NRB, IRD dilly-dally to implement policy to end tax compliance gap
Kathmandu, June 29
It seems Nepal Rastra Bank (NRB) and the Inland Revenue Department (IRD) are reluctant to implement the provision of verifying financial reports of taxpayers while floating loans from the banks and financial institutions (BFIs). Announced through the fiscal budget of 2016-17, the policy is aimed at ending the tax compliance gap and also to minimise the chances of loan embezzlement, as per finance ministry officials.
Initially, a few rounds of discussions were held to bring the provision into effect. NRB was supposed to issue a directive to the BFIs to cross-verify the financial reports from tax offices before floating loans. IRD also have to notify tax offices to support BFIs if they sought financial statement submitted in tax offices.
Officials have said that implementation of this policy would not only help control revenue leakages but also prevent chances of credit fraud, as the borrower would not be able to get away with presenting false financial reports. However, neither NRB nor IRD seem to have taken any concrete steps in implementing this provision this fiscal year.
“Implementation of the provision announced by the fiscal budget would minimise the credit risk of the BFIs as the borrowers would have to submit accurate financial statements at different agencies because the details could be cross-verified,” a high level official at the Ministry of Finance told The Himalayan Times.
It is reported that the companies have been producing different financial reports for tax submission, for their own purpose and for obtaining loans. The government has been losing a huge amount of revenue as such practice is rampant due to lack of provision of cross verification of financial statements from different agencies.
It is reported that around 60 per cent of the taxpaying firms are not fully complying with the tax laws. With different financial reports being published for different purposes, tax offices are unaware about the real business efficiency of the taxpayers. On the other hand, BFIs could be floating loans more than the capacity of the borrowers by relying on the exaggerated balance sheets.
Chandra Kala Paudel, officiating director general of IRD, said that the trend of producing separate balance sheets for different purposes is the major reason behind thriving shadow economy.
“We have to implement the announcement of the fiscal budget to know the actual turnover of the business firms to minimise the tax compliance gap,” she said.
The central bank, however, said that those producing fake balance sheets are punishable under the prevalent law and there is no need for a separate directive.
Narayan Paudel, spokesperson for NRB, said that the central bank had not issued any directive to the BFIs in this regard as the Banking Offence and Punishment Act had already defined the submission of false statement to avail loan facility as a crime.
But finance ministry officials argue that the provision of cross-verification between banks and tax offices could greatly discourage business firms from such practice and promote fair economy.
Unified Tax Code in offing
KATHMANDU: In a bid to reduce the tax collection cost and facilitate taxpayers, the Inland Revenue Department (IRD), under the Ministry of Finance, is in the process of developing a Unified Tax Code.
Unified Tax Code will give proper information to the taxpayers regarding all types of tax laws — income tax law, value added tax law and excise law, among others.
Taxpayers can get easy information regarding the procedures of registration, tax filing, among others, from a single handbook.
“Tax collection cost is expected to be minimised as IRD has been spending more on tax awareness, market monitoring and other activities,” said Chandra Kala Paudel, officiating director general of IRD. “After developing Unified Tax Code, taxpayers can easily understand the provisions of various laws from a single book.”