In light of the recent Voluntary Declaration of Income Scheme and the cash crunch the government is facing, we spoke with BHOJ RAJ GHIMIRE, Joint Secretary of the Revenue Division of the Finance Ministry, about tax evasion and reforms to the collection system.

Nepali Times: How does revenue collection look this fiscal year?
Bhoj Raj Ghimire: Despite a healthy growth rate of over 19 percent at end of the first three months (mid-July through mid-October), if the trend of the first six months (until January) continues, overall revenue performance will be well below the projections made at the beginning of this fiscal year. This unsatisfactory performance has been attributed to many factors-the global recession after 11 September, the deteriorating law and order situation in the country, and the subsequent slowdown in the economy.

How about after collections from the Voluntary Disclosure of Income Scheme?
We have not fixed any separate collection target under the VDIS. But collection has been about Rs 440 million-that is the income tax collected on previously undeclared wealth or income amounting to about Rs 44 billion. This has brought 2,200 more taxpayers in the tax net and created increased awareness among taxpayers. The scheme was primarily put in place to supplement normal revenue collection efforts, so no substantial changes are expected in overall revenue performance, even after the sizeable collection of revenue under the VDIS.

However, upon the request of the business community, civil society and others, His Majesty's Government has extended the due date for payment of taxes on undeclared wealth under this scheme by one month. From the beginning of Falgun [mid-February], the Department of Inland Revenue, based on information it has, will initiate the necessary legal action against those who, despite accumulating wealth or income, have not paid taxes.

The VDIS has been criticised on the grounds that the same 20,000 taxpayers are harassed every year. Why did that happen?
I would like to make it clear that this scheme does not target any individual, group or community and is basically intended to provide a one-time amnesty to all those who have accumulated wealth or income without paying tax on it, either fully or partially. This scheme shall not affect regular and honest taxpayers, but it will not spare the dishonest. The information booklets put out by the Inland Revenue Department and the advertisement campaigns launched by us leave no room for doubt as to the scope of the VDIS.

Does your list of suspects include politicians, who are said to be the richest people in this country?
The list prepared by the tax administration includes all kinds of people, and we have no intention of sparing any group of people or community. Tax administration, on the basis of information gathered from various sources, has identified potential tax evaders of all kinds and is fully committed to initiating necessary legal action if the identified evaders don't pay their taxes within the stipulated time using the opportunity they have been offered.

How bad is tax evasion in Nepal?
Frankly speaking, there is no tax culture in Nepal, in fact, it is almost cultural to avoid taxes, wherever and whenever possible. If one talks of income tax alone, no one willingly wants to pay tax on whatever they have earned and pocketed. Similarly, if one analyses the volume of business in the country vis-?-vis the revenue generated through VAT, one can easily assess the extent of tax evasion in the country. In addition, the lavish lifestyles of people, the high rise buildings and expensive vehicles we see in the capital, how some children go to the most expensive schools, the widespread use of mobile phones-all this gives some indication about potential taxpayers who are not yet in the net.

Individual taxpayers still fear harassment at the tax offices. What is the government doing to allay that fear and encourage people to file income tax returns?
Substantial reforms have been made in tax administration in the past decade, which have resulted in the procedures being simplified and also ensured a high level of transparency in tax administration. The introduction of an account-based self-assessment system for income tax has further guaranteed that the process of filing returns is simplified. The tax administration has clearly defined the taxpayers' rights and educated taxpayers about them, and shown its commitments to fully honour them. The nine-point code of conduct directing the behaviour of tax officials has also been implemented. The Central Monitoring Unit at the Ministry of Finance responds quickly to protect taxpayers from any instance of harassment. All these measures have positively contributed to reducing the harassment faced by taxpayers at tax offices. But more reforms are needed in the tax system, and equally important are changes in the attitude of both tax officials and taxpayers. Only that can help to develop a foolproof system.

There have been a number of positive experiences from around the world with regard to contracting revenue collection to entities outside the civil service. Would this be a consideration in Nepal?
There are some instances where revenue estimation- and collection-related functions have been contractd out from the designated revenue authorities. One of the success stories is Singapore, where the government sets annual revenue collection targets in consultation with the revenue authority headed by the Finance Ministry and the latter is responsible for collections. Despite significant reforms in the past, our tax system has not given high yields. Our present priority should be to build up our existing system with reforms-quick changes don't always pay off. So, it may be too early to think about contracting out tax collection.