Additional revenue is needed in many developing countries and the process is improving. Revenue mobilization is even more important. Improving needs and infrastructure are important for poverty alleviation. To achieve sustainable economic development goals, for example, low-income countries may need to increase their tax-GDP ratio. But in the current context, it is necessary to seriously consider the fairness of merely increasing the burden of taxes and revenues.
In doing so, the quality of the measures also matters. Administrative reforms can also be done, but there may be immediate strong opposition to that.
Significant additional revenue can be raised by establishing in many developing countries methods, emphasis and arrangements that are sequentially adapted to the circumstances of the countries. Better convincing taxpayers of the value of public spending financed by their taxes, improving the management and quality of that spending, can strengthen trust and compliance with the tax system.
According to the 59th report published by the Office of the Auditor General, there are more than 4 million taxpayers in Nepal, the number of taxpayers has reached 4 million 59 thousand by the fiscal year 2077/078.
It is mentioned in the report that the number of taxpayers of three groups namely income, value added tax and excise duty has increased. Out of which 15 lakh 77 thousand have taken business Permanent Account Number (PAN), 24 lakh 71 thousand have taken personal permanent account number and 9 thousand 998 have taken advance tax permanent account number.
It seems that the government's policy of reducing imports and increasing revenue has failed as the major revenue office said that there has been a significant decrease in revenue collection over the target.
Import of major revenue generating items such as vehicles was banned as the Customs Department reported that only 73 percent of the target revenue had been collected till August 29.
According to the Customs Department, 83.78 billion rupees have been recovered from the target of 114.26 billion rupees till August 29th. Similarly, the Internal Revenue Department has collected only 90 percent of the target in the first two months of the current fiscal year 2022-23, according to the tax assessment body.
IRD said that in the first two months of the current fiscal year, which started from mid-July, the Internal Revenue Department has collected Rs. 67.91 billion more than the target of Rs. 75.60 billion. One of the main reasons for the low revenue collection by the customs office is the import ban on the main revenue generating items.
In the last week of Baisakh, the government had imposed a complete ban on the import of all types of prepared alcohol, prepared cigarettes and tobacco products, snacks such as potato chips and crisps, diamonds, expensive mobile and television sets, automobiles, toys and playing cards until mid-term.
The government announced that the ban on the import of automobiles, mobile phones, liquor and motorcycles has been extended till October 14. However, the government has decided to lift the ban on six items including diamonds, television sets larger than 32 inches, toys, cards, snacks and tobacco products.
The Customs Department has stated that it has set a target of 26 percent increase in revenue in the next financial year to reach 6 trillion 68 billion 76 million rupees. It is seen that it will be challenging to meet the revenue target in the internal revenue as well.
To meet the revenue target for the current financial year, the revenue will have to increase by 30 percent which is very challenging. It has become public knowledge that the tax office is having trouble meeting its targets due to non-receipt of a large amount of VAT from the service and construction sectors.
VAT recovery from construction is limited due to limited construction work and payment of work. In the current financial year, the Internal Revenue Department was given a target of Rs 537 billion. Although there is a high possibility of a significant loss in revenue collection, the government has also significantly increased the liability through the budget of the current financial year.
The government has brought a budget of 1 trillion 79 billion rupees for the current financial year, most of which are populist schemes targeting elections. Looking at the data briefly, some economists are of the opinion that the revenue income figures for three and a half months of the current financial year will remain the same and if there is no disruption in the order, there will be serious problems in the future.
Till October 17, the government has collected two trillion 28 billion rupees in revenue. While during the same period, the current expenditure of the government reached only two trillion 45 billion rupees. Therefore, the current expenditure of the government has reached 17 billion rupees more than the revenue collection.
In the coming days too, if the revenue income is not able to cover the current expenditure, the government will fall into serious financial problems. According to the office of the Comptroller General, who is responsible for keeping the account of government income and expenditure, the government has received a total income of two trillion 54 billion rupees including foreign subsidies till October 17.
During this period, the expenditure has reached three trillion 9 billion rupees. So far, the government has had to find and manage a loan of 55 billion rupees to cover all its expenses.
Revenue collection reached over 25 percent till November 17 of the last fiscal year 2078/79, but this year it is only around 16 percent. It seems that revenue collection is going to be more challenging for the government as it is now.
Donor agencies including the World Bank have predicted that the size of the country's economy will grow by around 5 percent this year, but the economic activity will not increase much. Consumption is declining due to peak inflation. The inflation has already reached around 8 percent. Industrialists have started saying that they are forced to reduce production.
The huge increase in banks' interest rates has spoiled the investment environment. Industrialists have taken to the streets demanding the reduction of high interest rates and the return of some policies and directives of the Nepal Rashta Bank.
If this environment persists in the coming days, economic activity will slow down further and its direct impact will be on revenue collection. In such a situation, it will be difficult to meet the ambitious target of revenue collection set by the government on the budget.
If the revenue collection is much less than the target, it will have an all-round impact. According to him, it cannot be taken in a general sense that the revenue could not cover current expenses only. During the preparation of the annual budget, when allocating funds for most projects, only the portion received from foreign grants and loans is not kept.
Most of the donor agencies have asked the government to put in (counter fund) on their behalf. Especially for the project, the government should invest money to do preliminary work such as land acquisition and removal of electric poles. There will be a lack of budget to be given for projects with less revenue.
The impact of this will also be reduced in terms of foreign aid. The pace of projects under construction in the country is also slow. None of the projects have been completed on time. In this case, if the budget is not given, the construction time of the project will not only be increased, but the cost will increase and the return will be received late.