Thursday, January 19, 2012

Compliance burden fuels tax evasion trend

Due to increasing trend of robbing government coffer by ‘some business people’, the honest entrepreneurs feel ashamed as common people put them all in a basket and create negative perception of the private sector.
Post-1990 movement, the private sector has come forward very actively and in many sectors led alone, without government’s support, but post-2007 movement, the private sector has been in news more all for the wrong reasons. “It’s a trend,” according to finance secretary Krishnahari Baskota, “though such act will not benefit them in a long run.”
The revenue administration has brought some 1,700 more firms under its radar, without completion of its 518 firms’ investigation that according to it, will add some Rs 5 billion to government coffer, though, initial projection was double.
Government needs sustainable funding for social programmes and public investments to promote economic growth and development. Programmes providing health, education, infrastructure and other amenities are important to achieve a common goal of a prosperous, functional and orderly society. Those programmes require governments to raise revenue but the recent trend has hit the government coffer hard making it unable to even achieve its target.
The private sector plays an essential role in contributing to economic growth and prosperity as the companies contribute to socio-economic development by employing workers, improving the skills and knowledge base, buying from local suppliers and providing products and services that improve people’s lives and revenues through generating and paying taxes.
But the recent investigation of the revenue administration has revealed a huge revenue leakages by the private sector.
“Apart from trend, legal system, bureaucracy and lack of regular policy review also fuelled the leakages,” Baskota said, adding that the Finance Ministry is on a regular basis watching and improving the legal system, apart from strengthening bureaucracy. “The policy reform is also under consideration.”
But Nepal ranks in the 111st position among the 183 economies in Paying Taxes 2012 report of the World Bank. The Paying Taxes indicators being included in Doing Business report of the World Bank Group measures the ease of paying taxes for a small to medium-sized domestic company, in all of the 183 economies that it covers. The study measures three aspects of the tax system for business – one relating to the tax cost or the total tax rate and two to the compliance burden, the time spent on tax compliance and the number of tax payments.
In the tax cost indicator, Nepal ranks 49th, whereas in time spent on tax compliance it ranks 138th and in number of tax payments 120th position giving an indication where the government needs to focus.
The administrative burden and cost of complying with taxes is important from the business perspective, as well as the rate of tax paid. “One of the causes of low compliance may be due to more time taken to pay tax,” the finance secretary said, “But to make it easier, the Finance Ministry has upgraded itself to e-filing and one can file tax from the office or home without spending much time.”
The purpose of the Paying Taxes study is to provide data to inform discussion around tax policy, tax administration, and to encourage dialogue on reform. It shows that different administrative practices used by government play a key role in lowering or increasing the compliance burden and easing compliance burden to make tax collection more efficient.
According to the study, the less time business spends on tax compliance the more time it has to focus on building the business and contributing to economic growth.
However, the government can do much to reduce burden on business by simplifying the process making it less man-to-man contact that could help plug increasing leakages.

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