As Bhutan explores ways to expand its tax framework and boost revenue, questions are emerging about whether introducing a Goods and Services Tax (GST) could trigger inflation. To shed light on the issue, Business Bhutan spoke with Dr. Charan Singh, a leading expert in monetary policy, banking, and international trade, and Founder Director of the EGROW Foundation. Dr. Singh has previously served as Non-Executive Chairman of Punjab & Sind Bank and continues to teach courses on macroeconomics, monetary policy, and global finance at premier Indian institutes.

On the immediate concern of inflation, Dr. Singh notes that experience from India suggests that GST does not inherently drive prices up. “GST in India actually helped reduce inflation,” he explains. By consolidating multiple cascading taxes and eliminating local levies like octroi, the new tax system reduced transportation delays and costs, which in turn lowered the overall price burden. Additionally, rationalization of tax slabs meant that many commodities attracted lower tax rates than before, providing relief to consumers.

Dr. Singh adds that the GST Council, which includes representatives from both central and state governments, plays a key role in keeping rates balanced. “The rates are fixed thoughtfully, reflecting cooperative federalism. This dialogue ensures smooth implementation without shock to the market.” When GST was first implemented in India in 2017, there were minor price adjustments during the transition, but these did not translate into long-term inflationary pressures. By its design and objective, GST is expected to moderate inflation rather than exacerbate it.

However, Dr. Singh cautions that GST, like any indirect tax, can be regressive. Since it is levied on the price of goods or services regardless of a consumer’s income, it may impact consumption, employment, and economic growth, particularly among lower-income households. This means that while inflation may not rise broadly, weaker sections of society could feel a proportionally higher burden. To mitigate such risks, Dr. Singh recommends a simplified and tiered rate structure. Essential items like food could be exempt from GST, non-essential but necessary goods such as refrigerators and basic vehicles could attract nominal rates, luxury goods higher rates, and sin items such as alcohol, tobacco, and gambling the highest rates. “This approach protects consumption, discourages tax evasion, and maintains fairness,” he explains.

When asked about Bhutan’s economic model, Dr. Singh advises a balanced approach rather than emulating purely capitalist or socialist frameworks. “Given Bhutan’s geography, infrastructure, poverty levels, and sectoral composition, a mix is ideal. Private enterprise should be encouraged, but a supportive public sector— even if symbolic—remains crucial. India demonstrates how such a hybrid model can work, and even the U.S. showed during the 2008 financial crisis that public support can stabilize the economy.”

Dr. Singh concludes with a broader note on policymaking in uncertain times. “Every country has unique challenges shaped by its history. Policymakers must tread carefully, basing decisions on global best practices while contextualizing them locally—essentially, crossing rivers by feeling the pebbles under their feet.” For Bhutan, the lesson is clear: GST, if carefully designed and implemented, need not stoke inflation. Instead, it can become a tool to streamline taxation, boost revenue, and support sustainable growth, while keeping the welfare of the population at the forefront.

Source: BUSINESS BHUTAN, VOL 17, ISSUE 04 NU 20, JANUARY 24, 2026, Page 2