The ripple effects of GST

All eyes are wide open at India and its new taxation system- Goods and Service Tax (GST) that has come into effect. For sure, the ripple effect will be felt in Bhutan but how it will impact the prices of the commodities and services is the question.
But before anything else, we have to understand what GST is and how it works in an economy. The GST is a single tax on the supply of goods and services, right from the manufacturers to the final consumers. Under this tax regime, the consumers will bear that tax charged only by the last dealer in the supply chain, which will offset the taxes charged in the previous stages of the value additions. And this will refine the taxation system and products will naturally be made cheaper.
The idea behind for bringing in GST is to boost export and limit imports. Now given this fact, it means Bhutan will enjoy cheaper prices for all the goods imported from India but exports will be hit hard.
In other words, imports will get cheaper and export will get dearer.
It is a good news for retailers in border areas that prices will drop down slightly but the question is whether they will pass this benefit to the consumers. It has been the trend so far that our retailers only charge higher when prices appreciate and never slash down the rates when it drops down.
But cement and steel industries will be hardest hit. They will lose competitive edge in the market because as per the new tax regime, price of raw materials like coal and limestone will go down considerably in local markets. Even the Bhutanese agricultural products will lose an edge in Indian market because of the fact that GST is designed to reduce the operation cost of warehouses by 50 percent.
There are only two things that can be done in Bhutan to save our manufacturers from getting burnt. One is to request the government of India to consider zero GST for Bhutan in the interim because this new tax regime will have major implication on all the sectors in Bhutan.
The second option is to adopt GST regime in Bhutan which naturally will have to go through the parliament. It is believed that the government has already considering this option.
Meanwhile, apart from the glitches that export commodities may face in the Indian market, the GST system would deteriorate the balance of payment. There is also every chance that rupee shortage could roll back and plague our economy. Further, the national revenue would also be impacted with reduced excise duty refund.

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