As almost all major business houses of Nepal feature in this list of VAT evaders, it has, on the one hand, raised questions about the integrity and ethical practices of Nepal´s business community, and on the other, it has also shed light on the entrenched business-bureaucracy-politics nexus since systemic tax evasion is not possible without the connivance or active involvement of either the bureaucrats or the politician or both.
Questions have also been raised about whether the authorities by releasing the names of the concerned business firms violated the tax payers´ right to confidentiality.
When stories about the pervasive practice of VAT evasion were first reported in the media a few months ago, it had immediately drawn the attention of parliament´s Public Accounts Committee, which had then sought details of the evasion, only to be promptly denied by the Ministry of Finance citing the government´s obligation to maintain the taxpayers’ right to confidentiality. It is important to make one distinction here: ´Tax evaders´ can´t demand the privileges meant for the ´tax payers´. If the information of the tax payers should be kept secret by the state, the tax evaders should actually be exposed to discourage widespread tax evasion.
It is in this spirit we welcome the directive issued by the National Information Commission (NIC) to the government to release the names of the firms involved in tax evasion. There, however, seems to be some flaws in the way the names were made public without giving due consideration to the status of the individual cases. For instance, some business firms were given clean-chit after investigations. Others are still under investigation. And yet others unhappy with the decision of the Inland Revenue Department filed a case at the Revenue Tribunal. So the names of those under investigation should have been removed from the list before it was made public.
The controversy about the release of the names of the firms notwithstanding, one thing remains absolutely true: Nepali businesses in general have a poor track record when it comes to paying taxes. Tax figures say it all: Total tax/GDP ratio -- i.e. tax volume in proportion to Gross Domestic Product -- in Nepal was just 12. 8 percent during the last fiscal year.
This tax/GDP ratio is very low when compared to developed countries -- the OECD average is 35 percent and even many developing countries have successfully raised their tax/GDP ratio to above 20 percent. We also have a very few tax payers -- only 440,000 Nepalis are in the tax net which means so many potential tax payers are still out of the purview of the state tax system. This needs to change.
If the rich don´t pay tax, it will eventually have implications on the poor because it impedes the state´s capacity to serve them. A large section of Nepalis living in poverty, and a weak state is ultimately against the interest of the businesses. We just hope that business community realizes this.
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