GST: Bhutan concerned over impact on its industry; trade hits slow lane for want of clarity

Bhutan has raised with the Indian government serious concerns about the impact the implementation of the goods and services tax will have on its industry and economy, according to industry representatives and government officials of that country. The trade between two the countries has shifted to slow lane after India introduced its biggest tax on 1 July.

Bhutan’s worries arise from the fact that India is the key transit route for its goods and an important trading partner. The country’s economy has strong links with India.

Representational image. Reuters

Representational image. Reuters

Already, Thimphu has sent two finance ministry delegations to discuss the implications of and concerns about the GST. India has, however, said it needs three months’ time to look into the matter.

Bhutan has raised three immediate issues with regards, said an official with the Bhutan Chamber of Commerce and Industry, who attended the meeting between the Bhutanese delegation and the Indian government officials.

For one, GST has rendered the items Bhutan exports to India costlier and those that the country imports from India cheaper. Bhutan is worried that this may result in a spike in imports, depleting the country’s rupee reserves.

In case of exports and imports, the GST is levied at the entry points and not at the point of sales. Bhutan wants India to allow it to levy the tax at the point of sales. In fact, the country has stopped imports of vehicles from India for want of legal clarity on how GST can be imposed.

“We want to be careful in ensuring that it is legally possible to move sales tax from point of entry to point of sales,” Prime Minister of Bhutan Tshering Tobgay said in an interaction with local journalists on Friday.

The second issue Bhutan has raised is the GST on transportation. This has a negative impact on the industry there as the country has no rail connectivity and is entirely dependent on India for transit for both imports and exports. The delegation has sought revocation of this levy.

The third issue is the huge amount of paper work that is rendering the movement of consignments painful. The Bhutanese officials have requested a proper and efficient system to ease out the documentation processes.

Another issue that Bhutan is facing is the loss of revenue. According to an estimate, the country may lose up to Rs 140 crore a year as the GST regime puts an end to excise duty refunds. The loss may widen to Rs 290 crore once petroleum comes under the GST ambit.

As much as 90 percent of Bhutan’s imports come from India and these include cooking gas, fuel and kerosene which are at a subsidised rate.

“India has said it will look into the concerns without compromising on the law,” said the industry official. “Both the countries have decided to solve them through bilateral talks,” he added.

Industry troubled

The Bhutanese industry is worried as the companies see their profit margins falling with increased competition from Indian goods.

The companies in the country always have had an advantage due to excise duty exemption they enjoyed. With the GST kicking in, they will be forced to cut the prices, squeezing their margins.

A case in point here is ferro silicon exports. The commodity was tax free earlier but comes under 18 percent bracket under GST. The Bhutanese players will have to cut the price in order to compete in the Indian market. This will put pressure on their profit margins.

The exports to India have frozen with over about 100 trucks stuck along the border and companies are incurring losses on account of this.

The Association of Bhutanese Industries in the meantime has approached the Bhutanese government and are waiting for a resolution.

“The government will have to come with other alternatives to motivate industries,” said the vice president of the association, Chimi Dorji Norbu.

According to the official mentioned earlier, if India is not considerate to the concerns of the Bhutanese industry the government will have to follow in the footsteps of India and revamp its tax policies lock, stock and barrel.