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Risks And Rewards!
The government is confident that its decision to reduce tariff will lead to rich dividends in the form of better VAT collection and
By SANJAYA DHAKAL
When he unveiled the new budget ordinance on Saturday (January 14) in front of select audience at the hall of Ministry of Finance, the confident-looking Minister of State for Finance Dr. Roop Jyoti announced substantial reduction in the custom tariffs of over 130 import products.
Such a move for a country so heavily dependent on the custom revenue for its income and at a time when its economy is reeling under recession due to non-economic factors, could only have been called as an unwarranted risk.
However, Dr. Jyoti seems confident – perhaps a bit too much – that his decision would not result in decrease of revenue. The Finance Ministry estimates that the reduction in tariffs could result in loss of Rs 1.3 billion of custom collection in one year. This, however, will be offset by the decrease in smuggling, practices of under-invoicing and spur the compliance of VAT at retail level, the Ministry said. “This decision will not decrease revenue. Rather, the VAT collection will increase by 10 percent,” Dr. Jyoti claimed.
Even though it is pretty evident that the government considers VAT as the mainstay of its taxation system, conversely, some of the provisions in the ordinance raise doubts – like the scrapping of VAT on foreign employment agencies and rather imposing excise duty on them as well as scrapping of VAT on many other sectors.
The ordinance has cut down custom tariff rates of more than 130 import products – which has brought down the average custom tariff to 8 percent. Tariffs of raw materials have also been reduced in order to help the domestic industries.
Dr. Jyoti has also adjusted the duty imposed on petroleum products. Custom on petrol has been increased by Rs 4 per liter – but this would not affect the retail price, Dr. Jyoti said. The increment of custom tariff on aviation fuel and kerosene will not be enforced until further notice, the ordinance states.
Custom tariff on products like electrical and electronic appliances, bags, clothes, computer and parts, cellular mobile sets, watches, television etc have been decreased. In pharmaceuticals and foreign employment agencies, VAT has been replaced by imposition of excise.
Traders and businessmen have expressed happiness over the ordinance unveiled by businessman-turned-minister Dr. Roop Jyoti. Institutions like Nepal Chamber of Commerce (NCC), Nepal Overseas Traders Association and Nepal Trans Himalaya Traders Association have welcomed the ordinance. Entrepreneurs and industrialists, however, have given mixed responses.
Surendra Bir Malakar, acting president of NCC, said the ordinance would promote industries and trade expansion. Akhil Kumar Chapagain, president of Overseas Traders Association, said the ordinance would promote clean trade and make VAT effective. On the other hand, Kush Kumar Joshi, vice president of Federation of Nepalese Chamber of Commerce and Industry (FNCCI), said that the ordinance would help in increasing imports.
The Confederation of Nepalese Industries (CNI), however, has criticized the new ordinance saying that it only focused on reducing custom tariffs. It complains that the government did not pay heed to their advices for maintaining at least 20 percent difference in the tariff imposed between finished goods and raw materials. Tariff for many goods that are manufactured in Nepal has been reduced by 5 to 35 percent whereas the tariff for their raw materials has not been reduced in corresponding proportion, the CNI said. “This will erode our competitive capacity,” the CNI stated.
The CNI further added that by giving unlimited discretionary authority to custom official, chances for corruption have increased. It said such authority leads to weaker enforcement of VAT as well. It has, however, welcomed the decision to reduce tariff rate to 1 percent to import generators with capacity of more than 10 kw – at a time when Nepal Electricity Authority (NEA) has imposed load shedding.
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