Tax Waiver on the Import of Sponge Iron

FinMin Sharma under scanner over his decision to waive taxes on sponge iron

Published On: September 18, 2021 07:00 AM NPT By: Balkrishna Gyawali

Government officials say Minister Sharma could be involved in policy corruption to benefit a few iron factories

KATHMANDU, Sept 17: It is suspected that Finance Minister Janardan Sharma’s controversial decision  to provide a waiver on customs and excise duty on the import of sponge iron could be a case of policy corruption. Finance Minister Sharma has introduced this controversial decision through the substitution bill presented in parliament last week. 

Former Finance Minister Bishnu Poudel had brought the budget for the current fiscal year through an ordinance on May 29 and Poudel’s budget is being replaced by the Substitution Bill introduced by Minister Sharma in parliament amid protests by the main opposition party 

In the bill introduced to replace the budget introduced by Poudel through an ordinance, Finance Minister Sharma has reduced the customs tax and excise duty on imported sponge iron to zero. Sponge iron is a crucial raw material for iron bars.

Prior to the introduction of the substitution bill by Sharma, the customs tax on imported sponge iron was Rs 4.75 per kilogram. Also, an excise duty of Rs 1.65 per KG would be levied on the iron bars produced using such sponge iron. The new bill introduced by Sharma has removed both the sources of government revenue. 

On the other hand, the bill has increased the excise duty on billets, which too are used for the production of iron rods, to Rs 2.50 per KG. Earlier, the cost was Rs 1.65 per kilogram. Also, provisions have been made to collect the increased excise duty directly at the customs offices. 

The new provisions make iron rods manufactured using billets expensive by Rs 6 per kg, providing undue benefits to half a dozen iron rod manufacturers that use sponge iron to manufacture iron rods. This has given rise to a case of policy corruption by Finance Minister Sharma, officials at the finance ministry said, requesting not to be named.

There are a total of 30 iron rod manufacturing factories currently operational in the country. Although all of them produce rods, their processes for manufacturing are different. While two dozen factories import billets to manufacture iron rods in Nepal, the remaining half a dozen use sponge iron to manufacture iron rods. The iron rods manufactured using billets are considered superior in terms of quality and they are preferred while carrying out mega construction works.

There are fears that the controversial policy introduced by Finance Minister Sharma will disproportionately benefit six iron rod companies which import sponge iron to manufacture iron rods,  while forcing the remaining others to shut down their plants. Those who suspect policy corruption on the part of Minister Sharma believe that the provisions are being replaced for the personal gains of Minister Sharma.

Manufacturers meet PM

Billet rod manufacturers have already held a meeting with Prime Minister Sher Bahadur Deuba and senior leaders of the ruling parties to apprise them of this policy corruption. Sources said Prime Minister Deuba and other leaders have given them their word to look into the matter. 

According to a senior official at the Ministry of Finance, the issues of tax waivers would arise in the past as well, but none of the Finance Ministers had dared to do that. “No finance minister dares to take a decision to reduce taxes in haste,” said a senior official at the finance ministry, asking not to be named. “The decision is likely to court a huge controversy if proper explanation is not furnished,” he said.  

The exact amount of the revenue that the government will have to lose because of these new provisions on the import of sponge iron cannot be ascertained at the moment. It is also not sure how the companies which have received the tax waiver in the import of raw materials will increase their production and how the other companies will be able to continue with their production. 

Officials claimed that the current volatile political situation of the country could have emboldened Minister Sharma to take such a controversial decision. Furthermore, no proper deliberations on the provisions made in the new budget is likely in parliament due to the ongoing obstruction made by the main opposition party, the CPN-UML.

According to him, the decision is ironic in itself as the government is currently unable to provide tax exemptions on vital medicines, crop seeds, fertilizers. In a situation where one sick person has to pay taxes for a regular health checkup, the tax exemption on a particular kind of iron rods doesn't look justifiable from any angle. 

Besides the tax waiver on the import of sponge iron, there are other issues introduced in the substitution bill that are found to be equally controversial. In the bill, Finance Minister Sharma has made an arrangement to hand public construction works worth up to Rs 100 million to cooperatives and other labor groups. Officials said this provision is clearly intended to mobilize party cadres and benefit the party at the expense of the state coffers.  

In addition, Minister Sharma has increased the tax on scooters and motorcycles with over 125cc engine capacity. This has directly affected the working middle class people in the country. The new policy introduced by Minister Sharma in the substitution bill has made it harder for people to avoid the use of public vehicles due to the risk of COVID-19 and purchase a two-wheeler for their personal use.


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