By Shanker Man Singh
If we want to give an insight into the problems of Nepal’s tax system, it is an integrated form of tax policy, tax law, tax administration and tax structure.
Nepal’s tax policy is not stable and predictable; tax law is not simple and transparent and fully complied with, tax administration not being responsible, accountable, transparent, modern, taxpayer-friendly and high morale, bodies related to tax administration such as lack sufficient coordination between customs, internal revenue and revenue investigation office, control of tax evasion is not effective.
In addition, the open border between Nepal and India cannot be managed, so revenue leakage continues to increase, revenue is based on import trade, the share of direct tax in revenue is low, value added tax cannot be fully implemented up to the retail level, taxpayers cannot develop the tendency to pay tax easily. , Consumers are not able to be taxed literate and aware, tax audit and research work is not objective, not being able to guarantee the correct utilization of revenue, etc. are the main ones.
The tax problem of Nepal, if we look at it from the state’s point of view, last year became an extraordinary year. The “Income Tax to GDP Ratio” has also decreased compared to the previous period and the “Absolute Value of Income Tax” has also decreased.
“VAT to GDP ratio” has also declined compared to the past. The excise duty to GDP ratio has also decreased. The total revenue and GDP ratio has also decreased. The tax ratio has also decreased.
The non-tax revenue to GDP ratio has increased slightly. In addition to this, the government faced a big problem in revenue and it was natural for the government to be dissatisfied. There is no doubt that in order to collect more revenue by reforming the tax administration, the state should make policies such as increasing the scope of taxes and reducing the rates. In the recent report submitted by the High-Level Suggestion Committee on Tax System Reform, it is mentioned that revenue collection can be increased by increasing the scope of taxes and reducing tax exemptions. The government had mentioned in the budget of the current financial year that it would form a high-level committee to make suggestions for reforming the tax system.
Due to the decrease in the revenue collection capacity of the government, the economic growth is not expected and is shrinking, the report concludes.
The report also said that a separate agency is needed to look at the risk burden of taxes and changes are needed in the existing structure of the revenue tribunal.
Discounting is also one of the reasons for the lack of revenue growth in the last decade. “The policy of increasing the scope of taxes and reducing taxes, rather than exempting revenue, seems preferable,” said the report.
Taxes are the primary source of government revenue, critical for financing development projects. Under tax policy reform, efforts to reform tax policy to support investment and growth are mentioned.
In low tax yield accountability, challenges may include low tax yield accountability and productivity. Under a narrow tax base, the tax base can be narrow, limiting potential revenue collection.
Under policy reforms, there are opportunities to broaden and protect the tax base and harmonize tax laws. In addition, tax reforms on economic growth can potentially increase productivity and national income. High dependence on external resources such as aid and loans can be risky. In allocating resources, the tax system should avoid misallocation of resources and ensure equity. For a detailed analysis, it is necessary to consider the specific objectives, strategies and key performance indicators outlined in Nepal’s strategic plans for tax administration.
Although taxes are necessary for development, since Nepal is a welfare state, they must also be balanced with the need for economic growth and fairness.
The creation of a revenue board to prevent tax disputes is an area that has been suggested by the private sector in the past but has not been implemented.
The business world should unite for stability in taxes and effective tax policy, whoever can give speed to the economy can give it.
Since the professional world is divided, some believe that there is no stability in taxes. A group says that the customs duty on an item has to be increased. Another group says it should not be increased as it is our main raw material. There is no unanimity among the businessmen.
Recently, the government has urged foreigners to invest in Nepal by holding an investment conference. The need to reduce the rate of “Corporate Tax” is necessary and mandatory to send a good message.
Perhaps the finance minister has said that he will not change the tax rates to surprise. He says, ‘We will not change the tax rate to surprise. Industrialists have invested billions. We will not adopt a tax policy that sinks it. Revenue administration is of a specific type. Decisions are not made by looking at people, groups and households,” he said.
“Industry should be promoted and protected. Revenue must also be collected. Let’s balance it.’ He said that there is pressure from the traders to adopt the Goods and Services Tax (GST) system like India but he will not go for such a system.
India has gone to GST and there is pressure on us due to open borders. As the current tax system is scientific, the High-Level Tax Reform Commission has not been able to suggest the adoption of a tax system like India’s,” he said.
Looking at history in general, according to the concept of applying personal income tax at a progressive rate, under the first income tax introduced in the UK in 1799, the first slab of income was exempted from the tax on British pounds 60, and the income above that was taxed at a progressive rate of 0.1 (0.1) to 10 percent.
