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Phuentsholing’s business face

Business in Phuentsholing is almost paralised while Jaigaon is thriving with millions of ngultrums pumped from Bhutanese customers every day.

Bhutanese think everything is cheaper across the border, but a Bhutan Observer study revealed that it is not always the case. Many goods, including electronic items, bought directly from factory, third country imports and branded Indian goods are cheaper in Phuentsholing. The price difference between other commodities is negligible.

Tashi Tshering, the Sales Manager of Tashi Commercial Corporation, said Bhutanese customers did not understand that they paid more in Jaigaon. While the Indian businesses have to pay 12.5 percent of VAT, excise duty and central or state sales tax, the Bhutanese counterparts pay only Bhutan sales tax (BST) for goods imported from India. BST for most of the items ranges from five to 50 percent. But for most of the consumable items, it is the maximum of 10 percent.

Moreover, tampering with original products, weighing machines, brand alteration and duplication, among others, are commonly practised across the border, said a Phuentsholing resident.

In Jaigaon, every item is priced high leaving a huge room for bargain. So even after a bargain, the price remains high but the Bhutanese feel they are smart to pay only 50 percent of the actual price.

Is declaring Phuentsholing BST-free a solution?

Talks about declaring Phuentsholing a BST-free zone have been going on for more than half a decade now.

The businesses in Phuentsholing have long wanted to be exempted from BST to be able to compete with the businesses across the border. They wanted the customs and excise department to put up a checkpoint at Rinchending to tax goods moving out of Phuentsholing.

Regarding the BST exemption, the Regional Director of Trade, Kinley Wangchuk, said it could help business prosper in Phuentsholing. He, however, added that the government should study its impact and implications on the economy.

Discussions on tax exemption are still going on. There are concerns that if there is tax exemption, the fronting will increase. But officials say if immigration rules are tightened, fronting could be easily contained.

The Regional Secretary of Bhutan Chamber of Commerce and Industry, Kesang Wangdi, said if the tax is exempted, business would thrive in Phuentsholing. “When the business is good, the profit margin is high and people pay more BIT,” he said, adding that there would be no negative implications on the government revenue.

Customs officials said price-wise or quality-wise, with or without tax, goods are cheaper in Phuentsholing. The only solution, they said, is to change the mindset of the Bhutanese.

Sources say many grocery items are smuggled back to India and sold with profit. Still the Bhutanese customers think that they are cheaper in Jaigaon. Many foreign goods imported by Indian business people in Phuentsholing are also said to be sold to business people in Jaigaon.

There are about 2628 business licences in Phuentsholing, out of which 179 are issued to Indian nationals.

Influx of business people

Customs people say that, if BST is exempted in Phuentsholing, there will be an influx of business people from other parts of the country as well as from India. This will necessitate some kind of tax to regulate consumerism.

Business people agree that there needs to be some form of regulation to check that the goods meant for Bhutan remain in Bhutan and do not go back to the Indian market.

Wangdi, an executive officer of a private firm, said, even if fronting happens because of BST exemption, business houses will be paying rents to the Bhutanese and BIT to the government. Thus, in the end, it is the Bhutanese who will benefit.

The traffic

A resident of Phuentsholing said the one-way traffic was to be partially blamed for poor business in Phuentsholing. Business people said anyone, who wanted to go to the heart of the town, was taken to the main gate. There are no other routes to enter main town except by taking a detour from the main gate. Most of the time, traffic is heavy so instead of turning right, one decides to cross the gate and buy things from Jaigaon.

A civil servant said the road near Namgayphodrang shopping complex should let the vehicles in. The exit point could be at the taxi parking area.

A bookstore owner said the lack of enough parking space and parking fee discouraged people to shop in Phuentsholing.

Fronting

Bhutanese business people say only those who have counterparts in India do well and admit that fronting is rampant in Phuentsholing. They acknowledge that Indians are better in business than Bhutanese.

According to trade officials, one way to catch fronting is through cash flow. But the business people outsmart them. X, a Bhutanese, obtains a trade licence and opens a bank account in his name. He employs Y, an Indian, as the manager and authorises him to carry out all cash transactions. Y runs the business and X gets his commission at the end of the month or year without doing anything.

Business people say that, if the government made it mandatory for business houses to employ only Bhutanese nationals, fronting could be curbed.

By Rabi C. Dahal

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