Status Of VAT Implementation Necessity Realised

By Rup Khadka

VAT law, which has stipulated a fully fledged VAT system extending right through the retail level, came into force on November 16, 1997. However, due to the pressure of some business groups, then collation governments made several compromises several times especially in the context of the continuation of exemptions granted under the sales tax regime, voluntary registration at the dealer and retail levels and increases in the registration threshold. Such a situation existed almost until the creation of a majority government in the first half of 1999. Owing to these compromises, there had been a gap between the legal provisions and actual implementation of VAT. This made the VAT implementation very weak. VAT has not been implemented effectively even now, due mainly to non-issuance of invoices or proper invoices.

Positive

Despite implementation problems, the statistics related to the registration, revenue collection and refund are positive.

The number of VAT registrants was 4,959 in the first year of VAT implementation against 2,045 sales tax registrants in the-mid November 1997. The number of VAT registrants has increased almost to 27,000 by mid-November 2002. This indicates that there has been substantial increase in the tax base in terms of the number of taxpayers.

VAT revenue collection also has been increasing. It increased from 7 billion in the first fiscal year to almost 14 billion in gross and almost 12 billion in net by the fifth year of its implementation. Taking into consideration the various problems encountered in the VAT implementation, this collection is not that unsatisfactory. It is certain that the implementation of VAT will broaden the tax base and develop a stable and reliable source for revenue generation in the days to come.

VAT refund system has also been becoming gradually effective. As there was no belief of the taxpayers on the refund mechanism, no taxpayer applied for the refund in the first fiscal year of VAT implementation. But after publicity regarding the tax refund system, the trust of the taxpayers regarding this process gradually increased. Then they started applying for the refund. The refund amount increased to Rs. 1710 million in 2001/02 from Rs. 70 million 1998/99.

The status of tax returns is not satisfactory. Of the total returns, the share of credit, debit and zero returns was 39 per cent, 32 per cent and 24 per cent, respectively at the end of the fiscal year 2001/02. Theoretically, most of the returns should be debit returns since under a normal circumstances tax collected from sales should be higher than the tax paid on purchases, thereby creating a situation where a taxpayer is required to pay to the government. However, under some circumstances, such as in the case exports, inventory building, initial stage of the commencement of a business the tax paid on purchases could be higher than the tax collected on sales, leading to a situation for the submiossion of the credit returns. It is possible to get even zeros returns, if the taxable transaction does not occure during a tax period, such as in the case of seasonal business. However, the current share of credit and zero returns seems to be higher than the global general standard.

The excess share of credit returns has been accompanied by high-accumulated credits. It is natural to have some credit under the VAT system. But the current level of credit, which is about Rs. 3 billion, seems to be alarming. A part of the accumulated credit may be real, which needs to be adjusted with the future tax liability or refunded to the taxpayers. But a part of the accumulated credit may be unreal, which needs to be eliminated through audits.

Some taxpayers do not submit returns on time. They are called non-filers. While the percent of non-filers varies from month to month, it was on average around 15 per cent in 2001/02. Attempt must be made to bring down this below 10 per cent. Non-filers should be reminded by the tax administration. If they do not submit returns even after they receive remainder notice from the tax office, appropriate action shold be taken against them. In this connection, they are computer assessed on the basis of the past returns and informed to pay their tax liability.

While some taxpayers do not pay the computer assessed tax some others do not pay in time even the tax assessed by them. The tax liability, which has been created by taxpayer himself or by tax administration but is not paid within the due time, is called due amount. The volume of due amount has been increasing. It is necessary to make every attempt to collect due amount at this time when government has been facing financial difficulties.

Slow Pace

VAT implementation has been improving with a slow pace. In the past, its implementation became difficult due also to the strong opposition from the business community. But now various groups have accepted the tax and there is no debate regarding whether or not Nepal should implement a VAT. VAT's necessity has been realised nationwide. Due to the creation of such an environment, it should be comparatively easier to implement VAT in the days to come and the tax soon will be a part of the daily life of the Nepalese people.

A Visit Home Sees Changes

By Bhimsen Thapaliya

ON VISITING home in northwestern Dhading in the interval of one year, one could observe major changes that had taken place. Mostly the changes that had to do with the new measures taken on the security front. In response to the increased incidents of violence by the Maoist insurgents, security vigilance and monitoring had become significantly tighter.

Crucial entry points were in heavy presence of security personnel. Under special surveillance was the district headquarters Dhadingbesi, about 80 kilometres west of Kathmandu. For the capital bound travelers, Gajuri in southern Dhading was a major point where thorough security checking is done. The farther you travel in the country, the more such checking points you are likely to face. People or vehicles entering Dhadingbesi have to cross a bridge over the Thopal Khola. It is this bottleneck that has turned into a security check point. About a dozen armed police personnel stand guard at this entry point. Equal number of Royal Nepalese Army personnel stand close behind them to support. The heavily armed army men in camouflage do not deal with the passengers directly. They are deployed to assist the police personnel in case some security threats arise.

