July 9, 2025
THIMPHU – The Third Session of the Fourth Parliament concluded on July 5 with the customary reverence, graced by His Majesty the Druk Gyalpo, whose presence lent both solemnity and stature to the closing ceremony.
Speaker of the National Assembly, Lungten Dorji, delivered his closing address with deep gratitude to His Majesty and reiterated Parliament’s unwavering commitment to national service under the benevolent guidance of the Golden Throne.
While the ceremony echoed themes of unity, youth empowerment, and legislative achievement, observers and economic analysts have raised important questions about some recent developments that demand deeper reflection.
Swift enactment of major money Bills
In what can be described as a legislative sprint, the Parliament passed five major Money Bills in a single session, a rare and historic moment in Bhutan’s parliamentary history. The Goods and Services Tax (Amendment) Bill 2025, Excise Tax Bill, Income Tax Bill, along with the Annual Budget and Supplementary Budget Bills, were all cleared, some say too swiftly amidst compressed debates and crowded schedules. While the Speaker proudly described the passage of these Bills as a milestone, critics, economists and policy watchers expressed concern over what they saw as unbalanced deliberations. The debate surrounding the taxation of interest earned on fixed deposits drew disproportionate attention, diverting focus from broader fiscal reforms.
“In what should have been a crucial GST session, significant time was consumed debating fixed deposit interest taxation,” an economic expert who closely followed the proceedings said. “The focus of MPs seemed to shift dramatically, and even during the live telecast, the public seemed more concerned with personal savings than with the larger implications of tax reforms.”
The GST Amendment, which could have far-reaching consequences for ordinary consumers and service users, received less scrutiny than expected. Analysts fear that this could lead to unintended economic pressures on households and small businesses once the reforms are implemented.
“The Parliament must remember that indirect taxes like GST affect the masses far more than interest on deposits, which concerns a smaller, wealthier segment of society,” a Thimphu-based financial consultant said. “This imbalance in focus is worrying.”
Regarding concerns about compressed debates and potential economic impacts, Finance Minister Lekey Dorji clarified that all three Bills underwent extensive discussions with stakeholders, including MPs and presentations to the Economic and Finance Committee have been intense. “Although some have expressed concerns about compressed debates, I assure you that the process was thorough,” he said.
The finance minister said that private businesses were consulted within confidentiality requirements, and clauses related to penalties, administration, and appeals were swiftly endorsed after review, streamlining the legislative process. “Therefore, I wouldn’t agree that the discussions were compressed and not exhaustive,” he said.
Implementation concerns
MP Loday Tsheten from the Opposition praised the passage of the GST Bill, calling it a transcendent achievement that reflects lessons from other countries’ experiences. However, he cautioned that passing legislation is not enough; careful attention must be paid to implementation, especially considering the early challenges faced by other nations transitioning to GST regime as they suffer adverse consequences in the first few years of its implementation. However, he agreed that there will be some level of inflation in the economy, but it will be within the range that people can afford.
Clarifying the legislative procedures and plans for smooth implementation, Finance Minister Lekey Dorji said that while the GST was first enacted in Bhutan in 2020, it was never fully implemented. “Major amendments have since been made, including reducing the GST rate from 7 percent to 5 percent, narrowing the list of exempted goods and services, and shifting the appeal process from the Tax Tribunal to the Tax Review Board,” he said.
The National Assembly, on June 16, adopted the GST (Amendment) Bill with a 5 percent rate for taxable goods and services.
Lyonpo Lekey Dorji also said that the Excise Bill was separated from the GST Act to simplify the list of excisable items from 157 to just six broad categories, such as tobacco, alcohol, and fuel, to protect domestic industries.
GST and money Bills
Some MPs noted that prices for tobacco products, pan masala and alcoholic drinks will rise, while vehicle priced will decrease slightly. The revision is appropriately calibrated to make these products more expensive but also avoid black market in the economy. “The only worry we have is with regard to measures the government will take to ensure that vehicle dealers are not impacted so negatively,” MP Loday Tsheten said.
On income tax, discrepancies in treatment, such as exemption thresholds for interest income versus dividends, raise principles of fairness. Providing different exemptions (Nu 400,000 for fixed deposit interest vs. Nu 300,000 for dividends) appears to contravene the principle of equality, according to the observers.
Lyonpo Lekey Dorji explained that the overhaul of the Income Tax Act 2001 included lowering the corporate income tax from 30 percent to 22 percent, rationalising personal income tax (PIT) slabs, merging business income tax (BIT) with PIT, removing taxes on inter-corporate dividends, and imposing a 10 percent holding tax on interest income and dividends from fixed deposits.
Legislative issue?
Some observers also questioned the passing of multiple money Bills in a single legislative session and providing lengthy six-month implementation window for the recently adopted tax Bills, including GST. “I didn’t hear or know that there is a constitutional limit on the number of money Bills that can be introduced and approved in a single session,” one observer said, questioning how the government will ensure compliance with these limits.
However, an economist expressed his concern that the six month approval and implementation window is too long, potentially leading to capital blockage and higher funding costs. He warned that tobacco importers might exploit the delay to stockpile and profit, risking a resurgence of black market activities reminiscent of pre-Covid-19 times.
Bhutan could be the first country to allow such an extended delay for tax implementation, raising questions about the practicality and risks involved.
According to former MPs, the money Bill is, in principle, effective from the day of introduction of the Bill. The members of the National Council also questioned the legality of the GST’s commencement date in accordance with Section 46B of the Public Finance Act 2012. This Section states, “The imposition or increase of any tax or abolition, reduction or remission of any existing tax once passed as law by Parliament, shall be applied retroactively from the date it was initially tabled in the National Assembly.”
They argued that the Bill, once passed, should be effective from the day the finance minister introduced it in the National Assembly.
The Finance Minister clarified that he is unaware of any constitutional limit on the number of such Bills that can be introduced or approved at once. He said that the finance minister can introduce a number of money Bills in any single session.
Market manipulation risks
Announcing tax changes well in advance but delaying their implementation creates opportunities for market manipulation and arbitrage. For example, some fear hoarding commodities or structure transactions to capitalise on the delayed enforcement, leading to market distortions. “Governments must balance predictability to allow businesses to adjust while preventing exploitation by those who front-run the changes,” one observer said.
Lyonpo Lekey Dorji said that all three Bills have a special commencement date of January 1, 2026. “The Ministry of Finance will do whatever we can do to help mitigate the impacts of the deferred implementation date,” he said.“The ministry has strategies to counter hoarding and will coordinate with other law enforcement agencies to combat black market activities.”
One observer pointed out that the session appeared to be productive on paper, but there was a real need for deeper economic debate, especially given the fiscal reforms the ministry is introducing. “It’s easy to get carried away by symbolic victories and lose sight of practical consequences,” he said.
He summed up, “Only time and diligent implementation will reveal whether these reforms will deliver the intended benefits or pose unforeseen challenges”.
Meanwhile, a number of other key Bills, including the Alternative Dispute Resolution (Amendment) Bill, the Livestock Bill, and the Cooperatives and Farmers Groups Bill, were either deferred or referred to committees for further reading in the next session.