Recently announced fina-nce ordinance shows the uncertainty of the government policy on revenue matters, confusing tax officers and businessmen, as well consumers.

Due to membership of SAFTA and WTO, the government has compulsions to reduce its dependency on customs for revenue generation and to widen tax base. The government has proposed to collect the same by VAT.

Although the government has proposed to reduce custom duties, certain surprise amendment in VAT will have far reaching adverse implications. It will have adverse effect on the purchasing power of consumers, increase the rate of inflation, reduce competitiveness of local industries and further aggravate the unemployment problems.

Lacuna in revenue policy

• VAT on freight and transport services.

• Withdrawal of the facility of zero rate on pharma industry and discourage local packing material suppliers. Silence on VAT refund for purchases from the local market.

• Nothing on levying VAT on the Cylinder Security deposit.

• Excise on manufacture of goods and not merely on services rendered.

• Wide discretionary powers to tax department without proper checks and balances.

One of the shocking proposals was regarding the levying of VAT on freight services and kerosene which will have the far reaching implication on business community and consumers. Similarly, VAT on various products used by poultry farms will discourages Nepali industries. National packaging industry will be discouraged since pharma industry will not purchase any packing materials locally as there is no VAT on imported packing materials.

Silence in regard to VAT refund and withdrawal of zero rate facility mean purchasing of goods from outside Nepal is being encouraged. Excise duty on health sector and manpower agencies is not acceptable. It is a global practice to levy excise duty on manufacture of goods and not on sale of goods and services.

The difference between excise duty and VAT is that excise duty is levied on manufacture of goods whereas VAT is levied on sale of goods and services.

For security services and manpower agencies, the rule says that if they provide service to local industries and businesses, they will have to pay a 13 per cent VAT, while for same services outside Nepal, it is only 2 per cent excise.

It shows the government is not interested in generating employment within the country. Though it has been claimed that continuity has been given to programmes, it has not evident. The recommendations of the Revenue Advisory Committee and commitments made to regional and international organisations have been ignored.

The writer is a Chartered Accountant.