BUDGET BUZZ: Bring continuity budget for completing plans, projects

The coming budget should address some of the critical issues for the economic development of the country.

* There should be a three-year rolling budget so that policies and plans are given continuity and projects can be carried through without interruption.

* The budget should end discriminatory corporate tax rate for banks. The tax rate should be 20 per cent for other industries and not 30 per cent as it is now. The banking sector pays the highest amount of corporate tax. Its accounts are not only the most transparent but it also operates under the most effective regulator.

* The government should consider implementing a very low flat income tax rate of five per cent over a three-year time-span in tandem with heavy penalty including imprisonment for tax evasion. This will not only ensure a significant widening of the tax base by bringing people into the tax net by encouraging and incentivising compliance but also increase tax revenue as has been the case in many countries under flat tax regimes in central/eastern Europe and low tax regimes like Singapore and Hongkong. Nepal collects only one-sixth of its revenue from income tax. With a low flat tax regime it would not be inconceivable to increase this ratio by a third within five years.

* Government must spend more on infrastructure. Identify just three large-scale infrastructure projects -- one hydropower (generation & transmission), one fast-track road and one international airport, for example. Create independent implementing authorities, allocate budgets and get on with the task with pre-determined implementable time lines

* Announce -- with the endorsement of all major political parties -- policies which are investment-friendly with an irrevocable/irrefutable commitment to not make any regressive changes for at least 15 years. These policies should ensure unfettered property rights, non-nationalization, flexible but equitable labour legislation, tax-credits for capital investments, easy entry/exit for Foreign Direct Investment, tax-holidays for large industries say with investments of more than Rs 1 billion, long-term leases for government land, liberal non-bureaucratic regime allowing medium/long-term external commercial borrowing, credit enhancement through partial government guarantees for large scale projects of more than Rs 10 billion, government re-finance window for long-term finance.

* Avoid property tax or taxes in the nature of VDIS at all cost until a low flat tax regime (with heavy penalties for non-compliance) is introduced as it will scare away scarce capital.

* Invest heavily in education and health sectors and building roads. Encourage the private sector to invest in these sectors but under an effective regulatory mechanism to ensure that the interest of the public is fully protected and there is no abuse. Reduce expenditure on defence but increase in law enforcement.

* Make tax assessment non-discretionary and tax officers accountable for their actions. If tax officers add back taxes which are proved, on appeal by a court of law, to be unfair, illegal and irrational the tax officers involved in the decision must be held accountable.

* Advance rulings on grey areas must be given by the Tax Department within the time stipulated by law. This has not been complied with and must be strictly enforced.

* Introduce subsidies to farmers for production (not consumption) as much and as long as is required for us to remain competitive vis-a-vis Indian farmers. This will not only help reduce unemployment and absolute poverty but also reduce our dependency on imported food.

Sashin Joshi

president,

Nepal Bankers' Association and the CEO of NIC Bank