On
1st July, 2017 India heralded into a new era of taxation when it subsumed
multiple indirect taxes in to a single Goods & Services Tax. In a major
sweeping reform, it eliminated the cascading effects of taxes to reduce tax
burden on consumers. Bhutanese economy being closely entwined with India also
witnessed effects of these changes in new tax structures as 80% of its imports
are from India. The total trade between India & Bhutan was valued at USD
817 mn in 2016-17. India’s exports to Bhutan totaled USD 509 mn while imports
came in at USD 308 mn. Prior to implementation of GST, a lot of apprehension
was expressed in Bhutan about possible fallouts & adverse impacts on the
Bhutanese economy. Bhutanese traders & economists alike predicted loss of
revenue to the government due to implementation of IGST on exports to India.

 

Some
of the apprehensions of Bhutanese people were:-

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Exports
to India are now subjected to IGST paid at Jaigaon customs by the Indian
importer. So exports to India have now become costlier. Items like cement &
steel with tax slabs of 28% & 18% has become dearer with increase of 13.5
& 13% respectively.

The
Royal Government of Bhutan will have to forego revenue of Nu 14 bn, Nu 12 bn as
excise duty fund and sales tax & green tax of around Nu 2 bn post GST. With
exports becoming costlier & imports becoming cheaper, trade deficit with India
is expected to grow. With the introduction of GST, new system of billing had to
be introduced. Political narrative in India pointed out several flaws in GST
due to various vested interests adding to the apprehension in Bhutan.

 

Apart
from these apprehensions, there were also initial problems faced at the Jaigaon
Custom Post regarding the implementation of GST. Traders in India were finding
it hard to switch to new system of billing initially. This also resulted in
initial shortage of stocks. Both exports and imports got affected due to stock
shortage. Reluctance of traders to register in the new tax regime for the
purpose of tax evasion also contributed to the problems. Human resource was ill
trained at these check post to deal with these changes resulting in slower
clearances of items, resulting in time lag.

 

But
all these were initial apprehensions only, as is to any change around us. More
than six months have passed since the implementation of GST and the journey so
far has been filled with ups and downs. Since the implementation of GST, it has
received a lot of criticism owing to possible negative outcomes it will have on
Bhutanese Economy. These criticisms were partially due to the initial hiccups
faced due to transition to a totally new model of taxation in India and mostly
due to the political narrative in India, wherein political parties wanted to
cash on the anger of Indian citizens for political gains. The same narrative
was adopted by Bhutanese traders and economists to criticise the Indian govt and
to force a concession on Imports by India. 
It was also a pro active measure to urge RGoB to adopt more business
friendly policies and negate any possible fallouts of GST implementation.

 

            However, as the recent economic
figures indicate that these initial apprehensions were ill founded and GST is
going to boast Bhutanese economy in longer run. 
Indian Government has been very pro – active in addressing the concerns
of Bhutanese traders and has taken prompt measures to facilitate smooth
transition and has also constantly reviewed its policies to facilitate trade
between both countries.  RGoB in
consultation with India organised workshops for the traders to educate them. Apprehensions
around filing returns also seem to have been resolved and traders are showing
more confidence in their own abilities to undergo the process. However, for small
traders, who have initial inhibitions in filing, can contact numerous tax firms
who are doing it in as low as Rs 499. E way bill is likely to be implemented
soon and the process is further going to increase the ease of doing business.

 

Some of
the evident benefits of GST are:-

Prices
of goods of Indian origin have fallen as a result of cheaper imports as imports
from India are taxed at zero percent. Prices of consumable goods are expected
to fall by around 5% on an average. Cost of raw materials has also fallen for
manufactures.

Consumers
will benefit if tax benefit is transferred by the sellers. However this aspect
is slow in implementation as benefit of tax reduction is not being transferred
by sellers. Essential goods like vegetables, rice, oil, salt has been pegged at
zero percent and there has been no impact on these goods. Tax burden at the
point of entry has reduced by around 5%. it will boost trading sector in
Bhutan. Electronic filing/ declarations and payments of taxes have been
formalized and this is already having a positive impact. Also as now the
traders have to deal with registered suppliers, tax leakage is also plugged in
Bhutan. Domestic sector of Bhutan will further develop as now it has to improve
itself to compete with cheaper imports from India.

 

             Bhutanese economy has already started reaping
benefits of the new system.  Prices of
essential commodities have fallen and the availability of items has also
increased. Registration of traders in India has also prompted fair trade
practices by Bhutanese traders which will plug the tax leakage.  It will also provide impetus to the trading
sector in Bhutan to org themselves to obtain maximum benefit out of economic
reforms taking place in India and trigger reforms in Bhutanese economy.  A realisation regarding the need to modernise
production tools and techniques has also been felt to compete with the cheap
imports from India.  This will have long
term benefits for the Bhutanese economy as it will not only qualitatively
improve the production of goods but also revive domestic market. Overall a
rationale appraisal of GST reveals that it is not just a mile stone for the
Indian economy, It is also going to be a game
changer for the Bhutanese economy as well

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