Poor compliance affecting VAT
KATHMANDU, NOV 17 -
The Value Added Tax ( VAT ) system has failed to emerge as viable alternative for tax collection even 15 years after its implementation. The VAT system was introduced on November 16, 1997, by scrapping four types of taxes — sales tax, contract tax, hotel tax and entertainment tax.
As Nepal is obligated to lower the customs duty as per its commitment to the World Trade Organisation, VAT , income tax and excise duty were supposed to fill the void left by the decreased share of customs duty in revenue collection.
The government is particularly worried about disappointing levels of VAT collection when it has been prioritised as the main source of revenue collection. “The contribution of VAT to the total revenue has come down to 32 percent in the last fiscal year 2012-13 compared to 33 percent in fiscal year 2003-04,” said Finance Secretary Shanta Raj Subedi, addressing the Second National Tax Day programme held at Inland Revenue Department (IRD) on Saturday.
Underscoring traders’ unwillingness to issue VAT bills for the purchase of goods to customers, Subedi said low VAT compliance was the main reason behind low VAT collection. “Traders do not issue VAT bills due to the practice of under-invoicing during customs clearance,” he said.
Nepal is supposed to lower its customs duty at the range of 5-10 percent on an average by 2015. Subedi said despite registering in VAT and income tax, only a few firms and individuals submit details about their transactions and income, and pay tax.
According to the Inland Revenue Department (IRD), 21.5 percent of those registered in VAT didn’t submit the details of transactions in the last fiscal year, while 55 percent of those registered under the income tax didn’t produce the details. “Despite bringing an increased number of taxpayers into the tax net, we are struggling to ensure they submit their tax details,” he said.
Talking about the recent registration of over 200 brick factories in VAT , Subedi said those failing to register will be taken action. He asked the business community to cooperate with the government to take action against them. A total of 417 brick factories have registered under the VAT so far, while the total number of brick factories in the country is more than 800.
IRD Director General Tankamani Sharma said VAT has not emerged as the main revenue contributor as expected due to compliance issues. “There are problems in implementing VAT , which is evident with the fact that the country witnessed a huge fake VAT bill scandal,” he said.
Nepal Rastra Bank Governor Yubaraj Khatiwada said non-tax collection has been weak and only the collection based on imports would not help make the country rich. “We cannot increase revenue in the long run without higher contribution of non-tax,” he said. Non-tax includes income such as dividend and royalty. He said the government and the central bank were ready to help taxpayers to enhance their capacity to pay more tax by adopting necessary fiscal and monetary policies.
Addressing the programme, Finance Minister Shankar Prasad Koirala said the government has initiated the process of forming the Revenue Review Commission. He said the current government focused on expanding the tax net and reforming the tax regime instead of imposing new taxes.
“The new elected government will decide on new taxes,” he said, adding the state could not be sterner towards taxpayers to collect more tax due to current political transition period.
Nepal Telecom, Rana largest tax payers
Government-run Nepal Telecom has topped the chart of largest taxpayers in both income and value added taxes in fiscal year 2011-12.
Siddhartha Sumsher Rana, chairman of Sipradi Trading emerged as the largest individual income tax payer in the year. Sipradi is the sole authorised distributor of Tata Motors for Nepal.
The Inland Revenue Department (IRD) on Saturday facilitated them on the occasion of the Second National Tax Day.
In the category of public enterprises, Agriculture Development Bank Limited was facilitated for paying the largest income tax, while Everest Bank got recognition for paying the largest amount of income tax under the banks and financial institutions category.
Uniliver Nepal was the largest income taxpayers from among the industrial sector, while Surya Nepal was facilitated for paying the highest excise duty in fiscal year 2011-12.
IRD facilitated Ganapati Box Industry and Mahalaxmi Jewelry House for paying tax continuously. Nepal Gas Seller Association, Tobacco Producers’ Association, Construction Material Trade Federation, Nepal Brick Producers’ Federation and Consumer Welfare Protection Forum were facilitated for helping increase tax compliance in the country.
Source: The Kathmandu Post
