Engage Taxpayers

In the last fiscal year, Nepal faced revenue deficit of Rs. 18 billion. It was the first time, the country’s spending surpassed its income, exposing the vulnerability of import-based economy. The government failed to meet revenue collection target owing to the restriction measures imposed on imports to boost foreign currency reserves. The government generates revenue through external and internal sources. It collects tax from the citizens to meet administrative, development and social expenditures. Taxation is the key to attain self-reliance and boost social sector performance. If the government raises tax from the large segment of population and spends it in prioritised areas in a transparent manner, it is very likely that the country experiences stability, good governance and desired level of prosperity.

The pandemic brought entire economy to its knees and the tax collection had also taken a dive. The post-pandemic recovery was slow as the country was grappling with the unintended political instability. The Inland Revenue Department (IRD) that is authorised to raise tax through the enforcement of tax policy and law aims to increase tax-to-GDP ratio to 18 per cent within five years. The IRD also targets to audit 100 per cent large taxpayers and 2 per cent other tax payers while keeping non-filer rate below 10 per cent in Value Added Tax (VAT) and 40 per cent in income tax, and lower compliance cost by 50 per cent. Attaining this goal appears to be an uphill task given the fact that the country’s 40 per cent economy is still out of tax net.  

This fiscal year the government targets to raise Rs. 1422 billion in revenue of which Rs. 1305 billion will be arranged from tax revenue including the customs duty and excise duty. This calls for effective implementation of tax laws and policies. The tax administration must be friendly with the taxpayers to bring more and more business enterprises within the tax net. On Tuesday, Finance Minister Dr. Prakash Sharan Mahat, while addressing a Management Seminar 2080 organised by the IRD, directed officials from 84 revenue offices across the country to be friendly with the taxpayers and provide fair treatment to even those who evade taxes.  According to him, it was not good to give exemption to those who did not come under the tax net by offering various excuses. Some individuals and firms want to pay more tax but are unwilling to pay VAT. 

It is necessary for the tax officials to find out as to why the many business people are reluctant to come under the VAT system. IRD should explore reasons behind the poor revenue generation when the GDP has increased. This contradiction can be overcome through the reforms in tax administration and by taking the private sector into confidence. It should implement policy to motivate taxpayers to clear the past tax dues, discourage non-filing and trace missing and leakage-prone areas. National economy is now on the right track, with sufficient liquidity in the banks and decline in interest rates. The government needs to protect domestic industry and promote import trade at the same time. This improved situation will enable the IRD to effectively implement its 5-year strategic plan and 3-year reform plan, thereby achieving its stated goals and generating funds for the government's health, education, social security and employment creation schemes.