DRC charges GST for insurance and transportation costs of goods

2026-01-26 - 05:50

Before the introduction of the Goods and Services Tax (GST), under the earlier tax regime, importers paid Bhutan Sales Tax (BST) based only on the value of goods at the point of entry into the country. However, under the GST system, importers are now finding that the 5% GST is being calculated not only on the value of the goods, but also on transportation and insurance costs. For example, if a person imported Nu 1 million (mn) worth of goods and the BST was 5% then the total tax payable was Nu 50,000. Under the new system, if you import Nu 1 mn worth of goods the GST of 5% will be levied not only on the Nu 1 mn but also on the transportation cost and insurance cost. If your import bill does not reflect the transportation and insurance cost separately then transport cost will be assumed at 20% of the value of the imported item which is Nu 200,000 and insurance cost at 1% which is Nu 10,000. This means the GST is no longer on just the 1 mn worth of goods but now on 1,210,000 which brings the GST to be paid to Nu 60,500 instead of the earlier Nu 50,000. A Department of Revenue and Customs official said the GST Act and rules has this provision. Just after GST came in, there was major confusion and issues at the import point mainly in Phuentsholing as importers faced a GST on their goods plus transport and insurance. It was snowballing into a major issue, especially since the majority of imports in Bhutan are from India where there is no concept of making such segregated bills and insurance is also not practiced much. The issue was put up to the DRC which has issued certain directions to deal with the matter. It said it will accept import bills where the cost break up is done of the imported item showing the cost of transport as being included. Another change is that since Indian imports normally do not come with insurance the 1% can be exempt from GST. The DRC’s measures will provide some relief, but it does not change the fact that it will mean a higher base for charging GST. The DRC’s measure to charge GST on the transportation and insurance costs too is new for Bhutan but it is common in the international taxation system. The issue is that it came as a surprise for importers and people who were not fully aware. In terms of financial impact, it may raise the GST on certain items but at the same time since 1,900 items had BST at 10% and above the GST on these items even with the higher base will be lower. The cost impact will be seen on the 2,252 zero rated BST items that now bear 5% GST and 1,709 items that has 5% BST but now as a 5% GST calculated on a higher base with transportation and insurance included. Importers who want to avoid a higher base tax may even end up telling the exporters in India to show the transportation price as a part of the imported goods price.