The Bhutanese Leading the way.
The revised Goods and Services Tax (GST) Amendment Bill is set to take effect from January 1, 2026, and introduces several significant changes to taxation, exemptions, penalties, and the appeals process. These changes were presented by Finance Minister Lyonpo Lekey Dorji during the National Assembly session on May 26.
The GST amendment also includes the repeal of several paragraphs (6, 8, 9, 12, and 13) from the Supplies of Goods and Services Tax Act of Bhutan 2020.
As a result, GST will now be applicable to precious metals such as gold, platinum and any other metal, as well as telecommunication and electronic services.
This means a 7% GST tax on your phone voucher, data and internet bills.
The 7% GST Tax on electronic services is meant to target international companies like Netflix, Amazon, Ali Baba, Facebook, TikTok, YouTube etc. that earn revenue from Bhutanese people.
If their income is at or above Nu 5 mn then they have an option of paying a 5% withholding tax rate or they have the option of filing taxes. The financial information will be sought from the financial institutions and the RMA through which money is transferred out.
The Department of Revenue and Customs will study the data and write to these international companies to pay their share of the tax.
Under Part IV Schedule C of the Act, the list of exemptions has been revised drastically. Originally it had 216 exempt items which were goods which have no taxes under the current regime like rice, oil, salt, seeds, livestock, medicines, fertilizers, books, sportswear shoes, agricultural machinery, mobile phones, LED lamps, transport vehicles, bicycles, spectacles, electric vehicles, medical devices, gym equipment, etc.
Now, only essential goods such as rice, seeds, oils, salt, fertilizers, agricultural, horticultural, and forestry machinery, and power tillers remain exempted with no tax, while all the other commodities under this exemption have been removed which means they will attract a 7% GST.
A notable mention here is smart phones which were earlier tax free but will now incur a 7% GST.
The GST taxes is expected to lead to some short term inflation and also some reduction in demand and this is why the government wants to amend the PIT, BIT and CIT to reduce them to allow people and companies to absorb the impact.
Under the GST system noncompliance will be dealt with more strictly.
In terms of penalties, the late payment penalty has been reduced from 24% to 15% per annum. However, for offences such as tax evasion, maintaining false records, destroying records with intent to evade tax, or making misleading statements, the penalty has been increased. Previously set at 50% of the evaded amount, offenders will now be liable to pay double the amount.
Currently, there are only around 600 companies and agencies that pay sales tax but under the GST there will be 3,500 companies who will collect GST and pay it to the government. Companies at or above Nu 5 million (mn) turnover will be automatically be registered under the GST as GST collection agents while companies with Nu 2.5 mn or plus turnover can also join.
In the six months of preparation period, there will be training provided for the 3,500 companies relevant staff on how to keep documents and file GST online. The system will be kept very simple and avoids documentation.
A GST business would be given an online account and password to file GST.
Another amendment replaces the Taxation Review Tribunal with a new review board for the hearing of appeals. This board will consist of no more than five members appointed for a term determined by the Ministry.
The revised GST Act will come into effect on January 1, 2026.
One of the major changes is the removal of Excise Tax from the GST framework by repealing Part II of the GST 2020 Act and Schedule VI, which covered Excise Equalization Tax (EET) rates on 157 goods originally intended to address potential revenue losses from the introduction of a uniform 7% GST rate as well as items considered harmful to health, the environment, and public welfare. A separate Excise Tax Bill has been introduced.
The GST tax, after much delay, was targeted for implementation by July 2021 after the Act was initially passed in 2020 but the online BITS system was not ready and an extension was given till July 2022 which also could not be met due to technical issues.
GST will replace Sales Tax and Excise Duty and it will have a 7% single tax for all goods and services, generally making goods cheaper and services a little more expensive. It will avoid double and triple taxation as the taxes charged in the earlier part of production or import will not be passed down.
GST will be a consumption tax with the idea that those who consume goods and services are responsible for paying the associated taxes. GST with its system where people can claim input credit to lessen their tax burden aims to broaden the tax base and also make it simpler.
The whole idea behind GST is that you can collect more indirect taxes from more people by reducing tax, simplifying it, giving an incentive for them to keep proper records and declare the right numbers and then having a robust online system to track the defaulters. GST will also ensure that other taxes like BIT and CIT are also not underdeclared.
