National 3 (Spotlight Weekly)

Desperate Measures

Pressed to bear with spiraling expenditures, the government seems to be taxing left and right

By SANJAYA DHAKAL

Just a week after the substantial hike in the price of petroleum products, the Deuba government made yet another bold decision by announcing a hike of 3 percent in the Value Added Tax (VAT) through a supplementary budget.

The move exposed the extreme financial stress the government is under. Otherwise, there was no way this government could have announced the tax hike – which it knew could draw further ire from the people and business community – so soon after it increased price of POL products.

Adhikary : Tough on tax

Deputy Prime Minister and Finance Minister Bharat Mohan Adhikary tried to assuage the seething public by saying that the hike was necessary to increase the salaries of government employees.

On January 14, Deputy Prime Minister and Finance Minister Bharat Mohan Adhikary announced the renewed budget through four ordinances – the appropriation bill, finance ordinance, national debt recovery and loan and guarantee ordinance. Since the budget had been announced in the form of ordinance, it needs to be renewed every six months.

The renewed budget ordinance – which is also likened to supplementary budget by some – had a couple of major changes in them. It proposed to increase the security expenses by 1.33 billion to be used to recruit 13,000 new troops for the Royal Nepalese Army. Likewise, it also proposed to increase the regular expenditure by Rs 1.52 billion to finance the raise in allowances to the government employees.

The total budget expenses were raised to Rs 115.3 billion from Rs 111.69 billion when it was announced six months ago – an increment of Rs 3.6 billion. The salaries of around 400,000 government employees – civil servants, security personnel and teachers – have been increased by 20 percent. The increased amount will be given as dearness allowance.

And to meet all these revised expenditure, the finance minister chose to raise the VAT from existing 10 to 13 percent.

“We knew we had to raise the salaries of the government employees because they had remained stagnant for the last couple of years. Besides, we also had to increase security expenses. That is why we have decided to increase the rate of VAT,” said Adhikary. The budget also proposes to give Rs 100 extra to all the security personnel deployed in the field “to keep their morale high.”

Economists have castigated the government move. “I don’t understand what this government is up to,” said Professor Dr. Bishwambher Pyakuryal, president of Nepal Economic Association (NEA). “It should have explored other options like increasing the revenue/tax it used to raise from titles like registration fee, royalty and so on. They could have easily raised additional one to two billion rupees by doing so,” he added.

The decision has particularly peeved off the business community. No sooner had the DPM Adhikary announced the renewed budget ordinance, businessmen were enraged over the proposal of increasing the rate of VAT. “We, the private sector, deplore this decision. We believe this will further hurt the already deteriorating business environment,” said Rajendra Khetan, vice president of the Confederation of Nepalese Industries (CNI). Khetan complained that the government did not pay heed to the recommendations by the Revenue Advisory Board by raising the VAT rate.

The private sector has already announced nationwide agitation against the decision to increase the VAT. “The increase in VAT means increase in price of all commodities and services for the general people,” said Pawan Golyan, an industrialist. The private sector representatives have criticized the government for raising the rate instead of raising the net of the VAT.

The traders and entrepreneurs have even threatened to not pay the revenue to the government unless it revokes the hike in the VAT rate. Surendra Bir Malakar, vice president of Nepal Chamber of Commerce (NCC), told reporters that it has asked the entrepreneurs not to pay the revenue. Expressing disagreement over the VAT hike, the NCC said it would boycott the ordinance and not issue the new VAT bill. They have said they would submit the VAT bill (which is done every 25th day of every month) at the old 10 percent rate only.

Dr. Yubaraj Khatiwada, a member of the National Planning Commission (NPC), however, defended the decision. He said, “Normally, the government did not use to raise tax rates midway through the budget of one fiscal year. But this time we needed to provide some relief to the government employees.”

Meanwhile, the renewed budget ordinance also has some added features like providing incentive to women who approach government health posts for delivery of their child. The budget proposes to provide Rs 500 to 1500 to such women. The move is aimed at reducing maternal mortality rate, particularly in remote villages where maximum number of women still prefer - or are compelled - to deliver child in their household without the assistance of trained medical staffs. Under the revenue proposals announced by the budget, the government has slashed the customs rte of sugar import from 25 to 10 percent. Tax on ‘accidental benefits’ received on national and international awards through the contribution made in the areas of literature, art, culture, sports and journalism by various people, has also been waived.