broad-based, as it will give incentives to those who register. Past estimates said Nu 3 billion (bn) more can be collected every year using GST. 

A source said the system development is already progressing after the Department of Revenue and Customs (DRC) announced the signing of a contract with Data Torque Limited (DLT) for New Zealand for the development of the Bhutan Integrated Taxation System (BITS) in August.

Earlier attempts to develop the BITS in the country through the Thimphu Tech Park Limited (TTPL) was not successful, and TTPL and its foreign Armenian partner were eventually terminated. Systems were not delivered on time and Bhutan had overestimated its capacity to develop such a complex system in the country. COVID also played spoilsport.

The New Zealand company is globally reputed and has a good track record in developing such systems.

Bhutan will adopt the online GST system of New Zealand with some changes relevant to Bhutan.

With the introduction of GST, which requires monthly returns, the government will benefit from a steady cash flow. This reliable revenue stream will enable the government to better support its initiatives in areas, such as health, education, and infrastructure with less reliance on T-Bills.

The overall project of Nu 1 bn will be executed in three phases: For the first release, the DRC will implement GST within 12 months from August 2024,  the second release is for non-tax and TDS in 6 months, and lastly, the replacement of RAMIS for the Direct Tax in 12 months.

BITS system will feature real-time data processing, automated tax filing, e-invoicing, and a user-friendly interface.

BITS will have all the taxes under one system, which will make it easier for the tax payers to avail services from DRC.

Apart from GST, this winter session will also see the Cattle Tax Exemption Bill which will basically remove the cattle tax being collected in rural areas by Gewogs.

The amount is very minimal but it is a burden to collect. The hope also is that it will encourage the livestock sector.