Conclusion of Malik report: If the tax system can be reformed, about three billion revenue will be added

The committee has suggested that the value added tax (VAT) discount on various items should be abolished, the income tax slab should be revised, excise duty should be removed except for items that are harmful to health, green tax should be imposed, social security tax should be amended, the limit of cash payment should be reduced and the limit of digital payment should be increased.

According to the government's decision on 29 August 2080, the four-member committee formed under the chairmanship of Vidyadhar Mallik submitted its report last February.

According to the report published by the Ministry of Finance, there are suggestions for the formation of a permanent board for the reform of the tax system, the creation of an effective justice system, and various legal, policy and procedural reforms.

The committee has proposed to establish an implementation facilitation and monitoring unit under the coordination of the revenue secretary for the effective implementation of the recommendations recommended for the reform of the tax system. The report states that if the reforms mentioned in the action plan prepared by the

committee can be implemented, the tax system will be improved and the government will collect about two trillion 91 billion rupees more than the projected revenue. Laxman Aryal, Ram Prasad Gyawali and Shyam Prasad Dahal were members of the committee.

Vidyadhar Mallik, chairman of the high-level advisory committee on tax system reform, says that the possibility of increasing the revenue of about three trillion rupees has been included in the report.

'This figure has been kept after calculating how much revenue is likely to be collected in the areas of income tax, excise duty, value added tax, customs etc. Although this is a difficult task, it is not impossible .'

It is mentioned in point number 319 of the budget statement for the next fiscal year 2081/82 that the report of the high-level recommendation committee on tax system reform will be implemented. Chairman Mallik says that he is hopeful that the report will be implemented sooner or later with this commitment of the government.

'It is not that the suggestions given in the report should be implemented at once . The government has said that it will be implemented. If it can be implemented within three to five years, good results will be seen', he said. Laxman Aryal, a member of the

committee and former secretary, claims that if the suggestions given through the report are implemented, about three billion will be added immediately. "If this report is implemented, it is seen that about three billion revenue will be added in the current situation." Adds more in the long run . How and from where it is possible is clearly mentioned in the report, he said. Although the committee proposed to establish an implementation facilitation and monitoring unit under the coordination of the revenue secretary for the implementation of the

report, the government has not yet created such a mechanism. Similarly, the committee has given suggestions such as forming an autonomous revenue board of a permanent nature, establishing a separate mechanism for tax-related judicial determination, and doing work related to tax administration through revenue group employees.

Even though Nepal's VAT rate is lower than the world's average VAT rate, the committee has suggested that this single rate should be kept constant for the next five years and the goods and services in the schedule of tax exemptions should be reviewed and the tax base should be expanded by removing tax exemptions. The report of the committee mentions that since the total tax exemption in VAT is seen to be around two billion, the system of tax exemption should be shifted to a system of low tax rate and tax expenditure on some goods and services in a timely manner.

'Within the next five years, all types of tax exemption arrangements should be abolished . In the event of natural calamities, epidemics, uncontrollable situations and macro-economic crises, the government should create a law to grant tax exemptions and remove all types of revenue exemptions currently in practice, the report said.

In order to protect health and environment and to protect natural products, the committee recommends that a policy of increasing excise duty and gradually removing excise duty on other goods should be adopted.

It is suggested to develop a system according to the concept of green tax on goods and services that emit carbon, and on goods and services subject to additional excise duty, and to move the goods subject to excise duty to the area of ​​green tax . Through the Economic Bill 2081, the government has started imposing green tax on the import of petroleum and coal products.

With the improvement in the economic condition of the country, the committee has also suggested to reduce the income tax rates. "The rate of corporate income tax should be reduced by one percent every year from the current 25 percent to 20 percent and a policy should be announced to keep this tax rate constant for 10 years," the report said, "to review the three rates of personal income tax and to increase the additional tax (surcharge) of personal income tax. It seems that the rate of the same should be maintained by only five points higher than the rate of corporate income tax.'

It has been suggested that the corporate tax rate of 30 percent for alcohol and tobacco and 30 percent for banks and financial institutions should be maintained in the case of others in this category.

Similarly, according to the report, the income tax rate for exporting businesses and businesses should be maintained at 10 percent and the corporate income tax rate for all other businesses at 20 percent.

The conclusion of the committee is that interest, dividends and long-term capital gains of natural persons above Rs 50 lakh should be increased to 10 percent respectively. It is also suggested that the tax rate should be maintained at 7 and a half percent for the profit of securities purchase and sale for a period of more than 365 days and 10 percent for interest for a period of less than that, and to start a minimum alternative tax system at the rate of two percent of the total transaction.

The committee has suggested the government to revise the social security tax as well. "Currently, the social security tax of one percent should be abolished and the amount of exemption on personal taxable income should be reduced, starting from three percent for the first 10 years, and then the social security contribution tax should be gradually imposed at the rate of five percent, and social security and protection programs should be conducted in a sustainable manner," said the report. ;

The need for reform in Nepal's tax system has been pointed out for an investment-friendly tax system, expansion of the tax base and scope, and protection of the national tax base.

'It seems that policy stability should be given to tax rates, legal arrangements and procedural arrangements of the tax system', it is mentioned in the report, 'maintaining equality, high economic growth and job creation are the main goals of tax policy and accordingly federal revenue policy and long-term tax It has been seen that a time-bound action plan for improvement needs to be made and implemented.' It has also been suggested to the government to improve the production and productivity of the

economy and to comply with the principle of tax neutrality. It is suggested to determine the limit of the number of transactions and the number of times of transactions and the purchase and sale of real estate, shares and various assets and the nature of the property. Done .

The committee suggests that the existing 11-level customs rate should be reduced to six levels and should be limited to zero, 10 and 20 slabs in the following years. The committee has also suggested to the government to set aside the required amount for the statutory fund to be kept by the public institution and arrange for the Nepal government to receive all the remaining amount as dividend income.

It is mentioned in the report that attention should be given to the expansion of the digital economy and the expansion of the tax base in this area. If a Nepali company exports electronic services, including software, to foreign countries, the income of such business shall be maintained at the rate of export for the next ten years, the government shall give priority to the purchase of software developed by Nepalis abroad, and non-residents who supply goods and services directly through electronic means shall be required to register in Nepal. Arrangements should be made', it is said in the suggestion of the committee, 'electrical tax, value added tax and electronic data tax based on the volume of information flow and the existing tax in this area should be restructured . The international payment gateway system should be facilitated and the maximum limit of mobile wallet and phone pay should be increased immediately.'

In order to bring the informal economy under the scope of taxation, it is said to gradually reduce cash payments by encouraging payments made through payment cards, electronic means and checks. The current limit of cash payment of ten lakhs should be reduced to five lakhs. In addition, arrangements should be made to promote banking transactions and take a permanent account number in the bank account', the suggestion said.

The committee has pointed out that it is too late to start the process of formation of the Federal Revenue Board in the context of the urgent need in the revenue structure and system for the improvement and efficiency of the tax system. It is mentioned in the report that a mechanism for permanent resolution of tax disputes should be established so as to protect both the taxpayers and the government.