Rise to the occasion

Never in the recent history of Nepal has there been greater need for national unity and unity of purpose. The stunning tragedy of the past few days has cast a shadow over the very future of this country as we know it. In the face of these developments, the troubles with which the public were preoccupied till only a few days ago, such as the deadlock between the ruling and opposition parties and even the Maoist insurgency, have clearly taken a back seat. Look at it this way. The House of Gorkha, the dynasty which founded modern Nepal and has become a symbol of national unity and integrity, has now been almost wiped out. In the absence of hard information on just what transpired that Friday evening at the palace, all manner of rumour are making the rounds. The new king has constituted a three member high level committee to bring out the true facts surrounding the tragedy. But matters have not been helped by the decision of the main opposition party leader, named to the committee, to withdraw his participation on a technicality. The subjects of rumour range from the fate of the country to poisoning of the water and milk supply. The situation in the capital and in the country at large, though under control, is still tense and could take a turn for the worse on pretty short notice.

Against this sombre background, the role played by the political parties has not exactly been impeccable. They have not been above trying to extract political mileage out the situation. Never since the restoration of multi-party democracy in 1990 has there been greater need for the political parties, as well as all their fraternal and tertiary organizations, to rise above party interests and work in the interest of the country. There are some within the political party spectrum who are not exactly considered to be dyed in the wool democrats. There are those whose nationalism is sometimes questioned. This is a good time for them to establish their democratic and nationalistic credentials beyond doubt by putting the national interest uppermost. The new monarch, His Majesty King Gyanendra Bir Bikram Shah Dev, has, in his very first public statement since ascending the throne, committed himself to multiparty democracy and constitutional monarchy. But this commitment by the monarch has to be matched by similar commitment from the political parties not only in words but in their political conduct in these trying times. And before the public can fully overcome its shell shock and the country can return to normal life in politics and in other ways, the mystery of the Friday evening tragedy has to be laid to rest. This is the first order of business now facing this nation and its rulers. This is where the political parties can start as they rise to the occasion and play the role that history expects of them. History will be a harsh judge if they fail the nation now.

WTO: Weighing pros and cons

Br Dr Hari Pokharel

History tells us that every nation has to pay the price for its follies. Britain paid the price for its appeasement of Nazi Germany. So did Germany and Japan for their military adventurism. The United States paid for Vietnam. The Russians are still paying for state control of the economy and trade. Nepal will not be an exception. For decades, it has rejected the application of market forces and followed a dualistic character for the economy. It insulated itself with import substitution policies. It resorted to state intervention in production and trade with all the attendant inefficiencies. It has visibly lagged behind almost all other Asian countries. Korea, Taiwan, Thailand and other countries, starting much later, managed to forge ahead magnificently with their more liberal market-friendly systems. These countries in east and southeast Asia regularly registered extraordinary rates of high growth year after year. Nepal, on the other hand, could only register such low rates that they were derisively called the Nepali rate of growth or the Hindu rate of growth. Nepal can no longer afford to resist market opening if it is to push ahead. It will have to remove inefficiencies. It will have to cut the flab in the system. It will have to welcome competition if it is to survive in today’s world.

Nepal can expect to have a say in how the global trading rules are shaped this century. Because decisions are taken on the basis of consensus, every government has a say in what happens in Geneva. Nepal can expect to defend its interests through a system of dispute resolution, which though beset by some problems, is uniquely effective in the world today. Nepal can be guaranteed the highest level of market access offered by 140 member governments. Non-members can be discriminated against, but those in the WTO, receive the most-favoured-nation status, which means that Nepali goods and services would not and could not be subject to discrimination. Nepal will also have access to technical assistance and training which are designed to enhance the government’s capacity to take advantage of its rights under the multilateral trading system.

Nepal has already witnessed the benefits of liberalization in both the manufacturing and financial sectors. In the mid-eighties there were just two commercial in Nepal, the state-owned Rastriya Banijya Bank and Nepal Bank Limited. Now there are eleven - mostly joint ventures with foreign banks. It is not only the number of banks which has increased, the quality of service has also improved. The ratio of savings to GDP rose from 12.8 in 1976-86 to 19.6 in 1995-6. There has also been a marked increase in domestic savings.

Without the WTO, trade really would be a case of survival of the fittest - the more vulnerable economies steamrolled by the bigger boys. Joining WTO will facilitate Nepal’s commitment to economic liberalization, which is fundamental for long-term economic development, poverty alleviation and improved living standards. To be left out in the cold would be a tragedy for the people of Nepal at this stage of its economic development.

After a series of internal discussions at various levels with people from public and private sector institutions concerned, His Majesty’s Government (HMG) has taken the decision for accession to the WTO. The government is aware of the fact that after entering the WTO it is necessary to make required changes or amendments to existing trade-related acts and rules. For that purpose necessary cooperation for technical assistance is being sought from the WTO, UNDP and other agencies.

