Nepali Times Asian Paints
Economic Sense
Taxation blues


Avoluntary tax scheme is one that is very difficult to implement for the government for the simple reason that people resist paying their taxes as much as possible even when they accept the government's need to extract as much as possible to pay for public services. If a tax was something that people wanted to pay, then the tax havens of the world would not have flourished.

Historically taxation systems in Nepal are seen as feudal rulers trying to squeeze the last penny from citizens. Therefore, resistance has been always a way of responding to any tax proposals the government comes up with. Till the early nineties, the taxation policy was similar to that of India and it involved highly taxing those trying to make an honest living. On the contrary, governments in the UAE and Dubai reduced taxes close to nothing- thereby encouraging trade, commerce and industry.

Nepal's tax collection figures have been weird from inception. There is no co-relation between the value of assets and the taxes collected. The total income tax in 2007/08 of around Rs 15 billion equals the value of 2 hectres of prime land around Darbar Marg, considering land there costs Rs 20 million for about 100 square metres. Further, going by the last top tax payers records released for 2006/07, the top ten corporate houses including Nepal Telecom contributed more than one third of the total taxes collected. The government never seems to figure out where is the catch.

The tax collection machinery has never been viewed as something that really made money for the state or to invest in public services. At the beginning it was created to make money for the ruling classes or families and later on for the political class. The Nepali saying always went that 'kar ma basyo bhane ghar banincha ra bhansar ma basyo bhane sansar banincha' meaning that a job in the tax department gives you a house and working in customs gives you access to the world.

Experiences all over the world have shown that liberal tax policies bring about better revenues for the government. The Indian experience of self regulation for most of the tax processes ? which means practically no interface with humans when dealing with tax issues - has created an unprecedented increase in tax collection. What Nepal also requires is not an occasional knee jerk reaction like VDIS or having party cadres checking income reforms in the collection process.

For the business community also, there is lot more to do than to come up with impetuous protests. It needs to get together and demand a tax system that works. Like this Beed had suggested in an earlier column, perhaps, the large tax payers need to group together and really push for reforms not only of the tax laws but the entire gamut of reforms to encourage investment. The government must also treat people who actually pay them to run the country with respect and bring out real tangible schemes that encourage people to come out and pay taxes.

(11 JAN 2013 - 17 JAN 2013)