Govt not in a position to alter tax rates: FM Khanal

By A Staff Reporter,Kathmandu, Nov. 20: Finance Minister Rameshore Prasad Khanal has said that the government is not in a position to make changes in tax and tariff rates as it wouldn't be an appropriate move for the transitional election government. 

"The government might need to implement long-term initiatives to make effective reforms in the revenue but in absence of the legislative body, the current government is unable to take up such actions," he said at a public-private dialogue on 'Reform in Revenue System' organised by the Confederation of Nepalese Industries (C) in Kathmandu on Wednesday. 

The dialogue was focused on the Economic Reform Implementation Workplan 2025 as suggested by the High-Level Economic Reform Recommendation Commission (HLERC). 

According to FM Khanal, adjusting tax rates at this time could result in inviting opposition to the government moves which he didn't want. 

However, he said that the government is serious about reducing cost of doing business and promoting exports. He informed that the government is reviewing the provisions of full audits demanded from the private businesses as they tend to increase costs of doing business. 

"We are implementing IT-related reforms in revenue and facilitating various sectors. Such reforms are being undertaken to ensure that full audits are conducted only on a risk basis," he maintained. 

Stating that the government is aware of the contributions the private sector has made to the revenue and other sectors of the economy, FM Khanal said that a single business house has contributed 2.3 per cent to the total national revenue.

Nepal has highest revenue to Gross Domestic Product (GDP) ratio (18 per cent) in the South Asian region. 

Speaking at the programme, President of the CNI, expressed concerns over the poor implementations of the suggestions on issues related to the economy and governance reform made by various commissions and high-level committees formed in the past. 

He said that there are investable funs in banks and interest rates are in single digits but market demand has not increased while industries are operating at low capacity. "It is difficult to improve the situation unless investment can be increased. In our context, reform in the tax system is necessary to increase investment," he said while adding that not only domestic investors, but foreign investors also invest only after observing the stability of tax-related policies. 

Shesh Mani Dahal, chartered accountant and vice-chair of the Revenue Committee of the CNI, said that while the government said to implement the suggestions made by the HLERC, many of the provisions are yet to be implemented. 

The government formed the HLERC about one-and-a-half years ago which found that there were duplications in tax implementation across the different levels of governments, about 40 per cent of the economy is operating informally and there were multiple complexities in tax administration.

"Besides traditional taxes like income tax, customs duty, excise duty, and VAT, there is an imposition of various miscellaneous taxes," said Dahal while adding that there is a practice of delayed tax assessment, yet interest is charged from the beginning.

According to him, a high tax burden discourages economic activities and results in lower revenue mobilisation.

Dahal said that maintaining stable tax rates, except in cases of extreme necessity, would establish certainty for investment.

Participants of the dialogue demanded loosening the stress on income tax, provide tax holiday to businesses especially the manufacturing industries, and implement the recommendations of the HLERC.