KATHMANDU, Sept 12: The Ministry of Foreign Affairs (MoFA) is preparing to forward a proposal to the cabinet to provide tax exemption on 25 percent of the “foreign allowance” paid to the Nepali diplomats in the missions abroad, according to sources.
According to Income Tax Act 2058 BS, remuneration tax is not levied on 75 percent of the foreign allowance while the remaining is taxable. The new proposal means, the ministry wants to provide full tax exemption on the foreign allowance being paid to its staffers abroad.
MoFA has already sent a proposal to exempt taxes amounting to Rs 180 million to the Ministry of Finance for its consent, according to sources. This is an accumulated amount of tax various 37 diplomatic missions of Nepal owe to the government over the past 10 years.
However, finance ministry officials are holding discussions on whether to give consent to the MoFA proposal.
Officials said the cabinet is likely to approve the tax exemption request if the finance ministry gives its nod. Currently the sum, 180 million, has been mentioned as arrears in the report of the Office of the Auditor General.
Clause 119 of the Income Tax Act-2058 states: “In cases where any person does not pay tax on the prescribed due date for payment of tax, an interest by the normal rate of interest, for each month and portion of the month, in the amount due and payable shall be imposed on the person for the period during which tax is so due and payable.”
But MoFA is lobbying to avoid the payment of both the tax dues and the interest.
Advocate Kedar Karki argued that the government cannot provide such tax exemption on the foreign allowance of MoFA staffers in violation of the Income Tax Act.
He also argued that the cabinet is not above the law and has no authority to go against the law and that the amount must be recovered from the foreign ministry.
“It would be illegal and irresponsible thing to do. This will also be discriminatory against other tax payers,” he argued.
Some experts expressed concerns saying that any such waiver will set a bad precedent and discourage people to pay taxes.
A former finance secretary said it is unfortunate to see that those representing Nepal abroad in various capacities are involved in evading remuneration taxes.
“Should cabinet gave a nod to the request, this will prove that the government is indifferent toward ensuring the rule of law and fiscal discipline and its accountability toward the people,” said the former finance secretary, asking not to be named.
Another former finance secretary, Shanta Raj Subedi, said it is not only wrong, but also violation of existing tax-related laws to provide such a waiver. “This will not just go against the spirit of the tax laws but also encourage people to avoid paying taxes,” Subedi said.
PAC's directive “illegal”
It has been revealed that the parliamentary Public Accounts Committee (PAC) in an illegal manner had directed the government to provide the tax exemption requested by MoFA.
Earlier, a team of lawmakers representing the PAC had secured release of necessary budget from the Ministry of Finance at the request of MoFA to fund their visits to various Gulf and European countries. The five-member committee including its chairman Bharat Shah had returned home after over a week.
Although the team visited various embassies to inspect their condition, it has not yet submitted its report.
Many insiders allege that the parliamentary committee is already under the influence of MoFA and therefore issued the tax-exemption directive to the government. \\