The Bhutanese Leading the way.
There can be no doubt about the sincerity and good intentions of the two Governments, the Ministry of Finance, Department of Revenue and Customs and the GST project team in introducing the GST.
These are patriotic and dutiful Bhutanese public servants working very hard to make GST a success so that we have a more transparent consumption based tax, higher revenue and improved tax system all around. They have nothing to gain personally.
However, there has been a mainly negative reaction to the tax and a lot of it has to do with timing and economic ground realities.
Why even the best designed and well intentioned reforms fail in Bhutan is because it does not take the local realities into account and the same goes with GST.
GST would work well in an economy with a large number of tax payers with many being in the higher and medium bracket. These businesses would have both the capacity to pay and GST would not be much of a compliance burden on them given their professional set up with accountants etc.
In the case of Bhutan there are very few large and medium businesses which will be comfortable with the tax burden and compliance burden of GST. The majority of businesses are small and micro.
Even the Nu 5 mn and above turnover registration mark is an artificial construct. Many of these businesses do not have accountants and so the compliance cost is already high with some paying accountants Nu 10,000 a month to file for 12 months coming to Nu 120,000 a year.
There are severe fines for missing filings. Already stressed businesses have to spend additional time and energy preparing for GST.
GST has also come at a time when the Bhutanese economy is just recovering and so the payment capacity is not great, as the lower than expected collection is already showing. It does not help that a chunk of the customers and productive workers are heading abroad.
For consumers, GST has come as an additional new tax and contributed in inflation in certain categories of essential products.
The service sector which employs the most Bhutanese and was struggling is already groaning under the weight of GST.
Many businesses foresee a reduction in business due to GST. It is high time that the government listen to the people and respond accordingly.
“The hardest thing in the world to understand is the income tax.” – Albert Einstein
