01/06/2026
𝐇𝐞𝐫𝐞 𝐢𝐬 𝐭𝐡𝐞 𝐫𝐞𝐚𝐥 𝐩𝐫𝐨𝐛𝐥𝐞𝐦 𝐨𝐟 𝐆𝐒𝐓
GST was introduced in Bhutan as a good and modern tax system. It was supposed to make taxation simpler, fairer and more efficient. Many people were convinced that GST would reduce unnecessary exemptions and create a system where everyone is treated equally. However, the recent article by The Bhutabese newspaper on the Renewable Energy Tax Exemption Bill shows that GST already has serious weaknesses after implementation.
The article explains that the GST Act did not exempt renewable energy projects from indirect taxes such as GST, customs duty and excise duty on direct inputs used for construction, installation and establishment. Because of this, the Government is now proposing a separate Bill to exempt renewable energy projects from these taxes during the construction phase. The reason given is that GST will increase construction costs, which may lead to higher electricity tariffs and make Bhutanese power less competitive.
This reason may sound practical, but it raises a serious question of fairness. When exemptions for agriculture products, industry-related equipment and private sector inputs were discussed earlier, there were strong reservations. The argument was that too many exemptions would distort the GST system, reduce efficiency and weaken the purpose of GST. It was also said that even government agencies should not be spared easily because GST should apply broadly.
Now, the same ministry is proposing a tax exemption for renewable energy projects. This creates the impression that the rule is strict when the private sector asks for support, but flexible when large and powerful projects are affected. This is why many people say Bhutan sometimes has two laws: one for ordinary taxpayers and private businesses, and another for powerful institutions and national projects.
The main concern is not whether renewable energy is important. Renewable energy is very important for Bhutan. Hydropower and renewable energy projects bring investment, support exports, create revenue and contribute to national development. The real concern is whether GST is being applied consistently and fairly. If GST increases construction costs for power projects, then it also increases the cost of machinery, equipment, raw materials and production for the private sector.
A small manufacturer, a farmer, a local contractor, a cottage industry or an ordinary business also faces higher costs because of GST. Their products also become expensive. Their competitiveness is also affected. If higher cost and reduced competitiveness are accepted as reasons to exempt renewable energy projects, then the same logic should also apply to other productive sectors. Otherwise, the tax system becomes selective and unfair.
This is where GST can become distorted. GST is meant to be broad-based and neutral. It should not favour one sector over another unless there is a clear and transparent policy reason. Once selective exemptions are allowed, many sectors will start asking for similar treatment. Those with stronger influence and better access may get exemptions, while smaller businesses may be ignored. This will weaken public trust in the tax system.
The article also shows that the exemption is being proposed because investors had assumed that goods and services used for power project construction would be exempt from taxes. But tax laws should not be changed only because investors expected a different treatment. If there was an oversight in the law, it must be corrected carefully. However, the correction should not create a bigger problem by making the system unequal.
The argument that GST will increase tariff and make power less competitive is also too broad. The same argument can be made by many other sectors. If industries have to pay GST on equipment, their production cost will increase. If farmers have to pay GST on tools and machinery, their cost will increase. If private businesses pay GST on construction and inputs, their goods and services may become less competitive. Therefore, the principle must be applied equally, not only when large energy projects are involved.
This is why organisations such as the Bhutan Chamber of Commerce & Industries, should come forward and ask questions. Is the private sector not important for national growth? Are small and medium businesses not also contributing to employment, production, innovation and economic development? If tax exemption is justified for renewable energy because of cost and competitiveness, then the same concern should also be considered for other sectors that are equally important to Bhutan’s economy.
There is also a concern about who really benefits from this exemption. Large projects, powerful investors and government-linked entities may benefit from tax relief, while ordinary consumers and smaller businesses continue to bear the burden of GST. In the end, the poor and the less powerful may feel the pressure more. This is not healthy for a tax system that is supposed to be fair and trusted.
GST depends on public confidence. People will comply with tax laws when they believe the system is fair. But if they see that exemptions are denied to ordinary businesses in the name of efficiency and later granted to powerful sectors in the name of national interest, trust will slowly disappear. People will begin to feel that GST is not a fair system, but a system that changes depending on who is affected.
The Government must therefore be very careful. Supporting renewable energy is important, but the support should be transparent, consistent and based on clear principles. If the exemption is necessary, the Government should clearly explain why this sector deserves special treatment, how much revenue will be lost, who will benefit and whether similar treatment will be considered for other productive sectors.
GST should not become a system where ordinary taxpayers are told to follow the law strictly, while special exemptions are created for powerful projects when the cost becomes inconvenient. A good tax system must be fair not only in law, but also in the eyes of the people. The Renewable Energy Tax Exemption Bill may solve one problem for power projects, but it has also exposed a bigger weakness in Bhutan’s GST system. If this continues, GST will no longer look like a modern and fair tax system. It will look like a system where the rules are different for different people.
The Bhutanese
Kuensel
BBS
Prime Minister's Office - PMO, Bhutan
Bhutan Tendrel Party - BTP
National Assembly of Bhutan
Ministry of Finance, Royal Government of Bhutan
People's Democratic Party - PDP
Tshering Tobgay
The Opposition Party of Bhutan