HMG has established a special WTO division at the Ministry of Commerce and has submitted a proposal to the local UNDP office for its strengthening. This Division has various consultative committees which have representatives from private sector organizations as well as the ministries concerned.

Familiarity with the WTO framework is not sufficient, either in the government or the private sector. The technical assistance requirements with regard to our compliance with the WTO are expertise services on substantial and procedural aspects related to WTO, training to enhance human and institutional capacities in both government and the private sector, and national capacity build up.

Specific areas of the WTO agreement where technical assistance is need include agriculture, dispute settlement, textiles, multilateral trade negotiations, bilateral trade negotiations (in some cases) and competition policy. Programmes have to be launched to harness capacity and benefit from the WTO agreements.

Turing one’s back on the WTO is not the answer for a least developed and landlocked country with agriculture as the mainstay of the economy, contributing about 40 percent to GDP. The UNDP is currently assisting in preparatory work on a policy and legal framework for accession to the WTO.

There is an urgent need to build a national consensus for liberalization of the economy. While the Nepalese diplomatic mission in Geneva seems to have done an excellent job at the WTO, safeguarding national interests, often without instructions from Kathmandu, the buck stoppers at home have not been equally effective in public relations. The political bosses, either of the Nepali Congress or the Main Opposition CPN-UML, have rarely bothered to understand the intricacies or complexities of international trade negotiations. The bureaucrats, traditionally used to secrecy, have always held the cards close to the chest. Trade and industry were rarely taken into confidence. They seldom shared the implications of the various proposals under negotiation. Parliament and the people were generally kept in the dark about the progress of negotiations. They are not made parties to the dynamics and compulsions of the negotiations. The time has now come to break out of the cocoon and educate the people on the benefits of accession to the WTO, if any. Why should the narrow, selfish interests of a few take precedence over the public good of many? Why should the Nepalese people continue to be at the mercy of public monopolies and their pampered employees? Why should the Nepalese consumer be deprived of better products for the sake of ensuring abnormal profits for the local producer? The country needs to understand these questions.

The WTO agreement is different from many other international treaties in the accession procedure. There is no possibility for entering reservations, and the acceding nation is bound to accede to all the provisions of WTO agreements. When the whole WTO package is taken, the recipient nation or the acceding nation is required to bring her laws and regulations into conformity with the provisions of the WTO agreements. In Nepal, international agreements are implemented through the enactment of new legislation or through amendment to the existing laws. Also, following accession to the WTO a member state must very carefully monitor or observe whether or not the laws or rules made or decisions taken by her are compatible with WTO provisions. The member states are required to increase transparency in their trade-related activities. All trade related laws, regulations and judicial decisions must be published and made available to the interested parties. The other important stipulation of the WTO is that any national law of any country, which contradicts WTO rules, can be challenged by any member at the Dispute Settlement Body (DSB).

After reading the press and listening to the statements of various groups and political parties, one's impression is that there seems to be tremendous dissatisfaction with Nepal’s role in accession to the WTO. It has been repeatedly claimed that national interests are not being protected at the negotiations. The implementation of the results of this round would retard industrial growth, decimate small-scale industry, ruin the lives of artisans and choke the development of agriculture. It has also been argued that foreign imports and enterprises would come to dominate every aspect of economic life while the domestic sector would be left to face a slow and lingering death.

It has been suggested that Nepal’s accession to the WTO must be renegotiated and if satisfaction is not obtained, Nepal should withdraw from the WTO. Before examining the veracity of these statements, it is necessary to understand the role and purpose of the WTO. Nepal holds the view that LDCs should be allowed speedy accession to the WTO, special and differential treatment provisions should be implemented, and extension of the transitional period should be automatically granted to acceding LDCs.

It has been suggested that Nepal’s accession to the WTO must be renegotiated and if satisfaction is not obtained, Nepal should withdraw from the WTO. Before examining theveracity of these statements, it is necessary to understand the role and purpose of the WTO. Nepal holds the view that LDCs should be allowed speedy accession to the WTO, special and differential treatment provisions should be implemented, and extension of transitional periods should be automatically granted to acceding LDCs.

Scars in history

By Laxmi Sharma

Saturday morning around one o’clock telephone rings... I wake up with a sudden sense of danger and receive the ring.... the news was unimaginable, heartbreaking and grievous. Finding hard to believe what I heard on the phone, I turned on CNN and BBC and that shocking, terrifying, cruel news was unfortunately the truth. We had lost our father, a soul who had so successfully guided us through thick and thin. I felt as if this incident had taken place at my home. There could be no other tragedy greater than this. The whole country was mourning. Our King Birendra had left us forever. He was an adorable and winsome person who always cared for his people. Not only the King but also the queen, crown prince, crown princess had won Nepalese’s hearts since a decade. People of the country are shocked and dazed by the unfortunate and untimely demise of our beloved royal family. An event like this has not taken place in the history of the world that I am aware of. Even in "Kot Parva", the royal family members were spared. The country has never been in so much of grief as it is today.

