Diversifying Government Revenue

Published On: January 30, 2023 10:35 AM NPT By: Republica  | @RepublicaNepal

The government of Nepal is facing a significant challenge in terms of revenue collection. According to recent figures, the total expenditure estimate for the current fiscal year stands at NPR 1,790 billion, of which NPR 1,180 billion is allocated for recurrent expenses and NPR 380 billion for capital expenses. As of Friday, the government’s expenditure was recorded at Rs 613.64 billion, while the total revenue collection was just Rs 507.52 billion. The shortfall of over Rs 100 billion is set to exert pressure on the government to manage the government’s day to day expenditure. This situation highlights the urgent need for the government to diversify its revenue sources in order to sustain economic growth and development. At present, the government's revenue collection is heavily dependent on taxes, which account for the majority of its income. However, this dependence on taxes has led to a narrow revenue base, leaving the government vulnerable to economic downturns and fluctuations in tax revenues.

One way to diversify government revenue is to tap into the potential of non-tax revenue sources. These include revenue from natural resources, such as minerals and hydroelectricity, as well as revenue from state-owned enterprises and public-private partnerships. By exploring these untapped revenue sources, the government can not only increase its income but also promote sustainable economic growth and development. The tax revenue collection will increase significantly if the government is able to ensure efficiency on collection of rental tax and minimize leakage in VAT collection. The informal economy in Nepal is a significant part of the country's economic activity, but it remains largely unregulated and untaxed. According to estimates, the informal economy accounts for up to 60% of Nepal's GDP and employs up to 80% of the country's workforce. However, due to the informal nature of these activities, the government is unable to collect taxes and revenue from this sector. This results in a significant loss of potential revenue for the government, which could be used to fund vital public services and infrastructure. To address this problem, the government of Nepal must take steps to regulate and formalize the informal economy. One way to do this is through the implementation of an easy process of registration and licensing schemes for informal businesses. This will enable the government to track and tax these businesses, increasing its revenue and also ensuring that these businesses are operating in compliance with legal and safety standards.

Another important aspect to consider is the need to minimize recurrent expenditure through enforcing fiscal discipline in the bureaucratic system. There are complaints that fiscal discipline has weakened further after the country embraced a federal system of government with a three-tier government in place. It may be recalled that various governments in the recent past formed experts’ panels to study measures to reduce recurrent expenditure. However, these reports have never seen the light of the day even as they make a number of practical recommendations to minimize recurrent expenditure. It is high time that the government took urgent action to diversify its revenue sources in order to sustain economic growth and development. By tapping into the potential of non-tax revenue sources, encouraging foreign investment and trade, and promoting tourism, the government can not only increase its income but also create jobs and improve the living standards of the country's citizens. The time for action is now and the government must take the lead in this effort.


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