Home Nepal government Nepal’s tax system is flawed and the poor are hit hardest

Nepal’s tax system is flawed and the poor are hit hardest

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Inflation in Nepal has become common in recent years. In July of this year, the inflation rate rose to Rs 4.35 percent while inflation in the transport and construction sectors rose to 9.43 percent and 11.54 percent respectively.

This rate is expected to increase after parliament recently passed the House of Representatives Budget Replacement Bill to amend Nepal’s 2021/22 annual budget plan that former finance minister Bishnu Paudel introduced in an ordinance. .

Because of this very bill, consumers will be hit the hardest as they will have to pay significantly more when purchasing vehicles and during construction.

After criticism, Finance Minister Janardan Sharma said the government had introduced a bill promoting products made in Nepal. But, experts and financial analysts argue that the bill does not promote Nepalese products. Instead, they argue that the bill favors only a handful of people, especially people in the transportation and construction industries when it comes to taxation. They also argue that Nepal’s taxation has been flawed for several decades, as it prioritizes the rich over the poor while setting tax rates.

Pressure on the bottom

Economist Dilli Raj Khanal said people belonging to the lower and middle class groups would bear the brunt of the government’s proposed tax hike. He says they will pay the price because the government aims to increase taxes on daily usable items.

“We have really entered consumerism. The government wants to use this and raise taxes to increase its income, ”says Khanal, who adds that the country’s income system is based on remittances and customs.

“In the long run, it’s bad because it doesn’t treat everyone fairly,” he says.

He wonders why casinos are getting tax cuts when middle and lower middle class people pay more tax than they should.

“People will realize this one day and start to wonder why they pay taxes. When they do that, they will stop paying and that, in the long run, is disastrous, ”says Khanal.

Tax transport

A few years ago, all vehicles were considered luxury items. But now some vehicles that fall under a certain amount are not classified as well.

However, on the eve of Dashain, the government increased taxes, after which the prices of motorcycles went up. The new bill increased excise duties and road taxes, after which motorcycle dealers raised prices.

This is quite strange because the government has waived the royalties they received from the casinos for the 2021/22 fiscal year. Likewise, the bill did not increase taxes on cars, which are mainly used by the upper middle and upper class.

The excise duty on bicycles under 125 CC was set at 40 percent while the same duty on bicycles between 125 CC and 200 CC was increased to 50 percent. Previously, the tax bracket was 50 to 155 CC. A new bracket has been added for a section of the bike which is the best selling in the country. Road tax for this segment has also increased.

This has caused the prices of bikes from Hero, Yamaha, Honda and Suzuki to increase to an average of Rs 17,000, reports the NADA Automobile Association of Nepal.

While the government says it wants to promote the sale of assembled vehicles in Nepal like Bajaj and TVS, the prices of bikes and scooters from these two companies have increased in recent weeks.

NADA Automobiles of Nepal said it was wrong to increase taxes in a segment that sells the most in Nepal. “We don’t understand why the government did this. It affects both sellers and buyers, ”says Krishna Prasad Dulal, the president of the association.

He says it will discourage people from buying motorcycles at a time when people are refraining from using public transport.

“The prices of some bikes have increased by 10%,” says Dulal. “The government is trying to deceive consumers by doing this. I doubt he did enough research.

Meanwhile, the finance ministry says it has received complaints and talks are underway to review the arrangements.

“We do a periodic review, after which we will see if it is necessary to change things,” said the spokesman of the ministry, Mahesh Acharya. “If the policy we have put in place does not help the economy, we will certainly change it.”

Provinces following the center

The provinces of the country seem to have done the same thing as the center when it comes to taxation. For fiscal year 2021/22, Bagmati province increased taxes not only on private vehicles, but also on public vehicles. A province that wants to have only electric vehicles by 2028, Bagmati has also increased taxes on electric vehicles.

The tax paid by public vehicles has increased to Rs 3,000. Public buses and trucks must now pay up to Rs 20,000 in road tax. This has resulted in an increase in the price of the bus by up to 28 percent as consumers again bear the brunt of the tax hike.

Expensive car tax reduction

Photo: Autocell

Bagmati province has not increased taxes on premium vehicles. Bikes up to 125 CC have to pay road taxes of Rs 3,000, which is Rs 500 more than before. Bikes between 126 CC and 150 CC must pay Rs 5,000 as tax, an increase of Rs 500. For bicycles between 150 CC and 225 CC, another Rs 500 has been added to the tax while for bicycles between 226 CC and 400 CC, an additional Rs 2000 has been added to the tax. But, for bicycles above 400 CC, the tax has not increased. The tax on electric bicycles and scooters has also increased by Rs 500 for those under 1,000 watts and by Rs 1,500 for those up to 1,500 watts. Jeeps and passenger cars that paid up to Rs 58,500 must now pay up to Rs 65,000.

Steel prices rise

Construction in progress. Photo: Narayan Acharya

After the introduction of the replacement budget bill, the prices of building materials increased. This is because the government has increased the tariffs on steel billets, a material used to produce steel, from Rs 1,650 to Rs 2,500.

But tariffs on spongy iron, the raw material used to produce steel billets, have fallen to zero. Previously, a 4.75 percent tax was imposed on both steel billets and sponge iron.

Steel manufacturers say that due to higher taxes, they have been forced to raise steel prices in Nepal.

Finance Minister Sharma said the move was taken to promote the production of steel billets using sponge iron in Nepal itself. But, while consumers are affected the most, people are wondering who this decision is actually supporting.

Tax fuel

To file

The government led by KP Sharma Oli cannot be forgotten when discussing raising taxes. Citing the development of the Budhigandaki hydropower project, Rs 5 has been increased on fuel prices to help the project. This is still done today in the name of infrastructure development as fuel prices have skyrocketed.

Having failed to generate enough revenue, various governments have used various means to extract every possible penny from citizens, experts say. Although it charges a lot, the Nepal Oil Corporation still claims it faces a loss of Rs 2 billion per month.

Experts, however, say that even though the NOC says it adjusts prices based on global trends, the reason for the price hikes is due to the various additional taxes the government has imposed on fuel prices.

Unfortunately, these taxes levied on the public are not used properly as they go directly into the Federal Reserve and not for a specific project. If you look at the data from last year, the government has accumulated up to Rs 97 billion in fuel taxes.

Internet tax

The government has continually made decisions to overwhelm consumers. Due to the increase in internet taxes by the government, consumers have had to pay extra. This year, the internet tax has not increased. But, after the Nepal Electricity Authority said it would charge ISPs more for the use of its poles, some ISPs are considering increasing their monthly tariff to Rs 300.

NEA Director General Kul Man Ghising says this is wrong and should not be allowed to happen. But, the chairman of the Association of ISPs of Nepal, Sudhir Parajuli, said consumers will have to pay a little more, as the operating costs of ISPs have also increased.

Rising prices of basic necessities affecting low-income families

In July 2020, the prices of ghee and cooking oil increased by 29.07%. It was strange because the prices of tobacco products only increased by 10.12 percent. This year, the government did not increase prices, but producers, citing an increase in the cost of raw materials, increased the price of cooking oil.

Prices for basic necessities have increased due to increased transportation costs, producers said. But, that said, the cost of cooking oil has almost doubled in the past year.

Those most affected by these increases are low- and middle-income families. The chairman of the income advisory committee, Mahesh Dahal, said the country’s income tax needs to be reviewed, especially for people who don’t earn much.


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