Kathmandu, November 27:

Government is mulling to introduce a dual rate on value added tax (VAT) with a view of making the tax regime wider and decrease tax evasion.

A meeting of the Revenue Advisory Board (RAB) today formed a high-level panel to suggest on the matter, a senior official at the ministry of finance (MoF) told this daily.

The eight-member panel — led by a noted economist

Prof Dr Madan Kumar Dahal comprising Tul Raj Basyal, senior economic advisor at the MoF, senior government officials, experts, and the representatives from private sector — has been given three months period to submit its final report to the government.

Nepal introduced VAT in November 1997 replacing four different taxes including the Sales Tax, Contract Tax, Hotel Tax and Entertainment Tax. At present, VAT is the largest contributor to the government’s coffer amounting for more than 30 per cent of the total revenue.

The latest move is thought to widen the tax net as well as decrease the tax burden on agro-business. Under the dual rate system, the government is likely to decrease the VAT on agriculture produce and related products, while keeping the rate static on manufacturing goods and services.

It is also expected to address the private sector’s demand to review the VAT rate on

some consumer goods and agro-produces. The government faced a strong opposition when it imposed VAT on agro-produce like mustard oil and wheat flour (maida).

The rate of VAT was fixed at 10 per cent, when it was first introduced and amended

VAT Act 2005 raised the rate to 13 per cent with effective from the fiscal year 2005-06. Currently VAT is levied at 13 per cent and in certain cases, the rate may be zero and certain goods and services are exempted from VAT. The tax is collected at every state of selling goods and services.

The collection of VAT is on a steady rise since its inception a decade ago with the collection standing at Rs 18.90 billion in the fiscal 2004-05, Rs 21.93 billion in 2005-06 and Rs 26.55 billion in 2006-07. The number of taxpayers under VAT system is estimated at around

more than 200,000.