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Drangchu Beverages in doldrums

The company has stopped production in July this year and is now exporting raw materials back to India

Drangchu Beverages Private Limited, a beverage manufacturing company in Phuentsholing that used to import concentrate, a raw material used for manufacturing beverages, has started to export the concentrate back to India.

This move by the company comes after it had stopped production post July because of the falling market in India after the imposition of Goods and Services Tax (GST) since July this year.

The company after negotiating with Varun Beverages in Kolkata in India has decided to re-export bearing 15% of the tax, payable to the Bhutanese government. The material worth Nu 2.5mn was purchased during pre GST regime, which will expire next month.

Managing Director of the company Karma Shacha said the concentrate was left unused without production and had to be sold at a 15% loss instead of bearing complete loss.

Post GST, the production of Drangchu Beverages has plummeted, leaving the raw materials unused and due for expiry. Since 70% of its products are exported to the Indian states of Sikkim and West Bengal, the complications post GST regime in India have compelled the Indian importers to stop importing the product.

Now they have to pay 40% GST at the point of entry even without the products reaching the market. And 28% GST is levied on import of beverages along with 12% environmental tax by the Indian government.

“For the Indian importers, it has become more expensive to import from Bhutan which has already substitute products,” Karma Shacha said. The company’s sale has declined by more than Nu 100mn post four months.

The company has also started to lay off employees. Around 15 day workers have already been laid off and more will be laid off if the company still struggles to export. The company is also said to be struggling to meet the financial liabilities like bank loans.

With Bhutanese market able to take in 30% of the company’s products, the company still has unsold products stocked in the plant. Also with the revision of Bhutan Sales Tax, now the company is also compelled to increase the prices of the products even in the Bhutanese market.

The MD said that though the revision of BST was timely, but the company was unsure of the implications GST would bring to the Bhutanese industries. “We thought that we will sustain through export as 70% of our products are exported. But we never thought that GST would plummet our export to this level,” he said. “Without export, the company is incurring loss. Not a single consignment has been exported since mid July.”

As BST has increased by almost around 200%, the company has increased the price marginally. The MD said the company can’t pass the burden to the customers, fearing the loss of little market with the competition from other beverages already in the market like Big Cola and Coca Cola. “Our sales margin has lost,” Karma Shacha said.

Meanwhile, the Association of Bhutanese Industries (ABI) has requested the government to request the GST Council in India to consider paying tax at the point of resale after reaching the consignment in the market. “It’s in the purview of Indian government. As of now we are waiting. Then we can resume our production,” he said.

Without much hope from the manufacturing sector, now the company has ventured into trading business to sustain themselves. The company has started trading other agro based products, especially beverage and chips.

Krishna Ghalley from Phuentsholing