It seems to be worn. It is to be remembered here that like other taxes, income tax is also basically levied for revenue mobilization.
And this is the main tax. In addition, personal income tax is also imposed to reduce the unequal distribution of income in the society.
This results in personal income tax being levied at a progressive rate. Those with low income have to pay tax at a low rate and those with high income have to pay tax at a higher rate so that the unequal distribution of income in society has decreased, it is said that social justice and a progressive tax system have been implemented.
As mentioned in this, the first slab of non-taxable income in Nepal is around the non-taxable income of other countries except Afghanistan and Maldives among South Asian countries, while the statutory rate and average effective rate of personal income tax on income up to sixty thousand US dollars is the highest in Nepal.
The highest statutory marginal rate of personal income tax in Nepal is 39 percent while the effective rate is 32.93 percent. Both these rates are the highest in South Asia.
There is also a need for improvement in the corporate income tax rate structure in Nepal. At present, by unifying the different rates established for various sectors such as cooperatives, and social schools, a medium-level single rate or a small rate should be maintained for all types of income. If Nepal should amend the Income Tax Act and Tax Treaties to implement the appropriate provisions, no one would disagree. On the other hand, it seems that the private sector has asked the government to implement a competitive tax rate as the rampant smuggling in the border areas has caused a huge loss to the government’s revenue.
The government has emphasized the need to implement a progressive tax system due to the economic recession. It is said that such a tax system will stimulate demand and encourage economic activity.
Tax policies generally affect economic conditions. The private sector says, “Even though Nepal and India have open borders, there is a 30 to 40 percent difference in the prices of goods and services between the two neighbors.” “[Cross-border] smuggling is flourishing because of price differentials.”
They think that tax rates should be made competitive to control smuggling.
Why is the vehicle tax rate so high in Nepal? They are saying that the government has increased taxes to control traffic on the roads and this is the only solution.
That’s like saying that Americans are getting fatter and the government should double taxes on the price of food so that fewer people can afford it. If you look at most of the developed countries, they have never imposed 200% tax or excise duty on vehicle imports because they are aware that it is a stupid policy that will make their citizens suffer. These developed countries invested in road construction by collecting low import taxes and annual road taxes from the people. They succeed because of less corruption, better planning and leadership. If collecting more import tax would solve the problem of traffic congestion, Nepal would have solved it by now and other countries would have followed suit.
Unfortunately, it is getting worse. It is not only cars, motorcycles also have high import taxes. We are paying almost double the price for Indian motorbikes instead Nepalese could send their children to good schools, invest in land and save a lot of money. It should also be noted that all these public micro vans and buses that we travel daily were purchased at double the price, so we are paying higher travel charges to cover their cost.
Even our food and vegetables are being transported by these expensive vehicles, guess who pays the cost, we the consumers.
Imposing higher taxes on imported vehicles will have a negative impact on the overall economy. Nepal has this policy due to the lack of good leadership and planning in the government.
Who will pay for road maintenance if there is less petrol for cars? In the first instance, the government (local, state and federal) pays for road maintenance.
Ultimately, people pay for road maintenance through taxes and fees. In the current fiscal year 2080/81 in Nepal, the government increased the import tax on entry-level electric vehicles (EVs), but the tax increase did not affect imports.
Instead, compared to the previous year, the EV demand has increased significantly in the same range as the tax increase, according to the data of the customs department.
This year, the government arranged for a 10 percent customs duty on vehicles up to 50 kilowatts. Not before.
In the case of EVs from 50 to 100 kilowatts, the customs duty was increased from 10 percent to 15 percent.
In this range, the excise duty was fixed at 10 percent. Within these two ranges, there is more demand for EVs in Nepal.
According to the customs department, a total of 8,497 units of EVs (cars, jeeps, vans) have been imported till the end of Baisakh. Among them, there are 3,472 units in the range up to 50 kW and 4,896 units in the range from 51 to 100 kW.
This data confirms the attractiveness of low-end EVs amid the tax hike. According to the officials of the customs department, this year, if there were 9 and a half billion rupees in revenue from EVs, if there were the same number of petrol or diesel vehicles, the revenue could have been more than three times that.
In this way, the number of EVs that have come, the same number of vehicles running on petroleum products, and the average revenue of 35-36 billion can be raised, the officials of the customs department have announced.
Governments make decisions that are not always based on sound logic, so who knows how any shortfall in revenue will be compensated!
The views expressed in this article are the author’s own and do not necessarily reflect People’s Review’s editorial stance.
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