Government reports show that the contribution of tax on total government revenue is increasing. In 2010/11 contribution of tax revenue on total government expenditure came to 67.1 percent (IRD, 2012). Tax revenue had 89 percent share in total domestic revenue in 2011/12. As a percentage of GDP, tax revenue reached 15.7 percent in F/Y 2011/12, from 11.1 percent in 2006/7. Also, the country’s domestic revenue mobilization capacity has increased. The government plans to mobilize of Rs 289 billion in domestic revenues for 2012/13 (MoF, 2013), about 80 percent of total estimated government expenditure (not adjusted with recent change).
Above indices show our economy is becoming self-sustaining. Domestic sources of revenue are getting stronger while the country’s dependence on foreign aid is decreasing. As tax is contributing more to the national treasury, the economy is at far lesser risk of economic failure. Advocates of liberal economic policy interpret this as the achievement of a shift in economic policy after 1990s, i.e. the liberalization of the state-controlled economy.
However, if we sit down to actually analyze domestic revenue, things are far from encouraging. VAT is the major contributor of tax revenue, of which about 64 percent is collected at custom points. Forty percent of excise duty is collected on imports. In Nepal, custom duty is equivalent to import tax as we hardly charge any custom on exports. Except for a few service companies like NTC, NCell and some commercial banks, the majority of income tax payers consist of firms and companies involved in import business. Increased domestic revenue is the result of increasing imports. Every rupee increase in import taxes reflects a multiplier effect of import increase. Increased import in turn is contributing to huge trade deficit as a huge amount of foreign currency is flowing out, with only a tiny fraction of it coming back to national treasury in the form of tax.
If Nepali youths working in Gulf countries failed to send their hard-earned foreign currency, how bad would the country’s economy be? Chances are we would fall short of minimum foreign currency reserve to pay for imports, i.e. there would be very little imports and subsequently custom, excise and VAT collections at custom points would go down significantly. Such an eventuality is not a distant prospect as job security of people sending remittance depends on the economic condition of the host countries. If there were to be a mass layoff in major labor importing countries, we would be neck deep into the BOP deficit trap in no time at all. Thus increased tax revenue alone cannot be taken as a tool to measure economic health, it is more important to see how the tax revenue enters state treasury. It is unfortunate that a large part of government’s tax revenue originates from increasing imports that has caused huge trade and balance of payment deficit.
It is interesting that the issue of public revenue is not in public discourse. Parliamentary committee or full house of parliament has seldom discussed revenue side of budget in Nepal. Parliamentarians raise issues only about allocation of budget to their constituencies or districts, but none shows any concern about the structure of government revenue. It seems that they are not even aware of the fact that increased revenue increases the chances of allocation of more resources to their constituencies. In this situation, it might not be appropriate to expect them to get involved in the debate on revenue structure.
Issue of public revenue has been neglected not only by parliament but also by the civil society. Millions of rupees come to NGOs in Nepal every year. In some of the projects, it is probable that up to 80 percent of budget goes for payment of consultancy fees. NGOs are free from income tax liability but their consultants are not. They know that they have to face public scrutiny if they start the vital debate and discussion on government revenue. Unless they are not sure that tax laws have been fully complied with while paying their consultants, revenue debate, including on income tax, will not be easy. Thus the number of NGOs working for transparency and accountability are increasing, but there probably is no NGO working to mainstream the debate on public revenue. The case of seeking name list of tax evaders through the use of Right to Information in 2012 might probably be the sole example of NGO work strengthening government treasury.
In comparison to other fronts of civil society, media is doing comparatively better by making issues of tax evasion public. But it also seems focused only on what and who aspects of revenue. Causes of tax evasion, structure of government revenue, opportunities for better mobilization of internal resources, shifting to more sustainable sources of revenue, and relation of economic activities to tax are some of the areas where the media could nudge the concerned agencies. Only the expenditure side of national budget attracts politicians and revenue is not on the political agenda.
Government agencies are in a self-congratulatory mood about generating up to Rs 300 billion of revenue domestically. Only the expenditure side of national budget attracts politicians and revenue is not on the political agenda. Civil society seems to have no concern on exploring the chances of strengthening the national treasury. The media has also not been able to play the desired role to explore the relation of revenue structure to the the size and structure of national economy and other issues involving revenue aspect of national economy.
These are some of the factors contributing to a growing shadow economy. The overall economy is not doing good, even as the consumption habits of people are changing alarmingly. According to data based on formal economy, almost 90 percent of national income is spent on consumption (Economic Survey 2011/12). But this data may not reflect the actual economic status of the country because it is the tax-free underground economy which primarily fuels heavy expense on consumer goods.
We have to generate maximum possible domestic revenue. Dependence on indirect taxes via imports should be minimized and that on direct taxes and sustainable economic activities should be increased. This calls for constructive debate on domestic revenue. Such debates can help narrow down the size of the shadow economy, locate sources of revenue leakage, promote fair business practices and increase tax coverage. This should be the common agenda of concerned actors including politicians, civil society and media.
No comments:
Post a Comment