Weak rupee hurts revenue collection

KATHMANDU:

The performance of major contributors to the government’s revenue is lagging behind this fiscal year due to sharp depreciation of the Nepali rupee against the US dollar.

Collection of Value Added Tax (VAT), for instance, stood at Rs 16.05 billion in the first two months of the current fiscal year ended mid-September, as against the target of Rs 18.38 billion set for the period. Since VAT makes the largest contribution to the government’s revenue, its inability to meet the target is not being seen positively by government officials.

“VAT collection failed to meet the target set for the year, as over 65 per cent of the tax is raised through imports, while the rest is collected from other domestic sources,” joint secretary at the Ministry of Finance Rajan Khanal said. “Since imports are under pressure due to the fall in the value of the Nepali currency, the entire revenue collection has been affected.”

Nepali currency depreciated to as low as Rs 109.03 earlier this fiscal, making imports expensive for traders who have to purchase goods by paying US dollars. As a result, many traders postponed their plans to release goods from customs offices and waited for the currency to stabilise, as taxes are levied on the basis of the US dollar’s exchange rate on the day when goods are released, finance secretary Shanta Raj Subedi had earlier told The Himalayan Times in an interview.

The Finance Ministry report shows that the government collected VAT worth Rs 10.03 billion from imported goods in the first two months of the current fiscal as against the target of Rs 12.06 billion.

The depreciation of the currency not only affected VAT collection but customs duty collection as well, as the biggest source of this income is imported goods.

In the first two months of the current fiscal, the government collected Rs 9.68 billion in customs duty as against the target of Rs 10.70 billion set for the period.

In the same period last fiscal year, the government had collected Rs nine billion in customs duty. Considering annual average inflation of around nine per cent in the past 12 months, customs duty collection — which makes the second largest contribution to the government’s revenue — should have automatically gone up by around Rs 900 million. But since this did not happen, it could be said customs duty collection actually declined in real terms in the first two months of this fiscal.

The trend is the same with the collection of excise duty, which is largely dependent on imported goods. Excise duty collection in the first two months of the current fiscal stood at Rs 6.38 billion as against the target of Rs 6.67 billion.

As the performance of most of the major contributors to the government’s revenue was below par, the entire revenue collection suffered. In the first two months of the current fiscal, the government was able to collect revenue of Rs 45.36 billion as against the target of Rs 45.58 billion.

Source: THT