Trade deficit down but government struggles to meet revenue target

Published On: January 2, 2020 09:45 AM NPT By: Republica  | @RepublicaNepal

KATHMANDU, Jan 2: The government's efforts to narrow down trade deficit have yielded some positive results. However, it has hit the target of import tax collection, putting the government authority in pressure to manage financial resources from alternative sectors.

Of late, the government has adopted the policy of reducing import with trade deficit widening at an alarming rate. As a result, trade deficit in the first five months of the current fiscal year widened by 6.3% to Rs 533.64 billion, shows data of the Department of Customs.

Since the beginning of the current fiscal year, exports have grown at a healthy rate while imports have gone down, albeit nominally. Over the period, country's total export jumped by around 27% to Rs 47.61 billion, while imports fell by 4% to Rs 581.25 billion. 

With the decline in imports, the country's revenue collection from imported goods shrank by Rs 6 billion between mid-July and mid-December in the current fiscal year. The department's record shows that the government collected import taxes worth Rs 150.81 billion down from Rs 156.33 billion during the same period last year.

The government has set a target of collecting 45% of the total targeted tax revenue through tariff on imported goods. In the first five months, customs offices collected only 34% of the government annual target to collect Rs 447.59 billion from import tariffs. Out of the total import taxes, the government has targeted to collect Rs 196.62 billion in value added tax, Rs 187.30 billion in customs duty and Rs 63.67 billion in excise duty imposed on the imported goods. 

The statistics of the Financial Comptroller General Office (FCGO) also shows that the overall tax collection as of December stood at mere 31.24% of the targeted tax revenue of more than Rs 1 trillion.

The government has targeted to switch to domestic economic activities from external sector to maintain its tax collection for this year. As one of the measures, the government has tightened bank credit for import of luxury items including automobiles. 

Through the budget for the current fiscal year, the government stated that it would streamline tax administration and act tough against tax evaders to increase tax collection from internal sources.

Dirgha Raj Mainali, director general of the Department of Revenue Investigation, claimed that the government would be able to meet its target for this year as the tax authority has come up aggressively to check revenue leakages. 

If revenue collection remains dismal, the government will be forced to take domestic loans as early as possible, which means that the government will face the burden of paying more interest. Experts have often criticized the government's tendency to set over-ambitious targets for revenue, despite failing to meet targets in the last fiscal year too.

In FY2018/19, the government had set revenue collection target at Rs 945 billion which was later revised to Rs 860 billion. However, the government even missed the revised target by almost Rs 25 billion, as per the report of FCGO.


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