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A few days later, Rameswor Prasad Khanal, a secretary at the Ministry of Finance, said that 40 per cent of the total national economy was "black". The Maoist-led government will have to learn that getting citizens to pay income tax isn't the same as extorting money from them. The response to the government's Voluntary Income Disclosure Scheme (VIDS) has been spectacularly lukewarm despite dire threats.
Taxmen are doing the rounds, trying to cajole regular taxpayers to save the scheme by paying token sums into the kitty. Most laughed it off. The government had planned to increase revenue by raising the capital gains tax from 10 to 15 per cent. It bombed badly: collection actually plunged by almost 21 per cent, mainly due to the tumble in the NEPSE Index.Overall revenue is still stable, but unless it improves, how will the government make do without foreign aid and loans? The repercussions of a steep fall in aggregate tax collections now stare us in the face due to the impact of the global recession on remittances.
It's easy to understand the anxiety of Finance Minister Baburam Bhattarai. Donors are liberal with promises but stringent about disbursal, and he has to find the cash to for his ambitious projects. The mid-hill East-West Highway, the Kathmandu-Tarai Fast Track Highway and railway can't be built by the YCDL.
Secretary Khanal knows more about how much black money there is floating around, but even that may be on the lower side. In the crony capitalism and vulture culture of commerce that Nepal has inherited from Rana-Shah
years, nobody considers paying taxes an essential value of citizenship.
Perfectly respectable people are heard asking: why should we pay taxes, what has this government done for us? Taxes aren't fees to be paid for services provided by the state but tributes to the treasury of the country that guarantees everything its citizens have. Ability to pay is the criteria of being a taxpayer, not benefits received from the state.
Tax evasion is an impediment to development. But somehow, dodging taxes is considered a lesser crime than bribery or embezzlement. That could be because there are highly paid professionals whose main job is to invent ways of escaping the tax net. Bhattarai will have to find ways to flush out chronic tax evaders first and then bring new taxpayers into the system.
Civil society too needs to help create public opinion in favour of better taxation. As it stands, highly respected professionals find it easier to pay ransom, contribute to YCDL extortion and bribe revenue officials than to file an income tax return. Part of the reason is ignorance. There is widespread perception that only businesses are required to pay taxes and noble professions?accountancy, consultancy, education, law or medicine for example?are somehow above the laws made for merchants.
Another cause is the provision that makes for tax deduction at source?it lets off big renters rather lightly. Let's say someone earns Rs 300,000 a year from house rent, another Rs 600,000 from an INGO as salary and Rs 600,000 from his car rented out to a donor-funded project. He may be bringing in some more by way of interests from his fix deposits in various banks. Everywhere, taxes are deducted at source and the person probably feels squeaky-clean. In aggregate, he has paid only half of what should have been paid in the form of income tax.
Another anomaly to address concerns with the very fundamentals of free-market fundamentalism where fraudsters go farthest in real life. But that's a bridge that will have to be crossed once basics of tax collection are in place.
Economist Gunnidhi Sharma, the new Vice Chairman of the National Planning Commission, has his work cut out from him: improve the system of taxation before planning anything else.
