Should Indirect Taxes be Reduced or Increased?

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Should Indirect Taxes be Reduced or Increased?

May 26: There are just three days to go for the unveiling of the budget for the next fiscal year (FY 2023/24). It is estimated that the rates of taxes, duties and fees will decrease through the financial ordinance that comes with the budget.

It is estimated that the government is likely to increase the rates of indirect taxes such as customs and excise duties through the budget at a time when the revenue collection has failed to cover even the ordinary expenses of the government. Stakeholders concerned say that by increasing the rate of indirect taxes, illegal transactions will increase, revenue will decrease and regular business will be hit hard.

When customs and excise duties are high, the cost of goods imported through formal channels increases. Experts say that gangs that evade customs duty by smuggling goods become active at such times. They argue that if the customs and excise duties on goods other than industrial raw materials are increased, the smuggling of goods will increase and the revenue will decrease while the traders who abide by the law will suffer.

President of the Nepal National Federation of Entrepreneurs Kumar Karki says that it is difficult for the legitimate businessmen to survive as many goods are coming through illegal channels.

He said that it is the government's weakness to increase the rate of customs and excise duty every year.

Goods are transported throughout the year from places other than customs points along the southern border. Some make unauthorized imports using the locals.

Rajendra Malla, president of the Nepal Chamber of Commerce spoke on this issue and said, “Currently, there is a trend of transporting goods on bicycles at the border and delivering them to different parts of the country at night in trucks. Customs duty, excise duty and VAT are not paid on such goods.”

Entrepreneurs say that the price gap between India and Nepal is quite high due to the exorbitant tax rate. It is suspected that there may be collusion between the smugglers and the employees of the border control agencies for the import of large quantity of goods. A businessman from Bhairahawa claimed that such smugglers are getting protection from the political level.

The businessman said, “They can make a good income in this way and even the leaders get a share. Even now there is a lot of smuggling, mainly of goods with a large price difference. The cost of production in India is lower than in Nepal, so the products are much cheaper across the border than here.”

Importers claim that not only alcohol, but also biscuits, chocolates, cosmetics, electronic goods, mobiles, sugar and many other goods are being illegally imported.

Binod Kumar Sethia, president of Nepal Foreign Trade Association, claims that all goods except vehicles are coming to Nepal illegally since vehicles can only be driven after registration and cannot be imported illegally.

Ashok Kumar Temani, president of Madhesh Province chapter of the Federation of Nepalese Chambers of Commerce and Industry, says that to stop illegal imports, Nepal's customs, excise duty, value added tax, etc. should be taxed so that it does not exceed India's GST. Talking to New Business Age, he said, “Gray economy has increased due to the increase in customs duty, excise duty and VAT.”

Rajesh Kumar Agarwal, senior vice president of the Confederation Nepalese Industry, says that it is not appropriate to increase tax rates to increase revenue. He said, “The manufacturing industry must be promoted for the development of industries in the country. For this, the customs rate of raw materials and finished goods should be different.”

Agarwal opines that while increasing the customs rate of ready-made goods, the government should pay attention to whether they are daily consumption goods or luxury goods. He said that even if the government imposes higher taxes on imported goods, if unauthorized imports increase, revenue will not increase.

Emphasizing that there should not be a situation where someone pays tax and someone else brings goods without paying taxes, NCC President Malla urged that the practice of taking/giving the bill should be widened and brought down to the lower level. If this is done, he says, the sale of stolen goods will be stopped.

Aggarwal suggests that the effectiveness of government mechanisms at the border should be increased to control revenue leakage. He said, “Revenue investigation department, armed police and other agencies play a major role in curbing smuggling. They should monitor it strictly. Stolen goods are not only sold at the border, they come to inner cities as well.”


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