KATHMANDU, May 22: Experts have suggested the government to focus on diversifying tax bases from the upcoming budget along with maintaining good coordination between fiscal policy and monetary policy to take out the economy from ongoing problems.

Economists and traders have opined that the government should not rely more on the taxes on imported goods as its main revenue sources. According to them, high taxes on imports have led to an increase in illegal trading and have resulted in more revenue leakage.

Issuing a press release on Sunday, Nepal Foreign Trade Association (NFTA) stated that the government's excessive increase in import taxes every year has widened the gap in the market prices of goods in Nepali and Indian markets. “It has helped boost up the illegal imports while discouraging the entrepreneurs to continue their businesses inside the country,” reads the press statement.

The government has been reeling under the shortage of financial resources due to soaring government expenditure and slow revenue collection. With only two months left for the current fiscal year to end, the government has collected revenue of Rs 807 billion while the expenditure has hit Rs 1.068 trillion, according to records maintained by the Financial Comptroller General Office.

Most of the time, the government increases the taxes on imported goods like chocolates, snacks, alcohol, automobiles and cosmetic items, among others. The government accounts the tax collection on these goods as the main source of its revenue. The imbalance in the public finance has taken place mainly after the government imposed ten-month long restrictions on the imports of these luxury items last year.  

About half of the economic transactions of the country are informal in nature. If the government raises the tax rates further, it will just help increase the informal trading in the economy, according to the NFTA.

Economist Bishwambher Pyakurel said Nepali economy is hard hit by the factors like heavy depreciation of its currency against the US dollar, increased budget deficit and shrink in foreign assistance due to the global recession. He stressed on the need for setting a good coordination between the government and the central bank to solve the existing economic problem.

The cold relation between the government and Nepal Rastra Bank (NRB) took place last year when the then Finance Minister Janardan Sharma pressured NRB Governor Maha Prasad Adhikari to fulfill his vested interests. At present too, Finance Minister Prakash Sharan Mahat is said to have been pressurizing the NRB, just to reduce interest rates to achieve higher economic growth rate, ignoring the autonomy of the central bank to address problems related to the country’s monetary system.

Pyakurel said the country may fall into an economic crisis if the Ministry of Finance and the central bank move independently without maintaining collaboration. “Although the monetary policy does not fall under the annual budget, a good understanding with the central bank is essential.”  

Former Finance Minister Yuba Raj Khatiwada said the illegal trading which flourished during imports restriction has led to the pressure on the government’s revenue collection. “It has hit the revenue generation from customs duty, excise duty and income tax,” he said.   

According to Khatiwada, the performance of most of the macroeconomic indicators at present is pathetic. “The current recession is not a problem in itself, but it is creating a bigger threat to take the economy toward a severe crisis,” he added.   

 
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