NATIONAL 5 (Spotlight Weekly)]

Taxing Exercise

Finance Minister Dr. Ram Sharan Mahat takes a carrot-and-stick approach to broaden the tax net to relieve the bleeding economy

By SANJAYA DHAKAL

Even God would not be able to save you from taxmen if you have not disclosed your income by the end of Poush (January 13, 2002). This is the message of one of the media campaigns launched by the Internal Revenue Department (IRD) to cajole the people to disclose their income voluntarily and pay ten percent as tax by the end of this month.

The scheme, known as the Voluntary Disclosure of Income Scheme (VDIS) 2001, was initiated by Finance Minister Dr. Ram Sharan Mahat in this year's budget. The scheme aims to widen the tax net by allowing easy entry to hitherto non-taxpayers.

Dr. Mahat : Bold initiative

According to the Financial Act 2001, a person with property that is taxable under law and who has not yet paid his/her dues, can do so by voluntarily disclosing income earned until July 15, 2001 and paying ten percent of the income (as of the price on July 16, 2001) by January 13, 2002. If somebody pays tax in this manner, no government agency shall probe into the sources of his/her income for any purposes and no additional penalty imposed.

The leniency offered by the scheme is quite unique. "In any country with the low rate of tax compliance, the voluntary disclosure of income scheme is a general practice to rope in hitherto non-taxpayers. It is a sort of tax amnesty to those outside the net," said Dr. Rup Khadka, a tax expert.

To lure payers to take advantage of the scheme, the act states that the documents and reports submitted for the VDIS will be treated with utmost secrecy and any revelations made thereof shall not be used against the presenter.

"The VDIS has been launched with the objective to ensure individuls/firms/companies, who have not yet paid taxes under law, easy entry into the tax net and allow them to openly invest and help the national production," reads the public notice by the IRD urging people to pay taxes and live with "dignity in the society". The scheme also aims to lure those people who have not paid taxes for years and who are hiding their income for the fear of punishment. A similar scheme launched in India a couple of years ago was rated hugely successful as it roped in tens of thousands of new taxpayers into the regular net.

The act also threatens tax evaders by noting that unless they disclose their income voluntarily and pay accordingly before the deadline, the IRD will acquire the property report, probe the source of income and even confiscate property to meet the unpaid tax amount.

Analysts and tax experts have lauded the initiative by the finance minister to broaden the tax net. "At a time when the country is facing a terrible economic crisis, the move by the government is praiseworthy," said an expert. The government currently is facing a resource crunch as security expenses are rising through the roof. The government is said to be in search of an additional Rs 4 billion to bear the security costs.

In the event, to show the seriousness of the government's initiative, the IRD has already warned persons and organizations against tax evasion. The department is preparing lists of possible tax evaders. The IRD plans to take action against the evaders once the deadline for VDIS ends.

The department is collecting names of individuals and firms with mobile phones, those who have sent their children overseas for education, those with big residences and owning private vehicles.

"Only those people with lots of money can afford to buy mobile phones, send children abroad for education, own big houses and vehicles. If they are found to be evading taxes, we will take necessary action," Abanindra Kumar Shrestha, deputy director general at the IRD, told a local daily recently. The department is reportedly collecting the names of such persons by acquiring necessary information from the Nepal Telecommunication Corporation, Nepal Rastra Bank, municipalities and Department of Transport Management.

The department has also begun to show it means business by taking action against 12 nursing homes in the capital. In its investigation, the department found that these nursing homes, despite making huge sums of money, failed to pay due taxes. Big private schools are also feeling the heat.

However, not all have welcomed the government's current drive to broaden the tax net. Two weeks before the deadline for VDIS ended, the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) — the umbrella body of business organizations in the country ó has asked the government to clarify its VDIS policy, saying it was "confusing". The federation said the government failed to do adequate homework and assure taxpayers before launching the scheme.

Meanwhile, tax experts have called for the government to show its seriousness. Though the department has said that this is the final scheme and there will be no other similar facilities, the fact that it had launched a similar scheme a couple of years ago lends some credence to skeptics. "It is true that if the government launches VDIS often, people will tend not to react to the current offer," said Dr. Khadka.

With the country in deep economic turmoil, the bold drive by Finance Minister Mahat to help soothe the economy is a step in the right direction. However, how successful he becomes in this drive will be known only after the deadline ends.