Nepal | October 16, 2019

Federal government’s figure on revenue collection a hoax

Rupak D Sharma

Because of double counting, the federal govt’s gross revenue was inflated

Kathmandu, January 20

The government, which has been boasting of a brisk revenue collection since the start of this fiscal year, has suffered a rude jolt, as the body which operates its treasury has been found to be inadvertently producing inflated figures because of double counting.

The erroneous reporting on revenue collection came to the fore after the Financial Comptroller General Office, the main agency responsible for the government’s treasury operation, stated that the government had generated revenue of Rs 520 billion in the first half of this fiscal.

The figure surprised many because it was 21 per cent more than the government’s own revenue collection target of Rs 429 billion for the six-month period from mid-July to mid-January.

At a time when the Ministry of Finance was apprehensive about meeting its own target because of slackness in collection of duties at customs offices, the news that revenue collection beating the target by close to Rs 100 billion was too good to be true. Turns out it was.

Nepal Rastra Bank, which also tracks the government’s revenue collection, has said the government generated Rs 414.3 billion in revenue in the same six-month period. This means the government missed its revenue collection target by 3.4 per cent in the first six months.

After crunching its own numbers, the FCGO has acknowledged its mistake and told THT today that the central bank’s figure was closer to reality.

“We failed to present accurate statistic because of double calculation of fund transferred to divisible fund,” said a senior FCGO official on condition of anonymity.

Since the beginning of this fiscal, the federal government has been sharing 30 per cent of value added tax and another 30 per cent of inland excise duty with provinces and local bodies as part of the policy to financially empower sub-national governments and institutionalise fiscal federalism. The portion of VAT and inland excise duty dedicated to provinces and local bodies is parked in the divisible fund.

“Although the amount deposited in the divisible fund is also a part of federal government’s revenue, we had initially decided to keep it separate,” said the FCGO official.

This means FCGO’s system had to deduct the amount kept in the divisible fund from the federal government’s gross revenue. But the deduction was not made,” added the official.

To make it simple, let’s say the federal government’s gross revenue stood at Rs 500 billion, of which Rs 100 billion was earmarked for divisible fund. This means Rs 400 billion should have been categorised as ‘federal government revenue’ and Rs 100 billion as ‘allocation for divisible fund’. But FCGO’s system mistakenly took the entire Rs 500 billion as ‘federal government revenue’.

“What’s more, the system added fund collected in divisible fund (Rs 100 billion in this case) to derive gross federal government revenue,” the official said. This means money parked in the divisible fund (or Rs 100 billion in this case) was counted twice — firstly as part of ‘federal government revenue’ and then as fund collected in the divisible fund. “Because of this double counting, the federal government’s gross revenue was artificially inflated,” the official said.

But the problem appears to be deeper than this, as many of FCGO’s data sheets on revenue show money parked in the divisible fund surpassing the federal government’s revenue.

The FCGO is gearing up to revise the revenue collection data of the entire fiscal year. “It appears we presented wrong statistics from the beginning of this fiscal,” said the official.

This will deal a huge blow to the government, as it had continuously bragged about its revenue collection ability. The International Monetary Fund, in its report published in October, had even said Nepal could have fiscal surplus in the current fiscal if “the government continues the strong revenue collection effort seen in the first two months of this fiscal when revenue rose by 36 per cent year-on-year”.

The FCGO, which provides daily updates on government’s income and expenditure through its website, has now stopped disclosing revenue collection data. “We won’t reveal the figures until we fix the problem,” the official said.

 


A version of this article appears in print on January 21, 2019 of The Himalayan Times.


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