Tax Administration
Reform Pays

By Uttam Maharjan

EVERY country has to budget for expenditures for the advancement of its national economy, and good governance through its planned revenue sources on an annual basis. Revenue sources may be mobilised through internally existing and external resources. And taxation plays an active role in mobilising internal resources.

Responsibility

A government has many responsibilities to fulfil the welfare of its people. For this, it has to embark upon various development and service activities ranging from basic development works to health, education and security aspects. Similarly, people also have obligations to help the government in enabling it to deliver the goods. So there exists a very close relationship between the government and people.

Taxation is an effective tool for mobilising revenue sources for the development projects. People would pay taxes hoping that in return they will get benefits from their government, either in the form of development or service enhancement. Tax administration should be simple and transparent so that taxpayers may not face unnecessary hassles in paying taxes and in acquiring necessary data from the departments of taxation.

The success of taxation policy depends upon this factor and other factors like the integrity of taxpayers and the honesty of the government in utilising tax funds. The more taxes are utilised by the government in the right direction, the more encouraged and supportive the taxpayers become. Hence, the government and taxpayers should play ball to make taxation policy a success.

The country’s recently formulated budget for the fiscal year 2057/2058 has made efforts to bring about quality enhancement of the tax administration. For this, the present organisational structure will be completely reviewed and reformed accordingly.

At present, there are two taxes in simultaneous operation: VAT and other taxes like remuneration tax, supply tax, contract tax and service tax. VAT is administered by the Department of VAT, whereas other taxes are administrated by the Department of Taxation. There is a plan to merge these two departments into a single body called the Internal Revenue Department within the forthcoming fiscal year. It may be hoped that by virtue of this merger, the VAT and tax administration will be more effective and the taxation simplified.

The introduction of permanent account numbers (PANs) from the forthcoming fiscal year will to be another milesone. With this system, the need for separate registration by the taxpayers with the Departments of Customs, VAT and Taxation will be obviated. The taxpayers will be absolved from the necessity of renewing their income tax certificates every year. This is because PANs will be unchangeable in nature and valid for all departments concerned with taxation. To successively implement the PAN scheme, the Kathmandu Taxpayers service Centre has already been established. The scheme will come into force in Kathmandu with effect from the month of Shrawan of 2057 B.S. Thereafter, it will be gradually introduced into other districts also.

Tax evasion is a frequently encountered phenomenon when it comes to paying taxes. In the main, businessmen resort to such a malpractice. To preempt such tax evasion, the budget has made provision for the VAT and Taxation Department to make on-the-spot investigations and jointly conduct audit in the premises of the taxpayers themselves under the supervision of a team of experts inspecting their tax returns. Such a provision will hopefully deter tax evasion and inculcate in the taxpayers a sense of duty to the state.

Another field that requires reforms pertains to data about the taxpayers. From the current fiscal year, an automated database will be installed for the collection of taxes on the basis of data related to income tax, customs duties and VAT. Such data about the taxpayers will be integrated into a single database linking by computer in all the taxation departments scattered all over the country.

Such an integrated database will make for simplifying and enhancing a good flow of inter-departmental information and updating data bout the taxpayers. One good aspect of this system will be the elimination of the absence of inter-departmental coordination. To be upfront, lack of inter-departmental coordination does nag taxpayers very much. The taxpayers will, thus, be relieved of administrative imbroglios engendered by lack of inter-departmental coordination and of updated data.

There may be umpteen sectors that are hidden from the eyes of the tax administration. Such tax-generating sectors should be identified and brought within the purview of taxation. This will contribute to the coffers of the state.

In a bid to extend the scope of taxation, the forthcoming budget has brought within the fold of taxation some commercially conducted agricultural business, export business and non-agricultural business carried out by cooperatives as well as dividends and interest from lending made by foreign investors. Similarly, private health institutes, legal practitioners, doctors, auditors, etc. have also been brought within the purview of taxation.

The tax rules should be modified according to the changing times. The patters of income sources and distribution can hardly remain stagnant, they keep on changing with the passage of time. While modifying the tax rules, attention should invariably be paid to simplification. An involved tax system not only makes tax calculation cumbersome but also infuses taxpayers with a kind of disinclination for the system. The provision for surtax applicable to salary tax for the fiscal years 2055/2056 and 2056/2057 is somewhat cumbersome, especially for a large organisation with a good many employees, where the bonus of the previous year is distributed in the current fiscal year. It is a good thing that the provision for surtax has been done away with by the budget speech.

New Avenues

With certain modifications made in the tax rules with effect from the current fiscal year, it can be hoped that the tax administration will be further refined and the taxpayers will not be put to unnecessary inconvenience. As taxation is a vast field, efforts should continuously be made to explore new avenues for extending the scope of taxation and to detect and control the leakage of revenue.

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