I am also feeling the loss so heavily. Why I could not have been deaf before hearing this ghastly news broke out. Can the country, where Buddha was born, be the site for this gross injustice? Pure, unpolluted Mt Everest is sobbing after this news. The flag, which retains sun and moon, is crouching and ashamed. I don’t find any answer for this unimaginable and indeed a very questionable incident. I can only grumble to God, why did I have to live to see such a gruesome affair. As a citizen of this country I am stunned and saddened by the bleak future Nepal carries.

House rent tax and its implementation

By Satyendra Timilsina

House rent tax has been introduced in Nepal since a long period of time. Finance act of 1965 (2022) for the first time introduced house rent tax providing an exemption of Rs2,000 per annum. House rent incomes were classified into four different categories for tax purposes. The tax rate varied on rent categories. Higher rent income would attract higher rate of tax. The rates were 10 percent, 15 percent, 20 percent and 25 percent for house rent incomes exceeding Rs 2,000, Rs 6,000, Rs 8,000 and Rs 10,000 respectively. In the first stage of implementation tax deductions at 15 percent on total rent income was allowed. Of the above deduction, 10 percent was allowed for house repair, 2 percent for furniture expenses, 2 percent for electricity, ¼ percent for drinking water and the rest ¾ percent for other expenses. House rent tax was treated separately and was not included in total income of the taxpayer.

After the restoration of democracy in 1990, house rent tax was taken as one of the sources of income and was merged in total income of the taxpayer. The taxpayer was supposed to receive tax exemptions and deductions from his total income. After providing exemptions and several deductions the income was taxed at specified income-tax-rates. Under this system, house owners with incomes from house rent only were better benefited compared to the earlier system. This system changed in 1994 and a single rate of 15 percent on total house rent income was introduced for all types of house owners. An organization earning income from house rent was taxed at 35 percent and was assessed as a corporate tax payer. There was a further revision on the provision of taxation in 1996. With the revised provision the house owners with income from house rent only were eligible to get tax exemption up to an annual income of Rs 5,000. Some years back Ministry of finance had published a notice regarding the rates of house rent tax in the capital city. It increased number of tax payers but has not been so effective after a year or two. The following deductions are allowed under the existing provisions of house rent tax: a) 10 percent of the house rent for house maintenance; (b) House insurance premium paid; (c) Interest paid to the financial institutions on the sum borrowed to construct the house and (d) other conditional deductions.

In FY 1999/00 total house rent tax revenue amounted to Rs 245 million, which is 3.09 percent of total revenue collected by the department of taxation. In the last five years, volume of house rent tax revenue has increased 2.4 folds, the number of house rent tax payers in FY 1999/00 being 9,843.

Despite a long attempt of implementation, it is quite surprising that the revenue collection from house rent tax has not shown adequate improvement. Since there has been a lack of consistent and stable policy, most of the house owners are avoiding the rent tax. So far, it has been noticed that normally the house owners letting their houses to government, semi-government or international organizations under agreement pay tax on rent. The tax officer has no door to door access to assess and collect taxes, but the tax payer himself has to deposit his tax at the tax office. Because of this reason, the system of advance payment of house rent tax has worked a little. It is observed that non of the house owners, except in business locations of the capital city, pay house rent tax. Now it is known that house rent tax is planned to be collected by local governments. The metropolitan city is waiting until forthcoming fiscal year for the implementation of house rent tax and some other municipalities have already started to collect it. No doubt, taxes are the best internal resource to finance development activities, but we have problems to collect house rent tax more efficiently. Therefore the effort should be made to provide more benefits to the taxpayers so that they pay tax voluntarily.

In 25 years of implementation it has not become effective because of the lack of willingness to pay tax among the house owners. The tax payers do not expect any service or privilege against the tax they pay to the government. The government’s attempt to collect more tax would not materialize without new vision and strategy of the government. There is less possibility that local governments can collect house rent tax efficiently without reliable strategy and appropriate planning of the local government. At present, when people assign less credibility to the government machinery, it is quite difficult to implement any policy without assuring them to use resources in their best interest. Development packages and the sources of fund to finance such packages should be transparent to the people. The rampant corruption in almost all the areas has compelled people to rethink before paying tax.

Before collecting revenues there must be earmarking the areas where and how it will get used. The basic needs and facilities like electricity, water supply and proper drainage and sanitary system have been lacking in the capital city. Most of the senior government officials avoid accountability and try to shift their responsibilities to others. There is no linkage and coordination between the citizens and the government development agencies and even among the government departments to carry out activities with peoples’ participation.

We don’t have any by-law that deals with house rent. It has become necessary to bring up house rent rules, so that house owner and tenant both can know their duties and responsibilities. It is possible that house owners could increase the rent by equivalent amount of the rent tax they pay. Therefore, the house owner may shift the burden of rent tax to the tenant without the appropriate law.

It can be concluded that house rent tax could be a good source of government revenue in city areas if it could be implemented with a good policy framework and specific development programmes. For all practical purposes, the local government must have commitment to the tax payers that the revenue from house rent would be directed towards local development