Nepal

Expand tax nets

Jan 8, 2018
After the country entered the federal structure – federal, provincial and local level – the federal government is under pressure to manage resources to meet recurrent and development expenditure. The recurrent expenses has ballooned beyond the revenue collected as the government has to spend a huge amount of money in developing infrastructure at local and provincial levels without which they cannot function properly. The gap between the revenue collection and government expenses is widening. Officials at the Financial Comptroller General Office have said that the federal government is under pressure to release the payments to the contractors for the works they have already completed and scheduled of releasing other payments have also been delayed due to low collection of revenue from different sources. The federal government’s main sources of revenue include Value Added Tax, excise duty, income from customs duty, corporate income tax and other income tax, also known as TDS (tax deducted from the source). As of now, the government has been able to collect only 37 percent or Rs 272.62 billion of the annual target when it has already been half way the fiscal. By this time, the government should have been able to collect almost 50 per cent of the target set by the government.
 
By this time, the government, however, has raised Rs 110 billion, or nearly 76 percent of the target, from internal borrowing within the six months of the fiscal. It should have been less than this as per the rule. The internal borrowing should not exceed the ceiling set by the Finance Ministry and Nepal Rastra Bank. If the government raises more money from domestic debt it indicates that the government’s financial health is under duress. However, it does not mean that the government is running out of fund. The budget it has released to the local level as per the rule has been stuck to the local reserve. The government came under pressure to manage the resources after it released Rs 150 billion to the local level in two tranches. But the local levels have not spent the budget released by the Finance Ministry as they have not built institutional mechanisms to spend the funds they have received. But the government cannot bring back the grants released to the local levels. The grants released to the local level will remain in their reserve even if they go unspent.
 
More than that, the government will also have to allocate Rs 7 billion to the seven provinces to set up offices and build infrastructure. As a large chunk of money is being sent to the lower levels, the federal government is also facing financial difficulty to arrange matching funds for foreign-aid funded projects which are underway. Domestic borrowing, foreign aid and loan and cash reserve of the previous fiscal are also the main income of the federal government. But these sources of income are not enough to meet even the recurrent expenses at all levels, let alone completing the ongoing development projects and the new ones in pipelines. The government has to expand tax nets to raise more revenue to make the federal structure functional and carry out development works at all levels.
 
The Himalayan Times, January 8, 2018

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