India's Goods and Services Tax (GST) may have an adverse impact on the Bhutanese economy through trade and revenue channels, the Asian Development Bank (ADB) said in its latest report.
The total trade between India and Bhutan was valued at USD 817 million in 2016-17, up from USD 750 million a year ago, as per Indian government data. India's exports to Bhutan totalled USD 509 million while imports came in at USD 308 million.
"India's Goods and Services Tax (GST), implemented in July 2017, may have an adverse impact on the Bhutanese economy... through trade and revenue channels," stated the Asian Development Outlook 2017 Update report.
According to the report, Bhutan's imports will likely increase as Indian exports are zero rated under GST, making the imports cheaper.
"Exports to India will be subjected to GST, removing Bhutan's previous competitive edge over Indian producers," it stated.
Additionally, rebates of Indian excise duties to the Bhutanese government will end as these taxes have been subsumed within GST, implying a loss of budget revenue, it said.
The Government of Bhutan, the report said, has decided for the time being not to levy higher taxes on imports from India, but to use credit policy to restrain import demand, especially for automobiles.
Bhutan imports machines, medical equipment, processed food, iron and steel, fibre, pharma, hardware and electrical transformers, among others, from India, while exports include household articles, pepper, electric components and electricity.
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