Third-country goods imported by Nepal via India are likely to become expensive following the implementation of Goods and Services Tax (GST) in the southern neighbour from Saturday.

India is all set to roll out GST from July 1. The impact of the indirect tax would be immediately seen in goods that Nepal imports from third countries, as transit service fees will go up once the new tax regime comes to force, according to officials. 

As per the bilateral Trade and Transit Treaty, ‘traffic in transit shall be exempt from customs duty and from all transit duties or other charges imposed in respect of transit’.  However, the treaty also says ‘there shall be reasonable charges for transportation and other services rendered for the supervision of such transit’.  

As GST is applicable in both goods and services, hike in taxes for railways, roads and waterways services would increase financial burden on traders bringing in third-country goods via India. If the issue is not urgently discussed with the Indian government, it will directly affect Nepali traders, according to officials.

Once the GST is implemented, India will start levying new tax rates on various kinds of services. This happened four months ago, when India imposed 4.5 service tax on goods brought from third countries. Later, India removed it upon Nepal’s request as it was against the provision of trade and transit treaty.

Officials at the Nepal Embassy in the Indian capital of New Delhi said these issues have been reported to the Indian side. In response, India has sought a detailed report on GST’s impact in Nepal. 

“Our main concern is related to transit. We have told the Indian side not to increase railway, roads and waterways service charges on goods bound for Nepal,” said Hari Odari, Spokesperson at the Nepali Embassy in Delhi. Nepal, according to Odari, is of the view that GST should not undermine the spirit of the Trade and Transit Treaty. 

Along with the transit sector, GST is also likely to affect both imports and exports of goods and services, officials said. However, studies have not been conducted to confirm this. 

The Nepali Embassy in India wrote letters to the Ministry of Finance, the Ministry of Commerce and the Ministry Foreign Affairs over two weeks ago requesting a study into impact of GST in Nepal. However, nothing has been done till date, sources told the Post.

“Concerned agencies are expected to act only after July 1, when GST’s impacts will be fully seen,” said another official of the Nepali Embassy on condition of anonymity. 

Officials say GST could affect Nepal’s exports of agro-based and textile products to India. “Once the GST is implemented, food grains and other items will be cheaper in India. This will erode competitiveness of Nepali goods sold in India,” said officials.

For example, sugar price will fall in India once GST is implemented. This is the same in the case of tea, onion and other agro products, as essential goods are kept at the lower end of the tax slab of 5 percent.

“However, we cannot resolve these issues through diplomatic channels. We have to align our policies accordingly or provide incentives to deal with these issues,” said a senior government official.