Kathmandu, December 31

The provision introduced by fiscal budget 2016-17 to cross-check the financial details of taxpayers with tax offices prior to banks and financial institutions (BFIs) granting approval for loans has faced a major roadblock in implementation due to the indifference shown by Nepal Rastra Bank (NRB) and tax administration.

The Inland Revenue Department (IRD) and NRB were supposed to implement the aforementioned provision of the fiscal budget, which was introduced to end the tax compliance gap and also to minimise the chances of loan embezzlement.

The Ministry of Finance has asked IRD and NRB to do the necessary ground work to implement the government’s policy decision.

The primary intention of the government’s policy is to end the tax compliance gap because business firms have been producing dissimilar financial reports for different purposes, according to Finance Secretary Shanta Raj Subedi.

“Tax compliance gap will be automatically minimised once BFIs start providing loans based on tax submission details,” he said. “And on the other hand, BFIs will also be aware of the real business efficacy of the firms if they cross-check the financial details rather than just rely on possibly exaggerated financial reports.”

The government policy was also brought with an intent to make private businesses more transparent and motivate them to get listed in the secondary market, as per Subedi.

Any taxpayer who produces different reports for the purpose of tax submission and for obtaining loans from BFIs could be easily brought under the government’s radar once the policy is implemented. But NRB and IRD have not taken any initiative towards that direction.

Bankers have said they will abide by the decision and cross-check with tax offices if NRB instructs them to do so, but there has been no clear  instruction from the central bank till date.

However, as the fiscal policy has introduced the provision, it is IRD that primarily needs to take a lead in coordinating with NRB to enforce it, as the issue is predominantly related to minimising the tax compliance gap.

Chudamani Sharma, director general of IRD, refused to comment on the matter.

It is reported that around 60 per cent of the taxpayer firms have not fully complied with the tax laws.

However, NRB officials have claimed that as the fiscal policy has already made the policy decision, BFIs can ask tax offices for the financial details submitted to the tax office before floating loans to minimise their credit risk.