The Goods and Services Tax (GST), a part of the government’s taxation reform to recoup about Nu 3 billion (B) has hit a wall and will not be rolled out by July 1 this year as expected.
This is because the software component or the Bhutan Integrated Taxation System (BITS) is not ready. Lyonchhen Dr Lotay Tshering during the press meet yesterday said developers are struggling to give the product and the government would not be able to implement GST by July 1.
Explaining the delay, he said that many countries around the world suffered from the major shift in the taxation system when they went for GST from the conventional sales tax system. They have to scrap off GST because of the timing and other political reasons.
It was learnt that the finance ministry has suspended the BITS project (an online registration platform, and a payment refund system for GST), being developed by the Thimphu TechPark Limited (TTPL) with help of experts from Armenia. They missed the March-end deadline. Finance ministry, department of revenue and customs (DRC), and TTPL officials refused to talk to Kuensel on what happened to the BITS system.
The government, Kuensel learnt from sources, had spent Nu 220 million (M) on developing the BITS. Of the total, Nu 30M was provided to Armenian developers. The total allocated budget was Nu 600M.
A source said that the Armenian company was rejected by DRC when it floated the tender because it didn’t have the capacity to develop the BITS. It was however given to the same company when the government awarded the work to the TTPL. “Now it has to be developed from scratch,” he said.
However, Lyonchhen said that whether the whole BITS has to be scraped and start all over or continue is still under discussion between the finance ministry and Druk Holding and Investments (DHI).
“Scrapping it does not mean totally going down the drain. Building blocks are already set, and components have to be readjusted,” Lyonchhen said, adding that the amount spent is not amount wasted.
He also said that DHI will decide whether to continue with the Armenian company or look for a new partner. The new TTPL CEO declined to comment.
Lyonchhen also said that the Cabinet has to finalise whether the finance ministry wants to get the rudimentary product or seek guidance from Parliament in the coming session.
If the GST has to be deferred, the chairperson of the economic and finance committee of the National Assembly, Kinga Penjor said that the finance ministry has to submit for the extension in the upcoming Parliament. It is a money Bill.
TTPL on December 14 last year posted on its Facebook stating that the BITS team has successfully implemented the first minimal viable product (MVP) fulfilling a set of business objectives that brings an end to the Program Increment (PI 1.0) of the BITS’ project.
It added that the project will be working for PI 2.0 for another 10 weeks, which will require planning, building, checking, and adapting to the new requirements of the GST.
Former chief executive officer of TTPL, (Dr) Tshering Cigay Dorji said BITS project may be facing difficulties. However, all stakeholders including the key officials of DRC and finance ministry were upbeat and optimistic when the deadline for the first MVP was met in December 2021, he said.
He said that the lockdowns which started on January 17 this year and the associated Covid-19 restrictions for international travel had contributed in derailing the project given the tight deadline, besides other things like changes in key personnel leading the project.
“The new team is highly competent, but all changes require some time to settle in and start delivering. I hope the project can be brought back on track through proper study and a way forward plan in the best interest of our nation,” (Dr)Tshering Cigay Dorji said.
Award of work
Initially, before the work was awarded to the DHI, it was learnt that the DRC had already tendered out the BITS development to an Austrian company.
Lyonchhen said that the government intervened because an Austrian company’s system was ready-made and we want to develop the system ourselves. The Austrian company asked for about USD 9M.
Lyonchhen said that the government discussed with DHI and DHI wanted to build the system within the country as it could build national capacity. “DHI’s condition was to have in-built not ready-made.” He added that if there is any troubleshooting, there would not be a problem.
The Armenian company was found to be competent and partnered after DHI floated the tender. Armenia experts asked for about USD 4M, which was less than half of what the Austrian experts asked.
However, a source said that DRC was not happy with the award of work. DRC apparently rejected the Armenian company knowing their capacity. Lyonchhen said that it is not true as DRC and the experts have been working full time to develop BITS.
What GST was intended for
GST was one of the government’s major taxation reforms to recoup Nu 3B. It was the government’s pledge to recover approximately Nu 10B by streamlining and strengthening the tax system when the government came into power.
Under the GST, a single tax rate of seven percent will replace the existing tax rate structures. At the moment, there are 13 different sales tax rates. It was expected to strengthen tax administration and improve tax compliance while also preventing double taxation.
Stating that GST implementation is not appropriate, a private individual said, “If the GST comes into effect, everything becomes more expensive by 7 percent, this will add to the existing inflation,” he said adding that the country is recovering from the Covid-19 pandemic and any revision in tax would hamper the private sector.
He said that most businesses and entities wouldn’t be eligible to register for the GST. Businesses and entities, whose turnover is at least Nu 5M annually are required to register for the GST. And for voluntary registration, the threshold is Nu 2.5M per annum.
Another private sector individual said that the implementation of GST would be a huge disadvantage to the competitive advantage Bhutan needs to do business.
