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Bhutan will roll out the Goods and Services Tax (GST) from January next year, (2026), which is a major fiscal reform that aims to simplify the country’s tax structure, enhance transparency, and align Bhutan’s tax administration with international standards. Under the new system, a uniform GST rate of 5 percent will apply to most goods and services that are imported, sold, or consumed within the country. The reform will replace the existing sales tax regime, which is considered fragmented and outdated. Officials say the introduction of GST marks a milestone in Bhutan’s journey towards modernizing its tax system, making it more business-friendly while strengthening domestic revenue collection. The Director General (DG) of the Department of Revenue and Customs (DRC), Sonam Jamtsho, said GST is not a new form of tax, but rather a restructuring of the existing sales tax to improve efficiency and compliance. “GST has already been implemented in over 175 countries worldwide, with an average global rate of around 15 percent. Bhutan’s rate of 5 percent is among the lowest, designed to support growth and ensure the transition is smooth for both businesses and consumers,” he said. He added that GST will help bring uniformity to the current tax system, which has multiple rates and exemptions under the sales tax structure. “The new system is simpler, transparent, and consistent with global best practices.” A key feature of Bhutan’s GST is its single-rate structure, where a flat 5 percent applies to most taxable goods and services. “Unlike some countries that apply multiple GST rates depending on the type of goods or services, Bhutan has opted for simplicity,” the DG said. “This approach reduces confusion, minimizes administrative costs, and makes compliance easier for businesses.” The government has also established a registration threshold of Nu 5 million in annual turnover. Businesses earning above this amount are required to register under GST, while those with turnover above Nu 2.5 million can register voluntarily. “This threshold was determined after careful study,” the DG explained. “We want to broaden the tax base without putting unnecessary compliance pressure on small businesses.” The DRC confirmed that certain essential goods and services will be exempted from GST. Basic commodities such as rice, cooking oil, salt, sanitary pads, and wheelchairs will not attract the 5 percent tax. Essential services, including education and healthcare, are also exempt, though some specific exclusions may apply based on their commercial nature. Exports of goods and services, meanwhile, will be zero-rated, meaning exporters will not pay GST on their sales and can claim refunds on input taxes paid. “This measure is designed to encourage export-oriented industries and make Bhutan’s products more competitive in international markets,” the DG said. The new tax system will incorporate modern digital features, allowing businesses to file returns and make payments online. Taxpayers will have the option to choose their filing periods—monthly, quarterly, or half-yearly—based on the size and nature of their business. The DG said that digitization will not only make tax filing easier but also enhance transparency and efficiency. “The GST platform will allow real-time monitoring, automated reconciliation, and easier verification of transactions,” he said. The department has been conducting training and awareness programmes for business owners, accountants, and tax officials to prepare them for the transition. A series of simulation exercises and mock filings have also been carried out to test the system’s readiness before full implementation. Another core feature of the GST regime is the Input Tax Credit (ITC) mechanism, which allows registered businesses to claim credit for taxes paid on their inputs—that is, goods or services used to produce or sell other goods and services. “This system prevents cascading or double taxation, ensures fairness across the value chain, and reduces the overall tax burden,” the DG said. “It also improves cash flow for businesses and encourages them to keep proper records.” By promoting accurate documentation and invoicing, the ITC system is also expected to reduce tax evasion and underreporting, ensuring a more transparent and accountable business environment. The DRC emphasized that compliance will be crucial to the success of the GST system. Businesses are required to register on time, file returns accurately, and maintain proper records of their transactions. Failure to comply—such as non-registration, delayed filing, or incorrect claims—could lead to penalties, audits, or legal action. “We understand that this is a significant change, especially for smaller businesses,” the DG said. “That’s why we have designed support mechanisms, including help desks, training sessions, and step-by-step guides to assist taxpayers during the transition period.” The department is also working to strengthen its internal capacity to handle GST administration through the automation of audit and refund processes, improved data analytics, and inter-agency coordination. Economists view the introduction of GST as a key reform that will strengthen Bhutan’s fiscal position and help diversify revenue sources. With a broader and more efficient tax base, the government is expected to generate more stable revenue without increasing the burden on consumers. At the same time, the uniform rate of 5 percent is expected to minimize inflationary pressure, ensuring that essential goods remain affordable. Business owners have expressed both optimism and concern. While many welcome the clarity and fairness of the new system, some have raised questions about the readiness of small businesses to adapt to digital compliance requirements. A Thimphu-based retailer said, “We support the reform, but training and technical assistance will be very important. Some small businesses are still learning how to file returns online.” The DRC maintains that GST will serve as a foundation for a more resilient and modern tax system. It is expected to enhance revenue mobilization, improve competitiveness, and strengthen transparency in the long term. “GST is not just a tax reform—it’s an administrative and institutional reform that will make our revenue system more efficient and fair,” the DG said. “It is a crucial step toward building a more self-reliant and sustainable economy.” As Bhutan prepares for implementation in January, the department continues to engage with businesses and the public to ensure a smooth transition. The DG reaffirmed the government’s commitment to making the system fair, simple, and beneficial for all stakeholders. “The success of GST depends on collective cooperation—from policymakers to businesses to consumers,” he said. “If implemented well, this reform will not only modernize our tax system but also strengthen Bhutan’s path toward sustainable economic development.” Sherab Dorji FromThimphu
