The Bhutanese Leading the way.
The Finance Minister Namgay Tshering today introduced the Tax Bill 2022 which increased the indirect Customs Duty (CD) for third country imports, Sales Tax (ST) and Green Tax (GT) on an array of items.
Lyonpo said the taxes are being introduced as the country’s economy is not in a good state.
He said from 2020 onwards the pandemic impacted the economy and then the Ukraine war impacted the economy even more.
Add to that he said the INR value dropped compared to the dollar increasing the cost of imports.
Lyonpo said that taxes on import of essential eatable items like grains, milk products, oil have been reduced. He said that these products are consumed by all the people.
He said that taxes have also been increased on goods available in the country to help local industries.
Lyonpo said that the taxes are not to raise more revenue but to deal with macro-economic imbalances in the long run.
He said looking at the country’s economy the biggest problem is the increase in imports at a time when the inflation rate of all goods are going up and has increased by 7% overall.
As per international experts, inflation will go up for a while.
“When we import things then we have to spend our limited convertible currency but there is limited sources of convertible currency and our imports are only increasing,” said Lyonpo.
He said from here on to address the country’s macro economic imbalances and also reduce imports the only tool that can be used is taxes.
The taxes, Lyonpo said, will also help our own indigenous industries.
There are 417 items under the Bhutan Trade Classification (BTC) where sales tax has been changed for around 235 items, customs duty for 165 items and green tax has been changed for 53 items.
Lyonpo said the basis and aim for tax changes is firstly to reduce the imports and save the reserves for the time being, secondly the aim is to help the medium and cottage industries as the 2.5 bn loan given to them is not enough but instead the taxes will make the imported goods in this category more expensive, helping the local industries.
The third basis is to tax junk foods like noodles, pasta, sugar biscuits, ice-cream etc or unhealthy items like tobacco. This is to address the growing cases of non communicable diseases like diabetes etc.
Tax increases
A look at the annexures shows a 20% increase sales tax on imported poultry and pork meat both processed, frozen and raw.
In the case of sea food, sausages, hams etc the sales tax goes up by 10%.
Betel leaves will now attract a 10% sales tax which was not there before.
The 10% custom duty on various beans, peas and lentils have been done away with.
The 10% custom duty on rice, brown rice, maize, corn, other cereals, wheat, oat etc have been done away with.
The 10% customs duty on various cooking oils from olive to other vegetable oil is removed.
For junk food items like pasta, sweet biscuits, pastries and cakes, rusks, juices exceeding 250 ml others are seeing a 10% sales tax increase.
Sales tax on imported ice-cream increased by 15%.
Chips of all kinds will have a 30% sales tax and 10% customs duty. Sales tax of imported mineral water goes up by 20%.
Tobacco products which did not have sales tax will now have a 100% sales tax in addition to 10% customs duty.
Sales Taxes on imported cement increased by 10% and plastics in general will also see a 10% increase in sales tax.
In the meantime, the green tax, sales tax and even customs for various vehicles from bikes to trucks and their parts have increased.
For example, a bike up to 800 CC will have to pay additional 10% more sales tax, 10% more customs duty and 10% new green tax.
For bikes exceeding 800 cc it will have to pay additional 20% more sales tax, 20% more customs duty and 10% new green tax.
For bikes under 1,500 cc there is also a 2.5% increase in green tax.
There is no increase for vehicles till 1,200 cc.
Vehicles between 1,500 cc plus to 1,799 cc have to pay 10% more for sales tax and 5% for green tax.
Vehicles between 1,799 cc plus to 2,500 cc have to pay 5% more custom duty, 15% more for sales tax and 10% for green tax.
Vehicles between 2,500 cc plus to 3,000 cc have to pay 5% more custom duty, 15% more for sales tax and 5% for green tax.
Dumpers which only had a 10% green tax before will now attract 20% custom duty and 5% sales tax.
For imported furniture of all types like wood or plastic there is a 10% sales tax increase.
Inflation concerns and PM replies
The Bartsham-Shongphu MP Passang Dorji said taxes are being increased on eatable products, vehicles and furniture.
He said since the country is import dependent the taxes may make goods expensive.
“We have to look at agricultural development if higher taxes on eatables are not to impact prices, then similarly look at public transport while increasing vehicle taxes and also if imported furniture is to be taxed then are the furniture available at a reasonable rate in the country since the NRDCL has many issues supplying wood. I support the taxes but please look at these issues,” said the MP.
The Opposition Leader Dorji Wangdi said one issue is that while import and export laws in neighbouring countries change, Bhutan has not been able to keep up.
He said secondly while talking to people in the industries in the south it is more important that they are competitive and for this it is important that supply of raw materials like dolomite are given enough and at reasonable costs.
The third point he made was that in 2020 when discussing the tax bill, they reduced the customs duty and sales tax, but today are increasing it again.
The Prime Minister Dasho (Dr) Lotay Tshering said he supports the views of the Opposition Leader in terms of making export industries competitive.
He said that Dolomite and Ferro silicone from Bhutan is not useable by the local steel industries. He also said that the main raw material of pig iron is not available in Bhutan.
Lyonchhen said that local coal is not desired by local industries as it has high ash content and so quality low ash coal has to be imported.
India had been requested for 300,000 tonnes but could only give 130,000 tonnes.
The Bill says it desires to address the inflationary pressure on the essential food items and to ensure adequate food supply and nutrition security.
It discerns consumerism of harmful products to curtail damage to health, economy and environment and considers the importance to support the development of priority local industries.
Clarification: An earlier version of this story mistook high capacity bikes as small cars due to the same cc and complex nature of the BTC code. This has been rectified.
