Sealing the tax leakage

BITS and GST softwares will ensure all aspects of the supply chain are recorded and tax leakages are sealed

By Tashi Namgyal

As a measure to seal tax leakages in the future, two new softwares will be developed by the Department of Revenue and Customs (DRC) next year.

Bhutan Integrated Taxation Systems (BITS), and Goods and Services Tax (GST) softwares will be ready by July 2022 in order to ensure and record all aspects of the supply chain. If the goods are imported from India, wholesalers and retailers have to register with the GST system and pay taxes. However, they will get a refund upon selling it to the consumers.

Modern GST will replace the contemporary sales tax when the GST is implemented, including the 11 multiple tax rate structures (ranging from 0 percent to 100 percent) into a single standard rate of 7 percent. The GST Act 2020 is expected to come into force by July 1 of next year.

Indirect taxes on products net of subsidies dropped to nearly -50 percent last year compared with the preceding year. The drop was one of the highest in the last 19 years at Nu 4.5 billion (B). Indirect tax’s contribution to the Gross Domestic Product (GDP) was 2.6 percent, recording a drop by 2 percent in 2020 according to the 2021 National Accounts Statistics. The drop was attributed to the fall in the collection from import and excise duty.

Uncharacteristic flow of trade during the lockdown in Phuentsholing limited imports to only non-taxable items like essential commodities. In 2020, the department came up with a paperless and zero contact clearance drop box system at the mini-dry port (MDP) in Phuentsholing where 95 percent of trade takes place in the country.

Indian drivers ferrying Bhutanese consignments up to the MDP drop the invoices and other clearance documents in the drop box after which vehicles are cleared immediately and clearance documents are checked the next day. However, tax evasion and leaks happened a few times as people dropped empty envelopes.

The Ministry of Health also proposed customs officials to use UV-rays for screening documents. However, despite the DRC procuring four UV-ray machines to scan the documents, the plan did not work out as five customs officials from the MDP tested positive for coronavirus.

Next, the department came up with the online vehicle registration system (VRS). Using the system, clearing agents print import invoices sent from the exporters in India, which then are physically verified by customs officials.

Until recently, the department replaced the VRS with a customs road cargo manifest system. And to enhance the system, an electronic Customs Management Systems is expected to be launched in August next year.

Customs officials however find it difficult to regulate despite quite a number of them involved in checking vehicles and adhering to the Covid-19 protocols. Although some of the import invoices reflect as non-taxable, upon physical verification taking three hours to check a truckload, the items were sometimes found taxable.

Meanwhile, with the implementation of the GST, the government hopes to recuperate additional revenue of Nu 3B.