Contrary to prediction, since Bhutanese traders buy from middlemen and have to additionally pay BST, imports from India have turned dearer
Two months into the Goods and Services Tax (GST) regimen and goods imported into border towns have actually become costlier contrary to authorities’ assurances.
The Indian government has confirmed that Indian exports to foreign countries will be ‘zero rated’’ which means GST will be exempted.
However, Bhutanese wholesale dealers in Phuentsholing are still paying GST as most of their consignments come from middlemen in Siliguri, Kolkata and Jaigaon as opposed to direct manufacturers.
Now, wholesalers not only land up paying GST but the Business Income Tax (BIT) as well.
This has compelled businesses in Phuentsholing to increase selling prices. Prices of commodities like edible oil, rice and sugar have shot up post-GST.
GST in India ranges from 5-28% and BIT ranges up to 15% for grocery items in Bhutan.
“Making matters worse, Indian manufacturers are reluctant to supply to Bhutan,” said Tshering Nidup, proprietor of Ghang Jhong Tshongkhang adding that without incoming consignments, warehouses are running out of stock forcing them to purchase from nearby Indian suppliers who charge GST.
Ghang Jhong’s business has dropped by 75%, according to the proprietor. He said that to reap GST benefits, wholesalers have to deal directly with the manufacturers. For this, they have to order millions of worth of goods, which is impossible for small wholesalers.
“Small wholesalers are affected majorly. If we do not supply on time, our little clientele will shift to other wholesalers,” said Tshering Nidup.
A retailer in Phuentsholing said that he is in dilemma over pricing his goods. He paid Nu 80 extra while procuring a gum of Rajnigandha priced at Nu 700. While the MRP of each sachet is Nu 14, he spent Nu 15 extra each.
A private employee, Suman Chettri observed that for a small market like Bhutan, Indian manufacturers do not want to take the trouble of lowering MRP on the packaging, which is supposed to come down after GST.
“They also will not get GST-refund on time, therefore, they are far from enthusiastic about supplying to Bhutan,” he said.
Meanwhile, Regional Director of Regional Revenue and Customs Office in Phuentsholing, Sonam Dorji said it is too early to see actual impacts of GST.
“Pros and cons need to be assessed for Bhutanese consumers which is expected to take longer. It is too early to judge when everyone is yet to adapt to the new tax regime,” he said.
Meanwhile, the prices of all goods imported from India are expected to fall by up to 28% after GST implementation in India.
Authorities are saying that consumers can expect prices of commodities to be cheaper in Bhutan than in India. The Department of Trade and Office is studying item-wise price difference currently.
The government has directed the Ministry of Economic Affairs to ensure that fall in prices are passed on to the consumers.
The officiating secretary of economic affairs, Sonam P. Wangdi, said that price impact in Bhutan will be ascertained after the GST system in India is streamlined and fully implemented.
He assured that the office of the consumer protection, Department of Trade (DoT) and Department of Revenue and Customs (RRCO) are creating awareness and working to ensure that benefits of the reduced price under GST are passed down to the consumers.
“The general consumers must understand that to avail GST–free goods, it must be imported through GST-registered entities and manufacturers in India,” said Sonam P Wangdi.
He added that all importers, suppliers, distributors, dealers, wholesaler and retailers are advised to imports goods from GST-registered entities in India and ensure that benefits of fall in price are passed down to the consumers.
Non-compliance with the notification will be dealt as per the consumer protection act provisions, he added. The defaulters would be liable to pay fines equivalent to the value of the goods or services or the business license may be revoked.
In India, 7% of the items come under the exempted list, 14% fall in the 5% tax band, 17% in the 12% tax band, 43% under the 18% tax band and 19% of the items fall under the 28% tax band. In total 81% of all goods and services fall below or in the 18% tax band and the balance items will fall under the 28% tax band.
GST is a single integrated taxation system within India that combines 17 state and central taxes into a single tax of six bands varying from 0-28%. It is a destination and consumption based tax, imposed on the final consumer. It follows a multi-stage collection mechanism and credit of tax paid at previous stage is available for set off at the next stage of the transaction. The GST system is expected to enhance competitiveness of the industry and increase consumer welfare.
However, officials from the DoT said that it will take one to two months to implement the new prices in the market since retailers and wholesalers are still selling their old stocks.
Naman Siddarth, a financial consultant based in Thimphu said that the problem is lack of sensitization on the matter among the public.
“One problem is when the consignment is very small, it becomes practically impossible to reap GST benefits. The only and best solution I can see to this as a consultant is by way of dealership,” said Naman Siddarth. He said wholesalers can always start trading by getting orders and supplying in a few days once goods are procured from India even if they cannot invest huge capital. “Even the scope of online marketing can be explored,” he said, “The biggest misconception is that only if you buy from manufacturers can GST be totally exempt. This is not the case,” he said.
To avoid taxes, he said that the government needs to block invoices coming to Bhutan unless the same is termed as export invoice under GST rules. “Banks can also play an important role in this as the payment is routed through the same based on the invoicing,” he said.
Naman Siddarth confirmed that if an Indian dealer, wholesaler or distributor supplies goods to Bhutan, it shall be zero rated and the complete tax paid by him to the manufacturers shall be refunded.
Dechen Dolkar & Krishna Ghalley