Nepal needs to make paying taxes easier by simplifying the process of social security related payments. This is the reason that the recent labor act has made the process more cumbersome and contributed to pushing the country down five places to 110th in a global ranking for the ease of doing business, says the World Bank Group’s Doing Business 2019: Training for Reform report, released today.
According to the annual ranking, Nepal made paying taxes more difficult through a 2017 labor act that introduced a labor gratuity, medical insurance and accident insurance paid by employers in a way that places a larger administrative burden on companies that already face considerable bureaucracy. The labor gratuity is a particular burden as employers must file and pay it manually every month whereas the medical and accident insurance is paid annually.
This has an impact on the number of tax payments and time in hours to comply with tax obligations. As a result, it took companies in Nepal around 39 payments and 353 hours to comply with their fiscal obligations in 2017. This compares unfavorably with the global average of 24 payments and 237 hours.
“Raising revenues for spending on social expenses is needed and possible. It will be critical to find ways to do this that do not overly burden companies with paperwork, taking time and resources away from generating profits to employ workers and spread prosperity,” said Faris Hadad-Zervos, World Bank Country Manager for Nepal. “Nepal’s tax authorities are considering the use of an e-filing platform that will need to be rolled out to make compliance easier for businesses. Similarly, the Government is considering the possibility of merging taxes and contributions that are levied on the same tax base. The Government of Nepal has asked the World Bank to support its immediate priority of simplifying process for businesses in the coming period. We view this as a very positive step forward and stand ready to support these critical reforms as part of Government new vision of Crowding in the Private Sector.
According to a press release issued by the World Bank, Nepal ranks 158th for paying taxes in the Doing Business ranking out of 190 countries and this is its lowest ranking among the 10 indicators. Aside from paying taxes, Nepal also ranks low in other indicators for the ease of doing business, including enforcing contracts (154), dealing with construction permits (148), and getting electricity (137).
Nepal’s performance contrasts with the rest of South Asia where a total of 19 business reforms were carried out in the region during the past year, the second highest ever, compared with previous year’s revised record of 21 reforms.