Auto dealers, meanwhile, are expecting a price drop
Even as the GST regime in India has already affected many sectors of the Bhutanese economy, the government is yet to thoroughly understand the system before making any move.
Some industrialists and traders have received notifications from Indian counterparts that prices of goods would increase after the application of GST.
The Bhutanese side has requested the government of India to issue a clarification on export of goods from India because GST on Indian exports are not only zero rated, but also the excise duty component, which was imposed in the earlier tax regime, will be done away with. Thus, the prices of goods imported from India should drop.
For instance, car dealers expect a price drop by 14 percent, which is the excise duty imposed earlier. Domestic taxes like BST, customs duty and green taxes will continue as usual.
Should the principal company in India pass the GST to Bhutanese car dealers, a GST of 28 percent would be imposed. This means that if exports were not zero rated, cost of vehicles below 1500 CC engine capacity would increase by 14 percent.
However, most car dealers in the country are yet to clarify the issue with their principal company in India. Orders placed after July are being withheld.
Bhutan Hyundai Motors has got an indication that prices would drop. But the General Manager said that it has old stocks to clear. “It would not make sense to impose two different pricing for the same car,” he said, adding that a weighted average pricing would be worked out. “So, the price drop would not be to that extent until the old stock is cleared.”
Other car dealers shared similar views.
As for Dhejung Honda, the dealer is yet to receive notification from the Indian counterparts. But it is perceived that all exports from India are zero rated in terms of tax.
An official from Zimdra Automobile said nothing is concrete yet and that the company is communicating with the principal company regularly. “Every other inquiry we receive is on the GST,” the official said, adding that the company is hoping for a price drop.
Like car dealers, some industrialists are concerned that Indian exporters may pass the GST to them. An industrialist, who does not want to be named, said his supplier from India has already imposed GST on purchase of raw materials.
“We are discussing this and it would be clear if both the governments of Bhutan and India issue a clarification,” he said.
Naman Sidarth, an Indian consultant hired by the Association of Bhutanese Industries, said the prices of goods coming from India should drop. He said that the confusion must be surfacing because there are three ways to avail the zero GST for export out of India.
One way is to pay the GST at source and Indian suppliers can later claim the refund. The other way is to produce a bank guarantee and the third way is to execute a bond justifying that goods supplied are meant for export.
Earlier, goods coming into the country from India were slapped with excise duty, which was refundable. However, the traders and dealers are not getting the benefit because the government claims the refund and the benefit is not passed down to the consumers. The excise duty refund claims form around 10 percent of the government revenue.
For example, the government of India on June 27 released an Excise Duty Refund (EDR) claim for the year 2015 amounting to Nu 2.9B. Out of the total released amount, Nu. 2.2B pertains to the imports made from the factory, and Nu 707 M for the imports made from open market.
While it is the traders and importers who have paid for the goods and the excise duty, the government claims the refund. Now with the GST, excise duty is done away with and GST is zero-rated. Thus, what the rate of excise duty comes as a benefit for importers and traders and in the end to the consumers. This is why the goods coming from India should get cheaper, including the raw materials used by the industries.
However, the tax reform in India has made their local industries competitive and industrialists in Bhutan are worried that their competitive edge is lost.
With regard to the import of services from India, which includes consultancy and accounting, the Indian government has decided to levy 18 percent GST.
Officials who were part of Bhutanese delegation to India said that Bhutanese side has requested the Indian government to exempt this tax for Bhutan, which was agreed in principle. A circular from Indian government is due with regard to import of services from India.
Finance Minister Namgay Dorji said that a second delegation of 20 officials, from finance ministry, private sector and various associations of the business representatives, are in New Delhi.
The first delegation is back in country and has made a presentation to the Cabinet. The delegation has made some proposals to the Indian government, including GST exemption at source. Although the Indian government has agreed in principle to grant GST exemption at source, finance minister said that a concrete measure to minimise the impact is still being worked out.
Prime Minister Tshering Tobgay said the government must understand the Indian GST system thoroughly before making any move.
“We must be very careful rather than rushing through the process and adopt what is best suited for us,” the Prime Minister said.