Survey shows mixed impact of GST on prices of 45 essential items

2026-03-16 - 11:05

One of the big discussion points has been the impact of the 5 percent Goods and Services Tax (GST) on essential goods. While GST was expected to increase prices in food items like vegetables, fruits, beef, cereals (minus rice), flour, it was supposed to bring down prices in items like pork, chicken, Amul cheese, noodles, biscuits, yogurt, juices, etc. The Competition and Consumer Affairs Authority (CCAA) did an analysis of retail price changes across 45 essential commodities in 16 locations following Bhutan’s GST implementation in January 2026. The study compared December 2025 (pre-GST) baseline prices with February 2026 (post-GST) prices to assess consumer impact and identified areas requiring policy intervention. The 45 essential commodities were within the categories of rice, pork, chicken, instant noodles, dairy products, eggs, milk powder, fish, beef, lentils, flour, oil, sugar, salt, coffee and tea. While there was no change in the tax rate of rice, GST reduced the tax from 20 percent to 5 percent for pork, chicken and instant noodles which is a 15 percent reduction. GST reduced tax from 10 percent to 5 percent for dairy products and eggs while GST increased the tax for milk powder, fish, beef, lentils, flour, oil (minus sunflower and mustard) and sugar from 0 to 5 percent. There was no change in tax for salt, coffee and tea. By common logic, the prices should have moved up and down as per the tax reductions and increases above, however, there was a more complicated picture that emerged from the survey. CCAA found that the prices of 22 items (48.9 percent) increased, while prices of 21 items (46.7 percent) decreased, and 2 remained unchanged. “This distribution indicates the GST implementation did not cause a uniform inflationary shock. However, this macro-level balance conceals significant sector-specific and regional disparities that require immediate policy attention,” said CCAA. The survey found that prices of items like local eggs went up by 8.8 percent despite the 5 percent GST reduction but this was linked more to a domestic supply issue. Despite being exempted the price of Raj Bhog Kumar Rice (25 kg) went up by 6.9 percent due to market factors. Shudh Refined Oil (3.75L) saw a 14 percent price rise exceeding the 5 percent GST rise possibly due to a market issue. Imported frozen chicken saw a 2.2 percent price rise despite the 15 percent GST reduction due to supply chain costs outweighing GST reduction. SK Gold rice saw a 6.8 percent price reduction due to competition. Amul butter saw a 3.2 percent reduction as benefit was passed on to the customer and sugar showed a 5.5 percent price increase, showing the GST being passed on to the consumer. The beef price came down by 5.5 percent despite the 5 percent GST increase as seasonal supply offset the new tax. Catla Fish similarly declined 2.9 percent despite the new 5 percent GST, while Ruhi Fish increased 2.0 percent, approximating the expected tax impact. One of the key concerns is that despite 15-percentage-point tax reductions on pork, chicken, and noodles, consumer prices fell by only around 1 percent. CCAA said tax savings appear to have been retained by supply chain intermediaries rather than being passed to consumers in these cases. The milk powder tax is 5 percent and prices have gone up by 5.8 percent to 7.9 percent. CCAA said contributing factors to poor pass-through include rising input costs (feed, fuel, labour), market concentration allowing businesses to retain savings, price stickiness and residual pre-GST inventory at higher prices. Critically, Shudh Refined Oil’s 14 percent price increase significantly exceeded the 5 percent tax introduction, suggesting a possible market power issue warranting further investigation. Sugar (+5.5 percent) and Ruhi Fish (+2.0 percent) represent examples of near-full and proportionate pass-through respectively, confirming the mechanism functions in competitive segments. Urban centers (Thimphu, Phuentsholing, Paro) demonstrated greater price stability due to superior market infrastructure, competition and logistics. Remote dzongkhags exhibited extreme price volatility, reflecting pre-existing supply chain vulnerabilities that GST implementation has exposed and potentially amplified. CCAA comparing the price of eggs (reduced GST by 5 percent) found it stable in Thimphu and Paro with 5.8 percent and 4.1 percent increase, but with a 14.1 percent increase in Haa, 59.6 percent surge in Tsirang and 77.6 percent surge in Zhemgang. Trashiyangtse saw a 27.8 percent drop while Pemagatshel saw a 9 percent drop. The variation in egg prices across dzongkhags confirmed widening regional price dispersion. Extreme fluctuations in Zhemgang, Tsirang, and Trashiyangtse revealed structural vulnerabilities in remote market supply chains. Beyond eggs, other commodities in remote dzongkhags showed similarly higher movements. Zhemgang saw Everyday Milk Powder rise 61.3 percent and Raj Bhog Kumar Rice increase 24.5 percent; Trashiyangtse recorded SK Gold Rice declining 17.5 percent and beef with bone falling 30.0 percent; Pema Gatshel experienced flour product decreases of around 22 percent and SK Gold Rice declining 19 percent – both signs of market dysfunction rather than healthy price adjustment. CCAA said that Bhutan’s GST implementation avoided a severe inflationary shock and successfully streamlined the tax structure. The nearly balanced share of price increases (48.9 percent) and decreases (46.7 percent) confirm this. In competitive, well-supplied markets, such as in sugar and Ruhi Fish, tax changes were passed through to consumers proportionately. However, the CCA study also showed two failures. One is that tax benefits are not reaching consumers, despite substantial tax reductions on key commodities (pork, chicken, noodles), prices fell by only around 1 percent or less indicating benefits have not fully been transferred to final consumers. Shudh Refined Oil rose 14.0 percent against a 5-point tax introduction, suggesting other bigger factors. Second is that remote communities are impacted more than urban areas. Urban-rural price disparities widened post-GST, with some remote dzongkhags experiencing extreme price surges. CCAA said that without government intervention through market investigations, competition enforcement, supply chain investment and revised monitoring mechanisms, the structural benefits of GST reform risk being captured by intermediaries rather than delivered to consumers. Early and targeted action will be decisive in determining whether this tax reform fulfils its public interest objectives. The CCAA has come up with six recommendations. One is to establish monthly Market Price Information (MPI) reporting for all GST-impacted commodities. Investigate areas of substantial price increases (e.g eggs in Zhemgang and Tsirang, and cooking oils). Second is to commission market investigations in pork, chicken, and noodles sectors to assess market concentration and whether anticompetitive pricing is occurring. Third is to reduce regulatory barriers to market entry, mandate price transparency and enforce penalties for anti-competitive practices under the Competition Act. Fourth is to prioritise transport, cold chain storage, and logistics in remote dzongkhags to reduce urban-rural price disparities. Fifth is to strengthen livestock and poultry production in underserved regions to reduce import dependence and supply volatility. The final recommendation is to re-evaluate rates based on empirical evidence, consider targeted adjustments where policy objectives (consumer benefit) are demonstrably not met. The limitations of the study are price comparison of only December 2025 and February 2026, only 1.5 months elapsed between baseline and post-GST measurement, and so price adjustments may still be in progress, non-GST factors such as changes in source prices, labour and transport may have contributed to observed price changes. CCAA said the findings should be treated as early indicators only, as structural conclusions must await sustained price monitoring over a full seasonal cycle.