Kathmandu, October 14

A strong correlation has been witnessed between revenue growth and banks’ loan expansion as the country’s revenue and banks’ loan expansion are based on imports. Import financing by banks has been increasing rapidly as the government has been achieving the ambitious revenue collection target in this fiscal, as per Anal Raj Bhattarai, financial sector analyst.

It is reported that 44 per cent of the total revenue and 50 per cent of the total tax revenue comes from the customs points as

customs duty, excise and value added tax (VAT) collected from the customs. Customs duty alone contributes 20 per cent of the total tax revenue.

“When banks are financing imports they are automatically contributing to the government’s revenue,” said Bhattarai, adding, “If there is slackness in banks’ financing in imports it will adversely affect the government’s revenue.”

He explained that both import financing and revenue growth are a win-win scenario for both the financial sector and the government because both are making money by fuelling imports. “Loan expansion by banks has accelerated compared to the sluggish deposit collection in this fiscal, however, if the central bank puts a brake on loan expansion then it will affect the government’s revenue collection due to slackness in imports,” according to Bhattarai.

“Import and import related short-term financing consist of 50 per cent of the credit mobilised by the banks.”

As the government has set a revenue collection target of Rs 945.56 billion in this fiscal compared to Rs 730.05 billion of previous fiscal 2017-18, it is certain that imports are going to be the major source of revenue. In this regard, credit from banks could increase substantially in this fiscal, however, the slow deposit growth has been dampening the potential loan growth. In the first two months of the current fiscal, the government has collected more revenue from the customs than it has targeted.

Analysts have said that import financing from banks has increased in recent fiscal years as the government has tightened the under-invoicing that was rampant in the previous years at the customs points. Earlier, the remittance money was suspected to have been diverted for import financing, hence the import figures in the past could have been under reported. However, after the appointment of Yubaraj Khatiwada as finance minister, he has declared to clean the source (customs) to eliminate the irregularities in pricing of goods, billing and inland tax (income tax and VAT).