On 1 January 2026, Bhutan replaced its fragmented sales tax system with a goods and services tax (GST): a 5 per cent invoice credit consumption tax, economically equivalent to a value added tax, with zero-rated exports and narrower exemptions than earlier proposals. The reform is intended to reduce tax cascading, broaden the domestic tax base, improve taxpayer service, and modernise tax administration to generate more reliable revenue.
Passing a GST law is only the first step. Businesses must register, issue compliant invoices, keep records, file returns, make payments, and substantiate input tax credit claims. The revenue administration must process payments, administer credits and refunds, resolve account problems, and manage compliance. This paper examines whether these elements can operate together in a small digitalising economy.
Bhutan provides a revealing setting. Its population of fewer than 800,000 is dispersed across steep mountains and deep valleys, and its economy is import-dependent and dominated by small firms. Border collection is therefore relatively effective, while nationwide taxpayer support, consistent regional delivery, and digital compliance are more demanding. The Department of Revenue and Customs (DRC) entered implementation with a functioning core digital tax administration platform: BITS-2 supported core functions, and early filing rates indicate that many registered taxpayers can use the system for routine compliance.
“Passing a GST law is only the first step.”
