Nepali Times
Economic Sense
Taxing issues


The new proposed Income Tax Act has been tabled in parliament. Lawmakers, unsurprisingly, are finding they must tax their brains to understand this new piece of legislation. The government calls it the most comprehensive such proposal it has designed, the business community simply calls it complex. And as everywhere, the taxman and the taxpayer are at loggerheads.

There has been much description of the features of the Act in the press, so your Beed thought it was time for a look at basics: what is the rationale behind the income tax? What kind of sense does it make in the Nepali context?

At issue is not really the statute, but the intentions of the people drafting it who know full well that the real value of such a law lies in its implementation. When discussions were going on about ceilings on wealth and land, the Beed had opined that if the existing tax laws were to be implemented correctly, they would constitute an automatic ceiling on wealth. The provisions of the law right now include penalising people whose assets are disproportionate to their wealth, but the government has never been able to implement it right.

Income tax in Nepal has been taxman's delight-as filling of personal coffers is encouraged over stuffing state coffers. Individuals and businesses that have been regular tax payers and adhering to transparency have never been rewarded. There is a surprise in the list of tax payers-many companies that run large ads are simply not on it. In fact, many Nepali humourists like to joke that law-abiding citizens are the ones who anger employees in taxation departments, since they don't contribute to the collectors personal kittys. No wonder then that jobs in tax departments are treated a as plum posts and the object of many political machinations. Or that there is a new profession in this country, that of "tax-pimp," a person who strikes deals between tax payers and collectors, whose mantra is: the more complicated the more diverse the avenues for graft. Until all this changes, no tax law in the nation can increase collections substantially.

The Beed must also laugh bitterly to note that most businesses in Nepal have turned the lax taxation mechanisms into a competitive advantage. Their profits do not come through operations, but more through "creative tax planning"-in a word, evasion. There is a strong lobby in the business community that does not want transparent laws for fear of becoming uncompetitive.

And finally, the makers of the statute need to be careful. After all, even four years after being passed, the problems with VAT laws have still not been ironed out. The arguments for and against are worthy of a seminar, but the basic question needs to be asked: can all such collections not be brought under the ambit of VAT? Do we really need to bother ourselves with Income Tax that contributes a mere two percent to our GDP and which costs the administration of the country who knows how much.

We must find alternative ways of ensuring revenues for the government, rather than continue providing additional income to the corrupt. The "experts" we have working on statutes must understand what works in Nepal and what does not is debatable. So, a word from this Beed to the wise: The laws you make are for Nepalis, so make sure the vehicles you design to take Nepal forward are built for the road.

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(11 JAN 2013 - 17 JAN 2013)