A wide range of tax exemption and frequent change in tax rates may not help increase revenue collection: high level committee

KATHMANDU, April 2: Inappropriate taxation policies of the government along with an inconsistency in the tax rates have led to low revenue collection of the government.

A high level committee formed to study tax system reform has come up with this conclusion. After the government underwent a massive fall in the revenue collection since last year, it formed a high level committee six months ago to study the issues. The study report includes 140 points of recommendations.

A cabinet meeting on September 22, 2023 formed the four-member committee led by former finance secretary Bidyadhar Mallik. Former secretary of the government Laxman Aryal, Professor of the Central Department of Economics, TU, Ram Prasad Gyanwali and former administrator and customs expert Ram Prasad Dahal were the members of the committee.  

Almost every year, the government alters the tax rates being imposed under different headings. “The inconsistency in tax rates has helped produce many hassles in the growth of manufacturing and business sectors. Therefore the government needs to consider projection for at least the next 20 years while fixing the rate of taxes,” reads the report.

The committee has recommended the government to reduce tax rates and to expand the tax bases in order to raise its revenue collection. The committee that submitted its report to Finance Minister Barshaman Pun on Sunday also suggested the government to minimize the measures to waive taxes.

The committee has pointed out the fall in revenue collection to the ongoing economic slowdown in the country. Setting up a separate body to assess the risk weightage and restricting the existing Revenue Tribunal of the government are among the recommendations forwarded by the committee.  

The report noted that the taxation policy should be made effective, fair and investment-friendly for the overall growth of the economy. For this purpose, the government needs to form a separate revenue board and to consult the board on a regular basis while formulating new taxation policies. “The revenue mobilization should comply with the aims of new employment generation and strengthening of public finance,” the committee recommends.

The contractionary policies adopted by the government in the past few years have resulted in the slow economic growth, low employment generation and poor performance of the government revenue mobilization. Likewise, the adverse effects in the supply chain resulting from the impacts of the COVID-19 followed by the commencement of the Russia-Ukraine war have imposed global impacts, while creating an instability in Nepali economy. The economic slowdown is a result of a fall in aggregate demand and lack of improvement in an investment-friendly environment, according to the committee report.    

 
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