KATHMANDU:Although the country has adequate provision for rental and corporate tax, its lax implementation is depriving the government of rightful earnings. The government is, however, now making efforts to coerce all house owners to pay their dues. Putting forward his opinion on tax evasion, Tanka Mani Sharma, director general at Inland Revenue Department (IRD), says, “Compared to previous years, the tax culture is progressing. We have accumulated 34 per cent more taxes this time as opposed to last year. We have targeted on gathering Rs 1.35 billion in the form of taxes during this whole fiscal year and till Chaitra (February/March), we have already collected Rs 1.06 billion, that is 112 per cent higher than our expectations.”
Rental tax and corporate tax refer to the taxes that house owners need to pay when they rent or lease their immovable assets for commercial purposes. Residential houses rented for commercial purposes need to pay 10 per cent of the rental charge, while 25 per cent corporate tax is charged to property owners of commercial buildings. These taxes are significant revenue sources in urban areas. According to IRD, there is a rise in the number of property owners filing for tax payment, as almost all commercial buildings like business complexes, malls, arcades, departmental stores, supermarkets, et cetera have been brought under the tax net. However, Tanka admits, “Even though this trend is positive, there is no dearth of people submitting papers that show reduced rents to escape tax compliance.”
Accepting the fact that residential houses are yet to be brought to book for tax evasion, IRD is targeting 25,000 households and aiming to hold them accountable this year. According to Tanka, to make tax pay process easier and simpler, IRD is introducing a new passbook system effective from this month. Under this system, tax-payers can use the passbook to deposit their tax in specified bank accounts on a monthly basis, and verify the vouchers annually from Taxpayers Service Office (TSO).Pointing at the country’s system of self-assistance and self-declaration, Tanka says, “To be legally safe, property owners need to honestly declare their real income sources. Those who do not proclaim the actual income source are likely to be investigated and punished under Anti-Money Laundering Act, but many property owners are blissfully unaware of this legality.” The government has established TSOs in different areas to investigate about the taxpayers and collect tax. According to IRD, until now, there are no guidelines or floor-pricing systems to regularise the rents. Stating that the rents are determined according to independent agreements between owner and tenant, Tanka says, “Whatever the rents may be, the important fact is that property owners should pay genuine taxes based on their rents.” To ensure this, the department is planning to monitor rental taxes of all the department stores, malls, shopping complexes and other buildings used for commercial purposes.
Janak Raj Sharma, chief tax officer at TSO of New Road, claims that almost 90 per cent of the area’s commercial complexes and buildings are registered in their office. He further
informs, “We have 10,500 registered taxpayers, among which 750 have been registered in this fiscal year. We are also investigating landowners that evade tax.” Mentioning that there are no fixed parameters to determine the rent, Janak says, “Another problem is that house owners reduce their rents by 30 to 40 per cent on paper to lower the tax amount. Self-assistance and self-declaration systems do not give
us right to question the agreement.
However, if we suspect that the quoted amount is lesser than the genuine rent, we inform the Land Revenue Office and they conduct investigations.”
Explaining that there is a lack of awareness about taxpaying, he says, “Many taxpayers are unaware that
if they renege on tax payment, their
income is not only illegal but also
punishable.” According to him, lack of market survey and strict enforcement of commercial area policy create loopholes for house owners to evade tax.
Agreeing with Janak, Dilip Neupane, vice president at The Realtors, says,
“We have no provision to regularise the price of rental spaces, which makes it difficult to ascertain the
validity of the rental tax papers.
Besides, property owners directly
approach the tenants and formulate dual agreement to escape tax.” He stresses on the need of making
stringent guidelines for rent accord-ing to the commercial hub area,
services, facilities, building main-
tenance, accessible road, et cetera.