Controversial amendment to Income Tax Act: Manipulation to legalize illegal property

Published On: September 19, 2021 05:36 PM NPT By: Dilip Poudel


KATHMANDU, Sept 19: The government, which is being criticized for its controversial decision to provide tax waivers to certain businesses, has made another controversial decision to amend the Income Tax Act so as not to seek the income source for investment. With the aim of legalizing the money earned illegally by high political leaders, businessmen and corrupt employees, the Income Tax Act is being amended by inserting the provision that 'the source of income will not be sought for investment'.

Finance Minister Janardan Sharma has amended the ‘Income Tax Act, 2002’ through the Financial Ordinance tabled in parliament. The ordinance states that the source of income will not be sought in the investments made in sectors other than tobacco and alcohol. The law is in the process of being amended so that no one has to disclose the source of his/her income while investing in industries with infrastructure except for certain industries.

The amendment to Section 11 of the Income Tax Act 2002, which was tabled in the House of Representatives, states that the source of income will not be sought for investments made till mid-April 2024 except for the sectors that deal with cigarettes, cigars, tobacco, betel leaf and spices. In the past too, the provision of not seeking sources of investment was brought several times.

In the budget of 2018, a provision was made not to seek the sources for investment. After widespread protests, it was soon removed by the finance ministry. Experts in the financial sector say that the provision of not seeking the income source in investment will pave the way for money laundering as it will provide legitimacy to illegally acquired properties in the country.

If the system of not seeking sources for investment is implemented, not only will the black money hidden in the country get legitimacy, but the country will be in trouble internationally. Nepal is affiliated with international organizations that discourage investment in money laundering and terrorist activities. Nepal is a member of the Financial Action Task Force (FATF) and the Asia Pacific Group (APG).

Under the leadership of both these organizations, work has been done to discourage money laundering and  sponsor terrorist activities around the world. Nepal is a member of these organizations. These memberships are not yet mature and are in the evaluation stage.

These organizations are accusing Nepal of failing to enact necessary laws to curb money laundering and investment in terrorist activities, and to take action against those who acquire illegal assets. There is a fear that if Nepal fails to do as they say, the membership will be revoked and the country will be blacklisted.


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