The NA’s Economic and Finance Committee will present its report on the GST Bill on June 10
Til BDR GHALLEY
Thimphu
After years of delay and deliberations, Bhutan is finally poised to implement the Goods and Services Tax (GST) in 2026, a reform aimed at modernizing the nation’s taxation system.
The GST (Amendment) Bill 2025 and the proposed Excise Tax Bill 2025 have been tabled in the National Assembly and referred to the Economic and Finance Committee. The committee is set to present its report on the Excise Tax Bill on June 9, followed by the GST Bill on June 10.
On May 26, Finance Minister Lekey Dorji tabled the GST (Amendment) Bill 2025 as a money bill in the National Assembly, highlighting its objectives: to attract private investments, curb inflation, and spur economic growth.
“While the reform may cause minor short-term distortions in GDP, the long-term benefits such as enhanced revenue spending and greater economic stability will outweigh the temporary disruptions,” he said.
Although the Parliament passed the original GST Act in February 2020, implementation was delayed due to the country’s lack of preparedness and the disruptions caused by the COVID-19 pandemic to Bhutan’s Integrated Taxation System and overall economy.
The modernized tax reforms are designed with four key objectives: simplification to streamline tax, efficiency, fairness and accountability, and global alignment to ensure Bhutan’s tax system meets international standards of transparency and cooperation.
The finance minister stated that these proposed changes will address exemption gaps, integrate excise duties, and reduce administrative burdens while promoting equity and neutrality.
In addition, the new GST framework will consolidate existing sales and excise taxes into a single flat rate of 7 percent, uniformly applicable to all goods and services.
As a consumption-based tax, GST is designed to eliminate the cascading effect of multiple layers of taxation. It will be applicable to both domestic and imported goods and services, aligning Bhutan’s tax system with international norms. Exports will be zero-rated meaning no GST will be charged on them.
One of the key features of GST is the input tax credit mechanism. This allows businesses to claim credit for taxes paid on inputs such as raw materials or services—and offset them against taxes collected on sales. This mechanism is expected to ease the tax burden on businesses and improve compliance.
A major focus of the amendment is reducing exemptions. The revised bill proposes streamlining clauses which lists exempted goods, contrary to the GST principle of tax neutrality.
Lyonpo Lekey Dorji said, “Exemptions ddisrupt the input tax credit chain, creating inefficiencies and distorting the market and discourage formalization and reduce the potential economic benefits of GST.”
The Bill also seeks to repeal the Excise Equalization Tax (EET) provisions from the GST Act 2020, which currently apply to 157 goods. Instead, a standalone Excise Tax Act is proposed.
Lyonpo explained that many items under the current EET regime especially raw materials used in local industries should not be subject to excise, as it raises production costs and disproportionately affects low-income households.
The new Excise Tax Act will focus on five core products: tobacco, alcohol, motor vehicles, areca nut, and aerated water, along with a limited list of additional items.
This shift aims to minimize distortions in the economy while maintaining targeted taxation on socially or environmentally harmful goods.
The number of goods subject to excise will drop from 157 to 62, reducing the list by 95 items. Excise tax rates ranging from 20% to 100% will continue to apply to both imports and domestic products.
Businesses with an annual turnover above Nu 5 million will be mandated to register under GST. Those earning between Nu 2.5 million and Nu 5 million may opt for voluntary registration.
As a tax on consumption, GST is expected to push up commodity prices initially. The Ministry of Finance estimates that under the current system, overlapping taxes from GST and EET drive prices higher.
The Consumer Price Index (CPI) is projected at 18.01% for 2025 under the existing GST Act, but the revised proposal is expected to reduce it to 16.1%.
Despite broader tax coverage under the new system, reduced EET rates may result in lower overall prices for consumers.
The removal of cascading tax effects is also expected to boost the value of imports and encourage exports, contributing to better trade performance.
Although the reforms could temporarily affect GDP growth, the finance minister said increased public expenditure funded by higher GST revenues will help stabilize the economy over time.
The revised GST regime is projected to yield revenue equivalent to 3.55% of GDP, or Nu 9.13 billion annually representing 73% of Bhutan’s total GST revenue potential.
This is an improvement over the 2020 Act, which forecast 3.06% of GDP or Nu 7.89 billion, covering 63% of potential revenue. The increase amounts to a gain of 0.48% of GDP or Nu 1.23 billion annually.
Though seemingly modest, the reform aims to create a more efficient, transparent, and business-friendly tax structure that supports private sector development and reduces compliance costs.
In contrast, revenue from EET is expected to decline slightly from 1.16% to 1.12% of GDP, or from Nu 2.99 billion to Nu 2.88 billion.
The reform marks a pivotal shift toward a more transparent, modern tax system poised to strengthen Bhutan’s economy and governance.
