May 21, 2026
THIMPHU – Rising inflation and mixed market data have fueled a public debate just five months into the Goods and Services Tax (GST) regime, as consumers question whether the tax is delivering on its promised benefits.
Many consumers initially expected prices to fall because the 5 percent GST replaced the Bhutan Sales Tax, which ranged between zero and 100 percent.
However, inflation data since the January rollout indicates a steady upward trend in consumer prices.
According to the National Statistics Bureau, inflation stood at 3.99 percent in October last year, 3.55 percent in November, and 3.37 percent in December. This year, inflation rose to 5.75 percent in January, 5.61 percent in February, and 6.07 percent in March.
Food inflation reached 6.83 percent in March. Within this category, food and non-alcoholic beverages increased by 5.40 percent, while alcoholic beverages and betel nuts surged by 26.19 percent. Non-food inflation also climbed to 5.84 percent, with housing and utilities rising 11.94 percent, restaurants and hotels 9.63 percent, health 7.17 percent, and transport 3.93 percent.
GST Commissioner Kuenzang Thinley cautioned that the new tax cannot be viewed in isolation when assessing inflation trends.
“DRC alone cannot stabilise market prices. These are pure economic factors,” he said. “GST will have an impact on pricing, but not to the extent of causing hyperinflation.”
He added that Bhutan’s import dependency, particularly on India, continues to be a major driver of domestic price movements.
“It is impossible to attribute current inflation solely to GST, given the convergence of multiple economic factors,” he said.
According to Kuenzang Thinley, GST compliance closely relates to how coherent or distorted the tax structure remains.
“Compliance will become even harder when there is more distortion,” he said. “More costs and no incentive to comply mean people will find ways to evade taxes.”
Kuenzang Thinley added that while the government wants to simplify the tax system, doing so becomes harder with more distortions.
On May 18, Finance Minister Lekey Dorji introduced the GST (Amendment) Bill of Bhutan 2026 in the National Assembly. The minister proposed expanding GST exemptions on essential goods to ease the rising cost of living.
If passed, the amendment will increase the number of GST-exempt items under Schedule IV C from nine to 31, including 22 new items such as edible oils, rice varieties, and automated motorised wheelchairs.
The bill proposes exempting 19 categories of edible cooking oils, widely used across Bhutanese households, to directly reduce food expenses. It also includes two additional rice varieties.
According to the Department of Revenue and Customs (DRC), GST was originally designed to simplify the tax system and reduce compliance burdens by introducing a “clean” tax structure with minimal exemptions to avoid market distortions.
Of the 234 proposed exempted items, Parliament removed 225 during last summer’s session, leaving only rice, cooking oil, and salt under exemption.
“The understanding at that time was that even exemptions would eventually be phased out,” an official said. “Exemptions were never supposed to make goods cheaper.”
The DRC argues that exemptions do not necessarily reduce retail prices because businesses lose eligibility to claim input tax credits on costs such as transport, rent, electricity, and telecom services, costs that are ultimately passed on to consumers.
“Exemptions create distortions and complicate administration,” Kuenzang Thinley said. “If distortions keep getting reintroduced, it becomes as good as going back to GST with sales tax.”
Additionally, he said that exemptions increase administrative workload, may encourage tax evasion, and require frequent system reconfiguration for businesses and customs authorities.
According to the DRC, the department’s consultation and facilitation efforts had resulted in return filing rates crossing 80 to 85 percent monthly.
Lawmakers, however, argue that exemptions are necessary to protect consumers and ensure affordability of essential goods.
Member of Parliament (MP) for Gangzur-Minjey, Loday Tsheten, said that Parliament’s intention then was to reduce GST from seven to five percent while protecting basic necessities.
“Our understanding was that all kinds of rice, cooking oil, and edible salt would remain exempt,” he said.
MP Loday Tsheten added that implementation issues arose when only certain categories of oil were exempted. “This created the perception that we supported the rich and not the poor.”
He also criticised weak awareness campaigns and limited monitoring, which he said allowed price manipulation in the market.
He further said that some alcohol producers may have reduced alcohol content due to tax calculations based on percentage strength.
Lawmakers insist the amendments aim for fairness rather than expanding exemptions.
“We are not adding new categories, only making taxation uniform for the excempted categories,” MP Loday Tsheten said, while questioning whether GST benefits are reaching consumers.
“Consumers are paying more, but government revenue is not necessarily increasing. Businesses seem to be benefiting,” he added.
In addition, Loday Tsheten said that while the DRC had requested six months to clear old stockpiles, existing inventories should be exhausted since five months have already passed.
Mixed market data
A recent Quarterly Retail Price Analysis Report by the Competition and Consumer Affairs Authority found that price movements after GST implementation were uneven rather than broadly inflationary.
The report noted initial price increases in several categories in January, followed by partial stabilisation by March. Edible oils and eggs were exceptions, with continued price rises.
Regional disparities also remained significant, with southern border districts generally recording lower prices compared to higher prices in eastern and northern dzongkhags due to transport costs and limited competition.
“The data do not support a conclusion of sustained broad-based inflation attributable to GST reform,” the report stated.
Data from the Food Corporation of Bhutan showed mixed movements among essential commodities. Everyday Dairy Whitener (800g) decreased from Nu 420 to Nu 393, while Amul Butter (500g) remained unchanged.
In contrast, Fortune Refined Soya Oil (5L) rose from Nu 765 to Nu 819, and Safola Gold (5L) increased from Nu 1,121 to Nu 1,177. Everyday Salt 1kg also saw a marginal rise from Nu 9.71 to Nu 10.
An official from FCB said that retail prices are influenced by multiple factors beyond GST alone.
“The selling price is determined not just by GST but also by external factors from the sources. Fuel price plays a major role, as increasing transportation costs lead to higher commodity prices,” the official said.
Fuel prices rose sharply between March 1 and March 17 this year, increasing by a weighted average of 48.5 percent, driven largely by global supply concerns and ongoing geopolitical tensions.