Federalism should not mean more taxes!

July 26, 2018 02:00 AM Republica


The new federal government hiked tax rates on several consumer goods through the budget. Similarly, provincial and local governments are also doing the same, overcharging citizens on even basic services like birth registration. The changes in tax rates are primarily to meet ballooning government expenses as the country entered into more costly federal set up. However, the people are yet to feel decent services from public offices. Without sustained economic growth, people’s capacity to pay tax will erode. For now, the federal government is focused on meeting its projected revenue collection target. However, expediting development works seem to have taken back seat for now. 

Despite the lofty promise of ‘Prosperous Nepal and Happy Nepali’, the tax collection targets and its composition paint a different picture. The additional taxation of 13 percent on the internet services is one of the few impacts that people have come to realize of the new tax regime. Boosting production in order to become self-reliant in sugar, cement and iron bar, wood are welcome steps. Aspiring to be self-dependent on agricultural products, spurring economic activities through massive domestic investments and encouraging foreign investments were some of the bold announcements of the new budget. But the government’s revenue collection is driven by consumption-based imported goods, a big structural issue with our economy. However, the revenue collection target, which is 34 percent more from Rs 731 billion of the last fiscal year, is nowhere linked to our economic activities. The set target of revenue collection for the current fiscal year is mostly based on the growth of imports and related tax. The budget does not have a set target of collecting revenue from big, game changing products or industries based on local production. With the exception of few reforms in tax code, including integrated property tax and progressive taxation policy on income tax collection, other taxation policy may not mean much to our economy. 

New challenges in taxation have emerged among federal, provincial and local governments. The fiscal commission is still working out the details as to the allocation of percentages of collected tax to three different levels of government. Some of the provincial and local governments were instructed by the federal finance ministry to not levy additional taxes. When Birgunj metropolis imposed taxes to gas tankers for using their roads, the federal finance ministry had to intervene. More of such issues will arise. However, the people should not be overburdened with taxes. The people should not feel that the federal set up meant more taxes and very little service.

 

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