The Bhutanese Leading the way.
So far, the overwhelming focus of the Goods and Services Tax (GST) Bill has been on goods, in terms of the impact of GST on various goods like vehicles or locally manufactured goods, like cookies, steel, cement, etc.
GST will replace the Bhutan Sales Tax (BST) that we currently pay directly or indirectly on everything from cars to chips.
However, what many don’t know is that many services based or professional companies with a turnover of Nu 5 million (mn) or more per year will have to collect and pay a GST of 5% for the first time.
Currently, when it comes to services, only tourist rated hotels and restaurants collect and pay the 10% Bhutan Sales Tax (BST) for services. You may have noticed this on your bill when eating at such a restaurant.
Under GST, except for some excluded services like basic health, education (tuition) and financial services, basically almost all other services will come under its ambit.
This means that you have may have been running your company paying only PIT and BIT or CIT till date, but you have to charge an additional 5% to your clients for your services and then pass it on to the Department of Revenue and Customs (DRC) on a monthly basis.
For example, if you were charging a customer Nu 100 for a service then you have to now charge Nu 105 and pass on the Nu 5 GST to the DRC.
A Ministry of Finance official said that services listed under section 337 (9) of the GST Act and even other services not listed there will attract a 5% GST as long as you are in the Nu 5 mn annual turnover.
The services that come under GST are tourism, telecommunication services, repair and maintenance services, rental and hiring services, construction services, transport services, utility services, entertainment and recreational services, lottery supply, insurance, printing and publication, postal and courier services, engineering services, management services, sales and marketing services, electronic services.
It also includes professional services like accountancy services, IT professionals, architects, trainers, legal services, dance, art and crafts, interior design, human resource, consultancy, etc.
GST for services also covers a provision of information or advice, like for example a tax agent providing tax advisory, etc. Another is the grant, assignment, termination, or surrender of a right (for example if the Thimphu Thromde authorizes someone to operate a food truck service).
It also covers the making available of a facility, opportunity, or advantage (for example, if someone is providing facilities like conference hall services).
An entry into an agreement to refrain from or permit an activity, a situation, or the doing of an act (for example, if the city office authorises someone to provide services during off hours, etc.)
An issue, transfer, or surrender of a license, permit, certificate, concession, authorisation, or similar right (For example, if the Forest Department authorises someone to issue fishing or hunting services etc.)
The services will also be listed in detail when the rules and manuals for GST are done.
GST in that sense will have an inflationary effect for services and will bring some degree of additional administrative burden for service oriented companies to collect and immediately pass on the GST to DRC.
Another example closer to home is if a newspaper is charging Nu 10,000 for an advertisement, they will now have to add 5% or Nu 500 as GST, and pass it on to the DRC. This was not a practice earlier as newspapers, like many categories of service based industries above, did not pay BST but it has to pay GST.
A clue to the scale of this is that currently only 600 companies or agencies pay BST and these are mainly around goods like car dealers, hardware importers, etc.
Under GST, there will be 3,500 agencies and companies collecting and paying GST and a large number of them will be services.
One advantage is that service based business, like in the case of goods, can get Input Tax Credit. For example, if a service based company pays GST on internet, electricity, legal services, equipment then the GST paid on these becomes the Input Tax Credit which can be claimed.
One example, is if the company buys a Nu 1 mn vehicle for his or her business which has 5% GST at Nu 50,000. He or she can offset this by showing that the 5% GST has already been paid by the vehicle importer saving him Nu 50,000. A business not registered under GST would not get such benefits.
