Despite early challenges and public concerns, the finance ministry says the Goods and Services Tax, or GST, system is on track. Officials from the ministry described the GST as a long-term reform, one whose success cannot be judged by four months of revenue data alone. The tax system has been at the centre of public discourse against the rising prices of goods and services and concerns about double taxation.
The GST has collected more than Nu 3bn in its first four months. It came into force in January, replacing Bhutan’s old multi-layered sales tax with a single, flat five per cent levy on most goods and services. The reform, years in the making and twice delayed, is part of a broader effort to modernise the country’s tax system and close revenue gaps.
Kuenzang Thinley, GST and BITS Commissioner said, “Revenue performance remains an important indicator. However, the Government’s focus is on achieving sustainable improvements in compliance, efficiency, and long-term revenue stability rather than evaluating the reform solely based on initial collection trends.”
Officials also point to structural gains. With the introduction of GST, the country’s Self Tax Collecting Agent’s (STCA) base has increased by six fold. Today, almost four thousand such taxpayers, including government agencies, are filing returns, extending the system’s reach to services that were never taxed before. Exports remain zero-rated, so bhutanese businesses selling abroad are not penalised. STA is a business authorised to collect GST from customers on behalf of the government and transfer the collected tax to the department of revenue and customs.
The finance ministry projects GST revenue will reach around Nu 14bn in the fiscal year 2026-2027, a 47 per cent increase over what the old sales tax collected in 2024-2025. But officials caution that a reliable comparison with the previous regime will require at least a full year of operation.
The ministry now plans to move from the system’s awareness to its stricter implementation.
The GST and BITS Commissioner said,”Recognising that taxpayers were still adjusting to the new system during the initial implementation phase, we did not impose penalties. Instead, the ministry focused on awareness and sensitisation programmes across the country to help businesses and taxpayers understand the GST requirements. However, beginning next month, penalties will be enforced as per the law.”
Meanwhile, the public debate has centred on prices. Many consumers expected costs to fall because the five per cent GST replaced a Bhutan Sales Tax that ranged from zero to 100 per cent on different goods. Instead, the national inflation rose sharply, from 3.37 per cent in December to 5.76 per cent in January. Food prices rose even faster, jumping more than seven per cent as per the National Statistical Bureau.
Many suspect double taxation as one of the key drivers for the rise. Retailers had already paid sales tax on stock bought before January first. When GST was then charged at the point of sale, consumers bore both levies. The National Council, in its recent session, also sought clarification on the taxation of old stocks under the new tax regime. It was reported in the house that the finance ministry assured necessary adjustments for such goods before the amendment comes into effect. The World Bank’s Bhutan Development Update in April flagged this transition problem and projected that inflation will remain elevated at 5.2 per cent this financial year and 5.6 per cent in 2026-2027.
Finance ministry officials say the implementation challenges are neither unexpected nor unique to Bhutan. Many countries have experienced similar adjustment periods and have subsequently refined their systems based on practical experience and stakeholder feedback. Accordingly, the Government will continue to review implementation experiences and enhance the system’s performance.
Recently, the government also moved to ease pressure on households, increasing the exemptions from nine to 32 commodities, covering edible oils, additional rice varieties, and other daily necessities. Both the National Assembly and the National Council adopted the GST Amendment Bill 2026 during the ongoing parliament session.
Passang
