Even though tariff liberalization slashed the share of customs in total revenue intake and the government is yet to show a strong presence in VAT enforcement, application of excise duty to compensate for customs revenue loss and initiatives taken to check income tax evasion have resulted in revenue collection growth of more than two-fold over the last five years.
Ministry of Finance data shows that the share of customs duty in total revenue intake dropped to 19 percent in 2008/09 compared to 22.39 percent in 2004/05. The drop was recorded mainly because the government slashed tariff to an average of about 8 percent following implementation of regional and global trade accords.
Still, customs duty fetched Rs 26.64 billion in revenue in 2008/09, which was a 34 percent rise over the collection recorded the previous year.
As the government turned to excise duty to compensate for revenue loss resulting from tariff liberalization, the share of excise in revenue grew to 11.5 percent from 9 percent during the period.
The government in the past used excise duty as a tool for collecting more revenue from consumers who can afford luxury goods and for discouraging consumption of items hazardous to health or the environment.
"But its importance in revenue has grown lately. It is being used as a tool to compensate customs revenue loss”, said Shanta Bahadur Shrestha, director general of Inland Revenue Department (IRD).
Apart from imported items, the government has also started imposing excise on manufactures such as noodles, which have evolved as daily consumable items. Because of this expansion of base, excise duty generated Rs 16.29 billion for the national treasury in 2008/09, a 45 percent increment over the previous year´s collection.
VAT, the biggest revenue generator, contributed Rs 39.88 billion in revenue in 2008/09, commanding a 28 percent share in total revenue collection.
However, officials noted that under-invoicing and failure to issue bills continue to obstruct its effective implementation. For this reason its contribution has not grown to the extent desired.
For instance, revenue from VAT used to comprise 27 percent of total collection in 2004/05. Five years on, its share has grown by only one percentage point.
Despite the government´s vow to plug leakages, revenue collection from local manufacturing, trading and services has not improved significantly. And the government continues to get about two-thirds of VAT revenue from imports.
As the government tighten the grip on income tax evaders, the share of income tax in total revenue grew to more than 19 percent in 2008/09, compared to 15 percent in 2004/05. Ministry of Finance records show that income tax generated Rs 27.21 billion in 2008/09, which was a 42 percent rise over the previous year´s collection. Buoyed by increased consumption, revenue collection from vehicle tax and registration fees grew more than two-fold over the last five years and touched Rs 2.83 billion and Rs 6.14 billion respectively in 2008/09.
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