The private sector, through the Bhutan Chamber of Commerce and Industry has submitted six concerns to the government on the Goods and Services Tax (GST) that India implemented last month.
Business entities involved in the manufacturing industries has requested the government to request the Indian counterpart to exempt integrated goods and services tax (IGST) at source.
During the consultative meeting held August 11, Prime Minister Tshering Tobgay said that GST is a tax reform brought in India and IGST has become an Act in India. He said the government couldn’t ask the Indian government to change their law to suit Bhutanese needs.
“GST is a consumption tax charged on both Indian and imported goods,” the director of revenue and customs department, Yonten Namgyel said.
GST is expected to impact industries exporting goods like cement and steel to India. For instance, Bhutanese goods earlier were not levied any duty except for value added tax (VAT) at the point of sale. For Indian retailers, it was cheaper to import goods from Bhutan because there were 17 different state and central level taxes if bought from other states in India.
Now with GST, all these state and central level taxes are subsumed and import coming into India, including from Bhutan are treated same as locally procured goods.
For example, Bhutanese cement entered India freely and a VAT of 14.5 percent was levied at the point of sale. With GST, the Indian buyers of Bhutanese cement will have to pay a GST of 28 percent.
However, from another perspective, GST on raw materials bought from India is zero-rated and Bhutanese manufacturers have the advantage of electricity price.
During the consultative meeting between the private sector and the government, a representative from private sector said that cement industries could keep their production cost low if the factories are given a captive mine, meaning the right to own their own mines specifically to mine the raw materials like coal and limestone.
Another option, according to the private sectors’ submission is to shift the levy of IGST from point of import to point of sale, as in the case of VAT in the earlier regime.
On this, Yonten Namgyel said the request has been made to the Indian government.
The private sector has also asked the government to request their counterparts in India to exempt GST on export of services, which includes consultancy services from India. The GST law stated that, should payment for export of services be in convertible currency then GST would be exempted. The director said a request on this has been made on two separate meetings based on the bilateral trade agreement and a notification issued in 2013 exempting tax on procurement of services.
Another request from the Bhutanese side is GST exemption on transportation service of goods to Bhutan. A request has also been made to the Indian government on this issue.
As for what could Bhutan do to minimise the impact of GST on the economy, the private sector has suggested a refund of Bhutan sales tax and customs duty on import of secondary raw materials. However, the director said that exemption of raw materials is adequately covered in the Fiscal Incentive Act, 2017.
The ministry of finance is also reviewing the proposal to introduce service tax on consultancy and transport services and sales tax on consumable and fast moving goods.
The first consultative meeting between the team from the ministry of finance and commissioner and GST experts in India was held on June 27.
During the meeting, it was confirmed that export of goods from India to Bhutan are zero-rated. Indian exporters in this case have the option to pay GST and later claim refund or execute a bond to not be charged the GST.
The second consultative meeting with the GoI was held on July 11, where members from the finance ministry, economic affairs ministry and private sector attended in New Delhi.
A request was made to notify all the Indian customs entities that export to Bhutan are Zero-rated.
The third consultative meeting with GOI was held on July 12 during which the GoI agreed to circulate an advisory note to land customs stations in India.
The government is currently maintaining the price stability and revenue neutrality owing to the GST impact. For instance, a notification has been issued for shifting sales tax collection on selected items like vehicles
The government is also studying the recommendation submitted by BCCI for introduction of new taxes and rationalisation of the existing sales tax on consumable goods and fast moving goods.
However, Lyonchhen said that altering taxes would require Parliament’s endorsement, which is not likely in the winter session. A feasibility study is also underway to introduce GST in Bhutan.
Meanwhile, awareness and sensitisation workshop, the director said will be conducted in the bordering towns for enforcement agencies and private sector.
He said that the Regional Directors of RRCO, Trade and Industry Office (RTIO) would serve as contact point for any trade related issues.