Now every Nepali home-not just the rural teacher, political party worker or police constable-will face the brunt of the Maoist insurgency. Last week, government raised customs duties and other charges to bolster the hard-hit economy.
The most straightforward part of the tax deal is the one rupee surcharge on petroleum products, which will send prices shooting up across the board-even though the Nepal Oil Corporation has said it will absorb the added burden and keep present prices. This new fiscal measure, combined with the central bank's decision to loosen monetary policy some weeks ago, virtually guarantees severe inflation. The average National Urban Consumer Price Index was 2.8 percent in end-October, within the budgetary projection of 5 percent for this fiscal year.
The government, which decided against other possible cost-cutting measures such as trimming the cabinet, says the new taxes are temporary and will be reviewed after the current situation improves. When exactly that is, no one is saying. Government hopes to raise Rs 1.5-2 million through the following new taxes announced on 16 January:
There is a new surcharge of Rs 1 per litre on petrol, diesel and kerosene.
Phone bills will be higher because the telecommunications service charge has gone up to 15 percent from the earlier 10 percent, payable over the regular 10 percent Value Added Tax.
Excise on tobacco and alcohol products was raised by an average of 5 percent and a charge will be levied even on aerated drinks and bottled water.
Motor vehicles have been charged an additional 10 percent over the already high import duties. The duty on an imported passenger car would now be 140 percent.
A new 1 percent security surcharge has been added on all goods in the 5 percent customs duty bracket, goods that already attracted a 1 percent surcharge are now required to pay 3 percent.
The charge for "agriculture improvements" has been raised from 5 percent to 10 percent on rice imports.
Export service charges have been raised on some major Nepali exports to India (possibly as a bargaining chip in the trade treaty negotiations)-the new charge on hydrogenated vegetable oil is 10 percent, up from 5 percent; cathodes, wire bundles, billet, wire, sheets and copper items and zinc oxide will now be charged 6 percent; and acrylic yarns, 2 percent.
Inflation is not the only fallout of the new taxes-as prices rise and people buy less, the incentive for industry to produce more falls rapidly, and Nepal could see a long period of minimal growth. That means a deep recession.