The right priorities

Even if domestic revenue is inadequate, the government needs to pay for recurrent expenses, including salaries to its employees, at any cost. Also, the peoples’ demands for development cannot be ignored even at the time of revenue crunch, which means that the government is always in need of cash. In such times, the government normally goes for the option of raising funds through domestic and international borrowing. In short term, such loans work as a source of deficit financing, but if the borrowed fund cannot be utilized properly, the country might enter a debt trap.

Making Income Tax Top Contributor to National Revenue

It has been 57 years since Nepal started planned development. However , no development plan has been fully successful. It is primarily because development plans are formulated having no or Ltd domestic funding source. Records show that our development efforts are highly dependent on foreign aid. Very few development projects are planned and executed with domestic funds. As domestic revenue has been hardly sufficient to finance recurrent expenditures, government has only two options- either to plan development activities searching probability of funding from abroad or not to undertake development activities at all. As no government can choose the second option, making domestic economy highly dependent on foreign economy is the only way. 

Veiled threat : Analyzing Tax Revenue

Government reports show that the contribution of tax on total government revenue is increasing. In 2010/11 contribution of tax revenue on total government expenditure came to 67.1 percent (IRD, 2012). Tax revenue had 89 percent share in total domestic revenue in 2011/12. As a percentage of GDP, tax revenue reached 15.7 percent in F/Y 2011/12, from 11.1 percent in 2006/7. Also, the country’s domestic revenue mobilization capacity has increased. The government plans to mobilize of Rs 289 billion in domestic revenues for 2012/13 (MoF, 2013), about 80 percent of total estimated government expenditure (not adjusted with recent change). 

In dribs and drabs - Revenue Leakage

Anirudra Neupane
Tax is the public’s compulsory contribution to the government. Normally, businesspersons are supposed to be the main contributors of tax. But this does not hold true in Nepal, where income tax contributes only about 20 percent of the government’s total tax revenue. Recent reports show that indirect tax contributes more than 70 percent of the total tax revenue (73 percent as per the midterm review report of Ministry of Finance). VAT is the largest contributor of indirect tax, followed by custom and excise duties. Indirect taxes are paid by the ultimate consumers, i.e. the people, and businesspersons are just facilitators. They collect taxes from people, i.e. the consumers, and pay the same to the government. But whether businesspersons are performing their duties correctly is questionable.