Upon arrival at the entry point, the vehicles are stopped and every passenger is asked to get down with his baggage. If the number of vehicles is much, the checking queue is serpentine long. One has to bear with the inconvenience as vehicles are screened one at a time. The armed policemen stand ready for action when their colleagues engage themselves for examining the contents of the baggage of the passengers. After passengers, a thorough search is conducted inside the bus. After the security clearance, the travelers can board the bus again and proceed to their destinations.

Dhadingbesi is one of the district headquarters where curfew orders are still continuing. Taking this into consideration, the buses from Kathmandu cannot make late trips as in the past. They have to be careful to reach the headquarters well before dusk or be stranded mid-way. For the fact that several district headquarters have already come under Maoist attacks, many district centres are now put under strong security shield. In the past, people traveled freely at night, be it within the district headquarters or in the villages. But now, everyone is cautious to find a night shelter before the darkness sets in. Next day, people resume the journey only after full daylight. Most of the explosions and raids by Maoist rebels have taken place in the morning under the veil of darkness.

The buses that operate in the fair weather road running towards west from Dhadingbesi have to pay road toll at leaving this town. The usual practice is that a bus does not leave until it is full. Arughat Bazar seated on the banks of the Manaslu-fed Budigandaki river in the border with Gorkha district is a town with a good passenger potential. One or two buses operate to this trading town daily. Another point where buses operate is Khahare which is the major junction for the travelers from northern Dhading. Buses bound to both these towns have to cross the river Netrawati which lacks a bridge. Now for fair weather, a temporary wooden bridge is constructed which charges buses Rs. 100 per crossing.

If the bus operators want to ply in this route, they are required to donate certain amounts to the Maoists. So far no buses have been attacked. Tari, a vital travel point on the bank of the Netrawati, is under Maoist presence most of the time. A year ago, traders were transporting herbal plants from Gorkha via this route. The Maoists levied a sizeable tax on the medicinal herbs bound to the city. There is no permanent security post here.

Freeing Yourself From Free Offers

By Ambar Mainali

THERE is so much more to life than just looking out for free gifts and free movie tickets. Well! the very notion of giving things for free has a hidden motive. 'Buy one and get one for free,' is the slogan of the emerging marketing experts who take you for a ride within no time. One can well guess what the quality of the stuff being advertised is like when you are wooed to grab it just because you get one more for free.

Idea

The idea seldom works. Institutions and theatres go for the free offer only when they are unable to tie their loose ends together. The same goes with those manufacturers producing sub standard products. They offer the free gift when they find that the quality of their product does not stand a chance in the market.

The theory of free gifts and facilities has proved futile in the development front also. Many development agencies throughout the world including Nepal have discovered that unless people are motivated to contribute their share either in cash or kind to the development projects, nothing seems to click. People didn't have an iota of trust in the free seeds and medicines given out by the development agencies. They never showed any zeal to use them properly so as to expropriate maximum gains. But to the dismay of the experts the people were more drawn towards using the medicines and seeds when they were asked to pay a small amount of money for the services.

The same goes with the free health check up offered in the cities and villages. There are only a few who venture to make use of the free health camps. Especially the literate lot is always skeptical about the free health check up being offered.

Though the doctors are the same and the equipment is not different, people tend to move away feeling that the services at the free camp would be below the set standards. Instead they prefer to visit a health practitioner who examines fifty patients in the span of two hours.

One other intriguing citation would be that of the high rate of school drop outs at the primary and secondary levels in Nepal. After the government announced that children would be given free education, a school enrollment rate shot up amazingly but at the same time the rate of drop outs also went up over the years. This could be because parents did not feel the burden of paying the fees and finally thought that withdrawing their children from the schools and engaging them in other activities would be more worthwhile. This notion is faulty because nothing would pay more handsome dividends than the light of education. It would perhaps be sensible to make the parents and the students feel obliged for what they are being offered. On doing this they would see their stakes in the free education being offered and would stick to what they are doing.

The Gorkhapatra daily carried a story about how people were turning into lazy ramblers after welfare organisations started offering free meals in and around Gausala. Those who migrated to the capital city with the determination to work and excel finally settled down for two square meals a day and opted out of work. Had the meals been offered after some straining of the muscles then people would have a different attitude towards the idea of getting meals for free.

Mind-boggling

Now to put an end to this glib elaboration, the advertisement in one of the dailies about free movie tickets was equally mind-boggling. The theatre, which is the most expensive one in the city, has suddenly started to give out a certain number of tickets for free. You can well guess for yourselves which hall is being referred to out here. The free offer came after people were terrorized from their heels to their heads following an explosion in the premises of the theatre. After all that has happened would you care to go for the free ticket? Now it is up to you to decide whether something, which is given out for free, can really serve you right.