NATIONAL 2 (Spotlight Weekly)]

The Costs Of Security

Business community and consumers protest the government's decision to hike tax and customs rate abruptly

By A CORRESPONDENT

Reeling under pressure to meet growing security expenses, the government on Wednesday (Jan. 16) introduced an ordinance to amend the Finance Act 2001 so as to revise tax and customs rates on a range of goods and services. As per the ordinance, that came into effect immediately, special security duty of 1

percent has been raised to 3 percent, a levy of additional Rs. one has been imposed on the sales of petroleum products (including diesel, petrol and kerosene) and a special duty of 10 percent has been slapped on the imports of car, jeep, van and motorcycles.

The ordinance has also increased the telecommunication service charge (TSC) from 10 to 15 percent while the excise duty on cigarettes, liquor, beer and pan parag have been raised by 5 percent on average. The government has also brought soft drinks and mineral water into the excise duty net, for the first time. Officials said the government was expecting to raise over Rs two billion through changes in the tax rates. The government also extended deadline for declaring one's property and paying income taxes under the Voluntary Disclosure of Income Scheme (VDIS) till February 12, this year. The government had collected over Rs 440 million by mid-January under the scheme.

The government's decision to hike taxes came as a bolt from blue for the business community. In a strong-worded statement, Federation of Nepalese Chambers of Commerce and Industry (FNCCI), the apex private sector body, said the recent move of the government would further aggravate the decline of industrial growth and put extra burden to the consumers. The recent decision could even paralyze the country's economy, business and industry, the Chamber said.

Saying that the government decided to raise tariff structures without consulting the Tariff Board, the FNCCI said it would pose a negative impact on the economy. The FNCCI also demanded with the government that it should find an alternative way to cut down spending and take austerity measures to meet expenses.

"Why can't the government reduce the size of jumbo cabinet and cut down unnecessary administrative expenditure?" asked Ravi Bhakta Shrestha, President of FNCCI.

Entrepreneurs feared that the government's decision to hike duty on the export of Nepalese manufactured products, including vegetable ghee, would further put the industries into a difficult situation. Industries manufacturing vegetable ghee, copper wire, acrylic yarns etc. have been facing the ire of Indian businessmen and issue of ëexport surge' of mainly five items is yet to be resolved.

"The government's decision will hurt the domestic and export-oriented industries very badly," said Chiranji Lal Agrawal, a leading industrialist. "If the government continues to raise taxes despite slowdown in the economy, it could lead toward complete collapse of the industrial sector," he warned.

Officials, however, argue that they had no other alternative than to revise taxes to meet growing security expenses. "It is only a short-term measure," said Bharat Kumar Shah, Minister of State for Finance. "We have revised the taxes and customs rate (upward) so as to have minimum impact upon the general public."

Minister Shah also said that the government was mulling to introduce a supplementary budget in the upcoming winter session of the parliament. Reports said out of Rs 48 billion allocated as development expenditure this year, the government has already slashed Rs 12 billion. Security agencies have already demanded additional Rs five billion to finance the on-going security operation to contain the Maoist insurgency.

As the security operation is likely to continue, its impact on the already fragile country's economy are going to be anything but devastating. Analysts say the government's ësecretive style' of functioning hasn't helped the matter. "For a country that raises around Rs 60 billion as revenue, raising a couple of billion rupees extra may not be a big problem. But lack of communication between the government and general public would further widen the gap between them, benefiting only the Maoists," said Rajendra Dahal, editor of Himal khabarpatrika. Will the government listen?