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Cushioning the GST impact

Starting November 11, petrol and diesel became cheaper in the country.

The government announced that with India including petrol and diesel under the Goods and Services Tax (GST) regime, the government has decided to not take any fiscal measures to make up for the revenue loss the country would incur through excise duty refund.

Instead, the government said that it is passing on the benefits of reduced fuel price to the people. They called it a gift from His Majesty.

The announcement has received mixed reactions. It has been appreciated given the likely reduction in transportation costs, which would bring down the cost of goods and services in the country.

It is also critiqued as a political stunt​,​especially with the elections nearing and more so for announcing the gift in commemorating the birth anniversary of The Fourth Druk Gyalpo.

Both reactions are expected and could be true to an extent. A reduction in fuel price would have rippling effect on the cost of goods and services. The geography determines our transportation costs and the further one lives from the border, the higher the costs of products. What we need to see is if the reduced fuel price would translate into reduced costs.

With elections nearing, the government is unlikely to resort to taking fiscal measures. The people have become voters and the country is still not done discussing the recent fiscal incentives conundrum. This decision to pass on the benefit of reduced fuel price could also be construed as an incentive had the government not claimed it as a gift.

But what we don’t see happening in this GST saga in Bhutan is the discourse. As the country was compelled to adjust to the changes happening in India, we had appeals being made to the government to cushion the impact of GST on the industries. We had officials fielded to India to understand the nuances of GST. We have seen exemptions made for Bhutan.

Even as these measures are taken, we are already seeing the impact of GST on the economy. According to reports, the government has for the time being, decided not to levy higher taxes on imports from India but to use credit policy to restrain import demand, especially for automobiles. How the reduction in fuel price would impact this policy to control vehicle import is yet to be seen.

The government also once championed the use of electric vehicles in the country. Today, it is bearing the loss of revenue by giving people fossil fuel at a reduced price. While there are benefits to this recent decision, there is a need for an in-depth study to understand the long-term impacts. Alcohol is also one of those products that’s exempted along with petroleum products from GST.

How will Bhutan react should this be also included in the GST regime? How long would it be before we follow India and revamp our taxation system lock, stock and barrel?

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