Tuesday, June 30, 2009

BUDGET BUZZ: Taxes should be rationalised

The budget in its addendum brings amendments to fiscal Acts. In India, one-time finance minister and now prime minister Dr Manmohan Singh initiated economic changes using this very tool, ie by bringing changes in tax legislations. It is time people entrusted with governance took a cue from Dr Singh and brought economic revolution in Nepal
Four issues this budget should address are:
Firstly, tax rates should be rationalised and brought down to give Nepali businesses an edge over the economies of scale of our two giant neighbours. Simultaneously, programmes should be initiated to increase the tax base to supplement revenue loss. Rationalising tax rates not only encourages investments and prevents capital flights but also increases foreign investments. There is a national debate in Singapore where there is 18 per cent corporate income tax which is considered very high as compared to 15 per cent in Hong Kong.
Secondly, tax laws should be reviewed to curb discretionary powers of the tax authorities and clarify prevalent ambiguities. That means subjectivity in laws should be minimised as far as possible. This will decrease corruption and encourage people to pay tax. Also, tax procedures should be simplified for hassle-free tax payment.
Thirdly, this budget should incorporate the concept of a multipurpose unique National Identity Card (preferably electronic) to replace citizenship cards. This will help the government track tax evasions, facilitate tax collection and discourage money laundering and also help in welfare delivery, national security and voter registration.
Finally, the budget should focus on infrastructure development both in word and deed. It is a rule of the thumb that for a developing country economic growth follows only after infrastructure development. The budget should boldly provide for capital expenditure.
Unless the state assures the taxpayers that their money has been utilised in building infrastructure, health care and education along with the state's commitment to provide basic securities the taxpayer will not be inclined to pay taxes and any tendency to evade tax cannot be morally challenged. This budget should reflect the accountability of taxpayer's money.

Jagadish Bhattarai
Tax consultant

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