Ever since the introduction of the Goods and Services Tax (GST) in India, Bhutan’s main trading hub of Phuentsholing and neighboring Jaigaon has been in turmoil, especially with an understaffed and inadequately prepared Jaigaon Land Custom Station.
This in fact led to more than 300 trucks being held up at the station taking weeks to clear consignments and effectively bringing trade between India and Bhutan to a halt. Though additional computers, and additional inspectors and an upgraded internet connection have been deputed there after hectic meetings between the Indian and Bhutanese side, a new problem now seems to be emerging.
An 8th September letter from the Association of Bhutanese Industries (ABI) to the Prime Minister and the Department of Trade said that the Jaigaon Custom has informed them it will be unable to upload the manually filed July GST bills on time to the online GST system.
This, the ABI explained, would mean that the Indian traders who supplied goods to Bhutan would not be able to get their GST refund in India.
The ABI in its letter says that this would not only spoil the business relationship between the two sides but the Indian traders in the future would either not supply Bhutan with goods or will do so only after charging the Integrated Goods and Services Tax (IGST) making goods more expensive.
The problem all started back in July when GST was first implemented and the entirely unprepared Jaigaon Custom office was unable to do timely custom clearing with the result of trucks having to line up for miles taking three to four weeks to clear them.
The ABI said that as a result almost all trade had come to a halt. The privates sector raised the issue and so the Department of Revenue and Customs in Bhutan raised the issue with the Jaigaon custom office.
So an interim measure was that until the infrastructure at the customs office in Jaigaon was improved the goods were to be cleared manually and later this manual data was supposed to be uploaded into the online Electronic Data Interchange (EDI) system designed for filing GST claims.
Though claims are supposed to be filed within one month but based on Bhutan’s request Jaigaon got an additional month till 10th September.
However, even after two and a half months the Jaigaon customs office did not put in the required number of staff and computers and so as a result the GST claims are still not uploaded on the EDI system without which it is not valid.
The ABI described this now as a more severe problem.
The ABI as a result has put forward three requests to the government to solve the above problems.
The first point is that ANI has asked for another’s month’s extension to enable the Jaigaon Custom office to punch in the data in the EDI system. This extension would be until October.
The second request is if the government can request the Indian side for more additional manpower to be sent to Jaigaon as soon as possible to expedite the process of entering the manual bills into the EDI system.
The final request is an on an urgent need to improve the inadequate infrastructure and human resource at the Jaigaon customs office.
ABI General Secretary, Jochu Thinley, in an interview with the paper said that apart from the above issues the existing staff at the customs office was not working overtime nor on weekends and government holidays.
He said that trucks though not as bad as before were still lined up in long lines delaying trade.
The Regional Trade and Industries Director, Pem Bida said that she made three visits to the Jaigaon customs office and with each visit they have been adding manpower and computers. She said that they now have four superintendents and four inspectors and are upgrading their internet facilities.
“The in charge there Mr S.K Sinha informed us that he gives high priority to India- Bhutan ties and so is giving priority to the matter,” said Pem.
She said from the earlier longer lines the trucks lined up now would number between 50 to 100 and some say 2 to 3 day have been cut from the waiting time while others say it is up to 8 days.
Pem said that the tricky part is that officially the Phuentsholing customs has no say and cannot communicate directly with their Jaigaon counterparts but things are being done informally.
She said that she is yet to receive the ABI’s latest letter. The letter still seems to be in Thimphu as it concerns policy matters and any requests to the Indian side would go from Thimphu.
GST ever since its implementation in India from 1st July has unleashed huge implementation problems with government agencies in India trying to grapple with a host of issues apart from issues with the EDI system itself. India’s GDP rate itself has been pushed down due to GST implementation issues.
Jochu said that since GST came in, the industries and business community had essentially raised three issues with the government.
The first was that Bhutanese exports to India not be made to pay GST upfront but instead be paid at the source of consumption. This is because the GST tax had to be paid by Indian importers making Bhutanese products more expensive. The Ministry of Finance has put up a request to the Indian government which has asked for a few months time to consider the request as it is itself in the process of implementing GST and seeing its effects.
He said that the second request was the ‘rationalization of taxes,’ as corporate and business taxes in India was based on slabs and not like the direct 30 percent charged in Bhutan. He this is given the impact of GST on industries.
ABI has hired a consultant to come up with recommendations for rationalization of taxes from the business community for the government.
Jochu conceded that both the above issues would either take time or were not completely in the power of the government.
However, he said that their third point has been on improving the Jaigaon Customs station office and this is currently the most urgent need which the government needs to work on.
In a candid and honest admission Jochu said that while GST has impacted Bhutanese industries it does not mean that any of them except for Big Cola a soft drink company would shut down due to it.
Jochu said that balancing factor has been that Bhutanese industries imports have become cheaper since they no longer need to pay excise duty though their exports are currently levied with GST upfront.
Jochu said the main impact of GST Bhutanese industries will be reduced profit margin rates which in turn would also affect government revenue on the Corporate and Business Income Tax collection rate. The government is already scheduled to lose Nu 14 bn in the 12th plan due to the absence of refundable excise duty from India on imports made by Bhutan.
He, however, said that while this was the picture on the whole there would also be sector specific problems like for cement, food product exporters etc which also need to be looked at.