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Budget: No more than traditional

By Our Reporter
Finance Minister Dr. Yuba Raj Khatiwada Tuesday unveiled the Federal Budget of Rs. 1,315 billion, focusing on  basic and modern physical infrastructure such as road, railways, irrigation and electricity projects, employment generation, reconstruction of the structures damaged in the 2015 earthquake, good governance and investment in agriculture, water resources and tourism, for the coming fiscal year 2018/19.
However, Finance Minister presented smaller budget than assumed by the authorities at the ministries. The budget is just Rs. 36 billion higher than the current year’s.  The Finance Ministry and the media had speculated that the budget would be higher than Rs. 1,500 billion.
Next year’s capital budget is lower than the current fiscal year. Dr.Khatiwadahas set aside Rs. 313.99 billion for development budget against current fiscal’s 335.27 billion.
However, more than 33 per cent budget, allocated to the provinces and local bodies as fiscal equalisation, conditional, matching and special grants, will push the size of development budget since the larger part of it goes for the local development and small infrastructure projects.
According to him, current expenditure comprises 64.3 per cent and financial management 11.8 per cent with Rs. 845.44 billion and Rs. 155.71 billion respectively. The share of capital expenditure is 23.9 per cent.
Dr.Khatiwada has planned to generate revenue of Rs. 831.3 billion, manage foreign grant Rs. 58.81 billion to manage the expenditures.
He said that the remaining Rs. 425 billion would be supplemented by Rs. 253 billion from foreign loans and the rest Rs. 172.7 billion from domestic borrowing.
Approximately Rs. 442.6 billion has been set aside for the provinces and local governments as the fiscal equalisation, conditional, matching and special grants, which is almost 34 per cent of the total budget.
All four types of grants are being executed for the first time after the implementation of federalism. Budget of the current fiscal has only mobilised unconditional and conditional grants while the next year’s budget has applied the four types of grants in a scientific way as recommended by the National Natural Resources and Fiscal Commission.
Similarly, the provinces and local bodies have received Rs. 63.1 billion and Rs. 109.8 billion conditional grant respectively. This amount should be spent the pre-defined programmes and projects, mostly in current expenditures.
The provinces and local bodies will get Rs. 114.2 billion as their share in the Value Added Tax (VAT) and excise duty of goods produced in the local bodies. It will be distributed on the basis of population, area, human development index, infrastructure development and resource requirement of the respective unit.
Likewise, Rs. 20 billion has been allocated as the special grant to the local bodies to support them in special projects.
Khatiwadaclaimed that the economy of the country would grow by 8 per cent in the next fiscal against 5.9 per cent this year.
According to him, the budget’s major objectives are alleviating poverty, rapid economic and human development and construction of economic, social and physical infrastructure, and create socialism-oriented economy.
The budget has programmes for entrepreneurship, industrial, educational and health development.
He has allocated Rs. 56.4 billion for health, Rs. 134.5 billion for Education, Science and Technology, Rs. 83.8 billion in energy,  Rs. 33.3 billion for Urban Development, Rs 151 billion in Reconstruction and 109.3 billion for transport Infrastructure.
The government has also made significant changes in the tax rates and tax base for the next fiscal year 2018/19 through a budgetary policy, with a target to collect revenue of Rs. 831.32 billion in the coming fiscal year.
The government has increased the excise duty on goods that are hazardous to health. They include alcohol, cigarettes and tobacco. The government has brought the import and production of all coca mixed chocolates, perfumes, dolls and refrigerators into the net of the excise duty.
Similarly, the excise duty being levied on cars with an engine capacity of more than 1000 cc and motorbikes of more than 150 cc has been increased effective from the next fiscal year.
The government has introduced a health risk tax on import and production of cigarettes at the rate of Rs. 0.25 per stick effective from Tuesday.
The government has removed the health and education service taxes being levied in the education and health sectors. Similarly, the VAT being charged on health services provided by the private hospitals has also been removed.
The government has offered exemption on the customs duty by 75 per cent and 100 per cent exemption of VAT and excise duty in the import of vehicles having a seating capacity 30 or more for the use of public schools.
The provision of providing VAT returns to the tax collectors collected from the customers directly has been removed.
The provision of providing VAT returns to importers of mobile phones while selling them to VAT-registered taxpayers has also been removed.
The progressive income tax rate has been revised to 10 per cent, 20 per cent and 30 per cent. Earlier, there was a dual tax rate of 15 per cent and 25 per cent.
The government has decided to charge 20 per cent additional income tax on taxable income of more than Rs. 2 million.
The ceiling capital gain tax in the real estate sector has been reduced to Rs. 1 million from the earlier Rs. 3 million.
Discount has been offered on dividend tax to the industries related to tourism and production sector if they reinvest their profit in their industry.
To promote domestic production, 50 per cent discount has been proposed in the income tax to those industries related to tea, garment and dairy sector.
For the promotion of micro-enterprises, five years and seven years’ income tax holiday has been offered to industries operated by male and female entrepreneurs respectively.
The government has offered 10 per cent discount on income tax for three years to private companies having a paid up capital of Rs. 500 million or more if they were converted into a public limited company.
Similarly, 20 per cent discount on the income tax rate has been offered to community hospitals. In addition, employees involved in the contribution-based pension scheme will get exemption on social security tax.
To control tax evasion and under billing, the government has made the tax administration stricter.
However, the lawmakers of the ruling party have objected to the budget stating that it would not achieve the target of prosperous Nepal.  But the independent observers and representatives of private sectors have hailed the budget as practical without having any ambitious plan.

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