Presenting a study report to Minister of Finance Ram Sharan Mahat on Friday, Laxmal Aryal, coordinator of the committee, said that the government should slash corporate tax in coming three to four years to develop Nepal's taxation system in line with the international taxation structure.The government currently levies 25 percent corporate income tax. The committee has, however, advised the government to increase income tax of individuals while decreasing corporate income tax. The government levies 15 to 35 percent of income tax on individual depending on their income.
"If the government wants to develop income tax as the main source of revenue, it should decrease corporate tax rate and increase individual income tax," added Aryal.
While customs duty was the major source of revenue for long, income tax has become the major contributor to revenue in recent years. Value Added Tax (VAT) is the second largest contributor, while customs duty is the third largest contributor.
Ministry of Finance had formed the advisory committee to provide it suggestions on changes that could be made in the revenue system. The committee also had representation from the private sector.
Aryal, who is also the chief of Revenue Management Division at the Ministry of Finance, said that though the country's revenue administration structure was not bad, there is a need to make some changes. "Though revenue collection is increasing with every passing year, the government should use all its means to control revenue leakage," he added.
According to Aryal, the main problem in the revenue system was the gap between taxation policy and its compliance. "Hundreds of thousands of people, who have good income, are still out of tax net. Though the government has been introducing programs to widen its tax net, it has not been effective," he added.
He also said under-invoicing at customs office was another big problem in revenue administration.
Stating that the report was prepared by holding consultation meetings with various stakeholders at Mahendranagar, Pokhara and Kathmandu, he claimed that the country will achieve higher economic growth if the government implements the report.
Receiving the report, Minister Mahat said suggestions made by the committee have already been discussed. "The system to allow individuals, institutions and entrepreneurs to make voluntary announcement of tax will also help to contain revenue leakage," Minister Mahat said.
Revenue Secretary Nawaraj Adhikari expressed commitment to include suggestions of the committee in the upcoming budget. "Though the committee also had representation from the private sector, this is the report of the finance ministry. Suggestions of the committee will not be taken for granted," he added.
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