Registration as companies is expected to widen net
KATHMANDU, April 19: The public transport sector, which is controlled by profit-minded operators, are not yet in the tax net. They will come into the tax net if the government registers transport committees as announced.
Revenue from the public transport sector is very low because both passenger and goods vehicles are mostly owned by individuals but operate under committees, which enjoy the status of NGOs enjoying tax waiver.
Tuesday’s cabinet decision, however, made it mandatory to register the transport entrepreneur committees as companies. This means that this service sector will hereafter have to function as companies and pay income tax after submitting their income and expenditure statements to the Office of Company Registrar.
“The decision has brought all types of public vehicles and vehicles providing services on rent (all black number plates) into the tax net as they have to operate as companies instead of as non-profits,” said Yagya Dhungel, spokesperson of the Inland Revenue Department. The government has already announced it is to stop the registration or renewal of such committees.
Currently, the individuals owning such vehicles pay only a flat vehicle tax. Such tax is Rs 3,000 for trucks and buses, Rs 2,400 for cars, vans, jeeps and microbus, Rs 1,550 for all three wheelers and Rs 1,000 for tractors.
This rate is as per the Financial Act of 2015/16 and the law says they are free of any other tax. Such tax waiver has continued since decades.
“After paying this tax they can earn as much as they can tax free and this is happening probably only in Nepal,” said a tax official.
The government collected only Rs 8.79 billion from this tax in the last fiscal year and tax officials say the earnings generated from transport services will come into the tax net for the first time if registration is brought under company law. The income tax collected from the few bus service companies already in operation is very low because they started operating only recently and may have yet to break even, according to tax officials.
Transport entrepreneurs claim that the sector has invested Rs 1,000 billion. “This is estimated to be a lucrative sector as transport committees have operated as syndicates,” said a retired tax official.
The transport committees had barred the entry of new service operators on their routes and enjoyed the protection of bureaucrats and even political parties. They were even able to flout repeated verdicts from the Supreme Court to end their cartelling.
The employment in this sector is informal because the operators are not companies and employee turnover is high. It is also believed that conversion of the committees into companies will help to generate more employment and improve the transport service .