Contribution of VAT, income tax increases

The recent revenue mobilisation trend has revealed that the contribution of customs to total revenue mobilisation has been decreasing unlike earlier years but that of Value Added Tax (VAT) and income tax has been increasing.

The contribution of customs has come down to 20 per cent, whereas the contribution of VAT and income tax has gone up to 29 per cent and 22 per cent, respectively.

The country has to reduce customs duty according to its commitment to the global trade regime by 2015, thus the contribution of income tax and VAT must help cover customs revenue.

Thus, the country needs to expand the tax net and plug tax leakages, said finance minister Shankar Koirala during a meeting at the Finance Ministry here, today.

The organisational structure of the Inland Revenue Department has to be changed, he said, asking the revenue administration to be alert on revenue leakages.

However, senior economic adviser to the finance ministry Dr Chiranjivi Nepal doubted the sustainability of the increase in revenue mobilisation. Suggesting for an expansion in the tax net, he asked the revenue administration to bring the informal sector under the tax net. "Despite the delayed budget, revenue mobilisation has been encouraging, but bringing the informal economy under the tax net will help sustain the increasing trend."

The informal sector is as big as the formal sector and has been hurting the economy. Rising inflation despite low money supply and decreasing remittance has been attributed to the ballooning informal sector that has hurt VAT mobilisation.

Though revenue mobilisation has been encouraging, VAT and excise mobilisation has not been satisfactory, said finance secretary Shanta Raj Subedi. "The revenue administration has to start a coordinated campaign to plug the VAT and excise loopholes," he suggested, asking it to work on meeting the targets of the next two months.

Likewise, joint secretary Rajan Khanal apprised the meeting of the revenue administration's weakness in bringing the informal sector under the tax net that has bled the economy white. "Rising imports, scientific valuation, reforms in revenue administration, and increasing contribution of non-tax revenue are attributed to the increased revenue mobilisation," he said, adding that lack of capacity building of human resource, low participation of tax payers who are already in the tax net, and the inability to mobilise arrears are some of the weaknesses of the revenue administration.

Tight and disciplined revenue administration is key as the government has projected to achieve 30 per cent to 35 per cent revenue mobilisation growth in the next fiscal year 2013-14, as compared to the current fiscal year.

The government needs to mobilise only Rs 55.15 billion revenue — in the next two months — to meet the current fiscal year's revenue mobilisation target of Rs 289.60 billion. It has been able to mobilise Rs 234.45 billion revenue against the target of Rs 226.05 billion — by the 10th month of the current fiscal year — swelling the government coffer, though it has been unable to spend on development activities as it has Rs 56 billion in its vault.

The government has mobilised Rs 68.29 billion VAT, Rs 52.12 billion income tax, Rs 46.73 billion customs, Rs 29.05 billion excise, Rs 30.34 billion under non-tax, and Rs 7.92 billion — including Rs 4.02 billion registration fee and Rs 3.90 billion transportation tax — under others to make it a total of Rs 234.45 billion by the end of 10 months of the current fiscal year. The total revenue mobilisation is 23.35 per cent higher than the same period of last fiscal year 2011-12.