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Recent and Upcoming Fiscal reform. Mahesh Banskota Inputs provided by Mukesh Khanal is gratefully acknowledged. CURRENT FISCAL POLICY 2009/10. Broaden the Tax Base Plugging leakages Modernization of VAT Increase Tax Administration efficiency Increase cost effectiveness

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Recent and upcoming fiscal reform

Recent and Upcoming Fiscal reform

Mahesh Banskota

Inputs provided by Mukesh Khanal is gratefully acknowledged

Current fiscal policy 2009 10

  • Broaden the Tax Base

    • Plugging leakages

    • Modernization of VAT

  • Increase Tax Administration efficiency

    • Increase cost effectiveness

    • Increase transparency

    • Make the administration taxpayer friendly

  • Negotiate double tax exemption treaties

Nepal s tax problems

Tax Base narrow

Rationalize Tax rates

Inconsistent policy decisions

Faulty legal provisions

Excessively confidential departmental circulars

Discretionary power of tax officials

Non-compliance of taxpayers

Arbitrary/inconsistent penalty for non-compliance

Defective appeals system

Tax “negotiation” at customs checkpoint

Recent and upcoming fiscal reform

Cross-border smuggling due to porous border

Administrative Issues more serious than structural ones

Tax administration –improvement but results /changes limited

Sources of non tax reveneus

  • Penalty, Fines and Forfeiture

    • Declined during armed Maoist conflict

    • Court Fees have not been reformed in 15 years

  • Duty and Fees

    • Passport Fee is the largest item

    • Tourism Fee has dipped

  • Interest

    • NIDC, NEA, Water Supply Corporation, Civil Aviation Authority have failed to pay

    • Nepal Telecom has even paid future liability

  • Royalty and Sales of Government Property

    • Casinos and electricity pay the most royalty

Fiscal policy changes needed

  • Increase the Tax Base/Net

    • Bring commodity futures market into tax net

  • Encourage and Develop private sector

    • Duty exemption to recycling and renewable energy industries

  • Tax concession and rebate

  • Revenue Administration Reform

    • Smooth flow of information to plug leakages

    • Customs police to control cross-border smuggling

Impact of policy reform
Impact of Policy reform

  • Focus at National Level – other levels too small

  • Number of Personnel and Offices increased

  • Reforms with Existing Taxes merged and new ones introduced such as VAT in 1996

  • Overall Impact – limited Tax GDP ratio still low


  • Why outcome of reforms not so marked?

  • Why revenue base/spread so low both spatially and by individuals?

  • Why so many difficulties in developing a unified efficient tax administration?

  • Implications for fiscal stability and Inclusive Growth ?

Policy reform revenue
Policy reform - Revenue

Widen the tax base of major taxes

- Get the economy working again

Streamline tax rates and slabs in major taxes – review policies, receive feedback,

Minimize exemption list – with lower rates this may be feasible

Better coordination between tax and other policies in line with commitments made

Revenue leakage control

Policy reform
Policy reform

Taxpayer friendly environment, education and easy access to tax information, reducing costs of tax compliance

Separate revenue group in civil service

Strengthen Revenue Advisory Board

Encourage self assessment,

Monitoring, evaluation and follow up

Revenue administration reform
Revenue Administration Reform

Restructuring Inland Revenue Department- how to make it more efficient to handle all the different types of activities

High level permanent Central Revenue Board

Revenue Police, Custom Police , and emergency flying squad

Electronic tax filing system

Suggestions to increase non tax revenue

Recover service delivery cost via service fees

Rethink royalty on natural resources

Rationalize and increase passport, tourism, and education fees

“Quarantine Fees” for agricultural products

Efficient public enterprises

Public expenditure management
Public expenditure management

Maintaining Balance between income and expenditure

Enhancing capital and development budget vis- a - vis recurrent expenditures

How to provide effective support to other government policies – poverty reduction, gender balance, environment, peace etc

Public debt management
Public Debt Management

Debt has been increasing – foreign debt ( 28.5 % of GDP ) more rapidly than domestic debt ( 13.2 % )

More effective policy reforms towards Increasing domestic savings, growth and private sector investments

Fiscal agenda
Fiscal Agenda

Not isolated from the rest of the economy- conflict, instability, insecurity must end for peace and development

Law and order fundamental for business confidence to be restored

Infrastructure gap including power shortage needs to be addressed on a priority basis

Institutional weakness and improvements
Institutional Weakness and Improvements

Complex laws and Procedures –influence transparency and accountability

Short term revenue focus

HR Quality

Tax adjustments and Tax credits

Grievance handling, Appeal system, Time Taken