In­dia in­tro­duces GST to­day, Bhutan watches closely

The new tax would bring dras­tic changes in the prices of good and ser­vices in In­dia and it stands to af­fect Bhutan in many ways

Business Bhutan - - Front Page - Kr­ishna Ghal­ley from Phuentshol­ing

Bhutan would be an ea­ger spec­ta­tor as In­dia wakes up to­day to a new re­al­ity. From to­day, the much touted and the big­gest ever tax re­form since in­de­pen­dence would be im­ple­mented. The Goods and Ser­vice Tax (GST) has been born to­day.

The new tax is ex­pected to al­most over­haul the In­dian tax­a­tion sys­tem. The prices of many goods and ser­vices would be im­pacted. It would have a cor­re­spond­ing rip­ple ef­fect in Bhutan as In­dia is its big­gest trad­ing part­ner. But as of now, Bhutan can only watch as a be­mused neigh­bor.

In In­dia, the in­tro­duc­tion of GST has ex­cited the busi­ness in­dus­try like never be­fore. While it is said to stream­line the tax­a­tion sys­tem and most would stand to ben­e­fit from the new tax, it has, as of now, also left many in the coun­try con­fused and ag­i­tated.

The GST is an in­di­rect tax for en­tire In­dia. It would make In­dia one uni­fied com­mon mar­ket. The GST is a sin­gle tax on the sup­ply of goods and ser­vices, right from the man­u­fac­turer to the con­sumer. Un­der the GST regime, the fi­nal con­sumer will bear the tax charged only by the last dealer in the sup­ply chain, which will off­set the taxes charged in the pre­vi­ous stages of value ad­di­tion, as is the case un­der other tax­a­tion sys­tem. This will es­sen­tially re­fine the tax­a­tion sys­tem and good and ser­vices will ba­si­cally be made cheaper.

The GST is ex­pected to ben­e­fit all stake­hold­ers.

For busi­nesses and the in­dus­trial sec­tor, GST would bring uni­for­mity in tax rates and struc­tures pro­mot­ing ease of do­ing busi­ness. It would re­sult in easy com­pli­ance. It would re­move cas­cad­ing taxes and re­move hid­den costs of do­ing busi­ness.

For cen­tral and state gov­ern­ments, GST would make the tax­a­tion sys­tem sim­ple and easy to ad­min­is­ter. It is also ex­pected to de­crease the cost of tax col­lec­tion lead­ing to higher rev­enue.

The con­sumer will ben­e­fit as he would have to pay only one tax while other tax­a­tion sys­tem have lots of hid­den taxes within the sup­ply chain. The con­sumers shall en­joy the ben­e­fits if traders pass on the ben­e­fit to them. But it is a big catch whether traders would pass on the ben­e­fit to con­sumers.

The en­tire GST regime would be pro­cessed and funds claims would also be han­dled elec­tron­i­cally re­in­forc­ing Prime Min­is­ter Modi’s bid to dig­i­tize In­dia.

The In­dian gov­ern­ment has worked for a long time to in­tro­duce the GST. It was first dis­cussed 16 years ago. Then it was dis­cussed sev­eral times in the par­lia­ment.

The GST would be im­ple­mented in four pri­mary tax slabs of 5%, 12%, 18% and 28%. Other than this, gold and jew­elry will be taxed at a con­ces­sional rate of 3% while rough di­a­monds will be taxed a low of 0.25%.

The gov­ern­ment has also de­cided not to tax ba­sic es­sen­tials in­clud­ing salt, egg, milk, but­ter­milk, nat­u­ral honey, fresh fruits and veg­eta­bles, fresh meat, fish, chicken, un­branded and un­pack­aged tea and cof­fee, veg­etable oil, chil­dren’s’ pic­ture, draw­ing or col­or­ing books, hand­loom, stamps, ju­di­cial pa­pers, printed books, news­pa­pers, Puja items, con­tra­cep­tives, ho­tels and lodges with tar­iff be­low Rs 1,000, ed­u­ca­tion and health­care ser­vices, among oth­ers.

It means that most of the con­sum­ables and food items shall un­dergo price cut in near fu­ture. Prices of raw ma­te­rial as well goods are also as­sumed to come down es­pe­cially those of ne­ces­sity and com­fort Items. Skin care, ayurvedic medicine, hair dyes, paints and edi­bles are set to be cheaper.

How­ever, ow­ing to im­ports get­ting cheaper, the chances are higher to in­crease the trade deficit with surge in im­ports. Deter­gent, baby foods, san­i­tary nap­kins, sham­poos are set to be dearer. Ser­vices like au­dit­ing ser­vices, consultancy ser­vices, and man­age­ment con­tract will be costlier by 18%.

The new GST regime would have con­se­quences on Bhutan too.

The cost of raw ma­te­rial im­ported from In­dia will de­crease sig­nif­i­cantly as there will be no more ex­cise duty on many raw ma­te­ri­als.

How­ever, cer­tain in­dus­tries like ce­ment where most of the raw ma­te­ri­als are pro­cured within Bhutan shall suf­fer the most, since cost of pro­duc­tion shall go down for In­dian man­u­fac­tur­ers.

Op­er­a­tional cost like ware­hous­ing cost, trans­porta­tion cost shall de­crease on ac­count of smooth flow of goods, eas­ier com­pli­ance and taxes.

The ex­cise duty re­funds re­ceived by Bhutan gov­ern­ment will also de­crease con­sid­er­ably as most of the goods would now be out­side the purview of ex­cise.

An econ­o­mist, work­ing in an in­dus­try in Pasakha, said that since im­ports would be cheaper, Bhutanese in­dus­tries like ferro sil­i­con can now take ad­van­tage from the pro­cure­ment of raw ma­te­ri­als from In­dia.

He also said that since prices in in­dia is ex­pected to fall, Bhutan would be able to save more in­dian cur­rency.

How­ever, the GST is ex­pected to ham­per ex­ports as most of the in­dus­tries ex­port to In­dia. Un­der the past regime, there was no tax im­posed dur­ing the time of ex­port to In­dia. But un­der the GST regime, In­dian im­porters need to pay tax. As such, Bhutanese in­dus­tries will face more com­pe­ti­tion in In­dia as the GST would make In­dian man­u­fac­tures more com­pet­i­tive.

Bhutan has cur­rently been con­sid­er­ing the idea of Value Added Tax (VAT) since 2010 as it is one of the few coun­tries, which is still un­der Sales Tax regime. More than 140 coun­tries in the world in­clud­ing its neigh­bors have al­ready adopted VAT or GST.

June 28 2017: His Majesty The King granted an Au­di­ence to the par­tic­i­pants of the in­au­gu­ral Foun­da­tional Lead­er­ship Pro­gramme, at the Royal In­sti­tute for Gov­er­nance and Strate­gic Stud­ies, and vis­ited sev­eral other places dur­ing a Royal Visit to...

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