FEATURE: GST has not benefited Bhutanese economy

PHUENTSHOLING, Bhutan (Kuensel/ANN) - More than three months since the Goods and Services Tax (GST) was introduced in India, the anticipated benefit on the Bhutanese economy has not yet ensued.

On September 29, the Central Board of Excise and Customs (CBEC), India, exempted supply of services related to transit cargo to Bhutan and Nepal. This means, Bhutanese businessmen importing from third countries would not have to pay the 18 percent service tax, which they are currently paying. It also adds cost advantages to the importers.

From delay in passing goods through the customs office across the border to not implementing the ‘exempt on third country transit cargo services’ announced recently, GST appears to have arrested trade, leaving little space for consumers to gain from.

Benefit to consumers

There is no benefit reported to consumers so far. Although import to Bhutan is GST free, prices of commodities have not decreased as was initially predicted.

A manager in one of the biggest departmental stores in Phuentsholing, Bhutan's commercial hub, said that a consumer recently created a ruckus when he was not satisfied with the price of a product the store had offered.

“We even had some people from Bumthang who asked for the benefit of a price decrease,” she said, adding that customers claimed that prices of goods and commodities were supposed to decrease as announced by the government.

Kuensel however found that the price of dental cream Colgate, for instance, has decreased in retail stores. Maximum Retail Price of a 100-gram toothpaste has changed to Nu 46 (US$ 0.70) from Nu 52 (US$ 0.80), which was prior to GST. “There is no changes in other products,” a senior employee from a distributor store said, wishing anonymity.

Meanwhile, price of rice grain has increased in retail stores. But, this has nothing to do with the GST even though some consumers argue otherwise, retail managers said. According to the retailers, the change in the rice price was seasonal and caused by other market forces.

The Food Corporation of Bhutan Limited (FCBL) head office in Phuentsholing has distributorship with more than 300 parties, which means it is importing directly from the manufacturers, without any GST implications.

But FCBL officials provided list of just three products for which the price has decreased. Colgate is one product.

Officiating general manager with FCBL, Tshoki Wangmo said price decreased for two products- Suraksha phenyl and Sundrop oil.

The cost of a five-litre Suraksha phenyl price has reduced to Nu 1,204 (US$ 18.52) from Nu 1,400 (US$ 21.53) following the GST implementation in July. After GST, price of a five-litre Sundrop oil (edible) has dropped to Nu 1,864.20 (US$ 28.68) from Nu 1,899.36 (US$ 29.22). A litre of Sundrop has decreased to Nu 1,086.84 (US$ 16.72) from Nu 1,107.96 (US$ 17).

“We have been asking our parties on the prices but there is nothing clear as of now,” Tshoki Wangmo said.

FCBL will have an exclusive meeting with representatives from the manufacturing companies tomorrow where issues are expected be cleared, she said.

Delay in clearing goods at the customs station 

Bhutanese importers and transporters from across the border are also facing difficulties in clearing their goods on time from the customs office across the border.

“The main problem is faced by suppliers,” an employee from a shipping company in Phuentsholing said. “They are penalised if they fail to deliver on time.”

A supplier said that his supplies remained at the customs office across the border for more than 10 days. The goods were cleared after he sought help from the customs office in Bhutan.

“I provided a Letter of Undertaking to our customs office and took the goods,” he said.

Meanwhile, suppliers and shipping agents asked Kuensel not to reveal their names fearing repercussions, as they would be bringing more goods and commodities into the country from India. A government-to-government dialogue is must, they said.

Some transporters are also hinting of possible risks of illegal activities indulged in to expedite their clearances. Some businessmen have also reported to Bhutan Chamber of Commerce and Industry (BCCI) that tax were charged on items and not on invoices.

Department of Trade’s regional director in Phuentsholing, Pem Bidha, said, that she visited the customs office across the border following BCCI’s intimation.

“But they said there is no problem,” she said, adding that customs across the border has asked the Bhutanese counterpart to present details of any such events so it could be looked into.

“However, we need facts and figures, which Bhutanese businessmen could not bring to us,” she said adding that the trade office has not received any complaints officially.

Transportation companies are also hit with the delay in customs clearances as cost escalates with demurrage charges. Due to this
problem, Indian transporters delivering goods to Phuentsholing have become reluctant, shipping agencies claim.

FCBL officials also said that there were still transactions being held at the customs across the border. “Our transporters are facing problem,” Tshoki Wangmo said. “Some days ago, Amul Butter was kept for a long time and melted because of the delay.”

GST on Services 

On September 29, the Central Board of Excise and Customs (CBEC), India, exempted supply of services related to transit cargo to Bhutan and Nepal. This means, Bhutanese businessmen importing from third countries would not have to pay the 18 percent service tax, which they are currently paying. It also adds cost advantages to the importers.

However, during a visit to one transport company in India on October 11, Kuensel found GST on services was still imposed.

The government has also requested the Indian government for exemption on supply of services in Bhutan from India. In another notification of October 4, the CBEC has stated, “The supply of services, however, to Nepal and Bhutan will be deemed to be export of services only if the payment for such services is received by the suppliers in convertible foreign exchange.”

This means that the suppliers would have to pay in US$ and not INR. In the meantime, Bhutanese are still paying GST on services export.

Transportation, auditing and charter, and consultancy are some of the major services imported.

Photos

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