Tax exemptions not helping social‚ economic development'

KATHMANDU:

The government suffered a revenue loss of at least Rs 17.27 billion in the last fiscal year owing to tax exemptions and rebates. But this money could not be diverted towards social and economic sector development as anticipated by the government, says a latest report of the Ministry of Finance (MoF).

The revenue loss triggered by tax exemption went up by over 51.36 per cent in the last fiscal, as the government saw deficit of Rs 11.98 billion in customs duty collection alone, shows the report on Impact of Tax Revenue Exemption. Revenue loss of at least Rs 2.67 billion was booked due to implementation of the Clause 18 of the Financial Act and a deficit of another Rs 2.62 billion came from value added tax (VAT) exemption.

Every state suffers such revenue losses as they extend tax rebates and exempt taxpayers from certain duties. But such losses are deliberately borne in hope they aid the industrialisation process, create additional jobs, provide competitive edge to exporters in foreign markets and ultimately benefit society and the economy, and raise living standards of people.

India, for instance, lost IRs 5.736 trillion in tax exemption in the fiscal 2012-13, which was around 5.17 per cent of the gross domestic product (GDP), shows the report. In this regard, the revenue loss suffered by Nepal, as percentage of GDP, is negligible at around one per cent.

“Yet these tax exemptions have not helped in social and economic development of the country,” says the report.

One of the reasons for this, as mentioned in the report, is the provision in Financial Act that gives government the authority to create tax exemption policies.

“Since such policies do not need Parliament’s endorsement, there are high chances of the clause being exploited by the influential lot,” says the report prepared by a 10-member team headed by former joint secretary Bal Govinda Bista.

The report, which only includes impact of VAT rebate on ghee, cooking oil, sugar, flour and textile manufacturing companies, notes that tax exemptions provided to daily essential goods seem to have positive impact.

VAT rebate extended to ghee, cooking oil, sugar, flour and textile manufacturing companies has enabled these products to compete with those that are imported, says the report. Also, VAT rebate extended on imported mobile phones has curbed the practice of under-invoicing.

Apart from these observations, the report does not include much, but suggests the government, especially the MoF, to conduct a comprehensive study on whether the benefits of tax exemption are being shared by common people.

Highlights

• Govt suffered revenue loss of Rs 17.27bn last fiscal due to tax exemptions and rebates

• Revenue loss of at least Rs 2.67bn booked due to implementation of Clause 18 of Financial Act

• Deficit of another Rs 2.62bn came from VAT exemption

• Tax exemptions provided to daily essential goods seem to have positive impact

• VAT rebate on imported mobile phones has curbed practice of under-invoicing

• Suggests govt to conduct comprehensive study whether benefits of tax exemption are being shared by common people

Source: THT