January 12, 2026
THIMPHU – Consumers are facing short-term price increases as the country transitions to the Goods and Services Tax (GST) system, with the burden of double taxation embedded in the cost of pre-GST inventory still circulating in the market.
Wholesalers and retailers had purchased stocks before January 1, paying Bhutan Sales Tax (BST) under the previous regime. With the introduction of GST from January 1, the same goods are now taxed again at the point of sale.
As pre-GST stocks move through the supply chain, GST is charged again, resulting in an unintended dual tax burden embedded in final retail prices, particularly affecting daily consumable items.
GST is a consumption-based tax collected at the point of sale, meaning the tax burden falls on consumers. While the system is designed to streamline revenue administration, eliminate cascading taxes, and broaden the tax base, gaps in transitional implementation have led to short-term distortions in pricing.
The Department of Revenue and Customs (DRC) had earlier instructed businesses to maintain stock records for six months before GST implementation as part of preparatory measures. Despite this, transitional challenges remain.
The Commissioner of DRC’s Sales Tax Division, Sherub Chogyel, said that during the GST transition period, consumers will have to bear double taxation for a few months until pre-GST stocks are cleared.
He added that goods imported after January 1 may see price reductions, as GST is levied at 5 percent, compared to earlier BST rates that exceeded 5 percent on some items.
For example, mineral water, which previously attracted a 20 percent sales tax, is now taxed at 5 percent, and prices should ideally decline.
Under the earlier tax regime, milk powder was zero-rated for sales tax. With the introduction of the 5 percent GST, the price of milk powder will increase accordingly, subject to potential price increases by manufacturing companies.
“Gradually, the market will drive the prices,” said Commissioner Sherub Chogyel.
However, the DRC has decided not to grant tax adjustments to hardware shops that requested relief despite holding large volumes of pre-GST inventory.
The Commissioner said that since hardware stocks date back four to five years, it would be administratively difficult to provide such adjustments.
As a result, consumers will continue to face double taxation on certain hardware items until existing stocks are exhausted.
GST Project Manager Kuenzang Thinley said that most essential items were zero-rated under the sales tax regime and should not experience significant price hikes under GST.
Around 2,200 items are zero-rated and should remain unaffected by GST. Around 1,700 items are taxed at the same 5 percent rate, meaning prices may increase by at least 5 percent.
Meanwhile, nearly 1,600 items that were previously taxed above 10 percent should see price reductions, with benefits expected to pass on to consumers.
With the implementation of GST, prices for imported furniture are expected to decrease. Under the earlier tax regime, sales tax on furniture was 20 percent.
Similarly, the hotel and restaurant services sales tax is 10 percent and with GST 5 percent, the price for hotel and restaurant service price will reduce.
“Poor stock management by some shopkeepers has contributed to pricing issues during the transition period, leading to instances of double taxation,” said Kuenzang Thinley.
However, consumers and businesses say that while the GST policy design is sound, the lack of an adequate transitional framework has created immediate economic discomfort and confusion in the market.
The duration of this disruption will depend on the volume of pre-GST inventory in circulation. For some wholesalers and retailers, it may take several months to clear existing stock, resulting in uneven price instability across the market.
The transition has triggered a temporary but tangible inflationary pressure on household expenditure. However, DRC officials said that while inflation is expected during the transition period, GST will gradually help control it.
The main criticism of GST implementation is the absence of robust preparatory work and transitional provisions.
Many observers say that a reform of this scale requires clear operational guidelines, business-readiness assessments, public awareness campaigns, and technical groundwork well before implementation.
“Input tax rules for legacy stock, treatment of BST-paid goods, and inventory documentation mechanisms should have been clearly defined and communicated in advance,” said one observer. “Without transitional tax credits, price pass-through to consumers becomes inevitable.”
One possible policy option analysts suggest is to allow input tax credit on the BST already paid by wholesalers and importers before GST commencement. While administratively complex, such a measure would align with the core principles of GST, neutrality, and efficiency, and help stabilise retail prices.
In the long run, GST is expected to improve tax mobilisation, reduce distortions, and enhance fiscal transparency.
DRC officials also clarified that only GST-registered businesses are legally permitted to charge the 5 percent GST, while non-registered shops are not allowed to levy the tax.