Nepal | May 24, 2019

New FinMin instructs DoC to mitigate revenue risks

Himalayan News Service
Yubraj Khatiwada, Finance Minister

Yubraj Khatiwada

Kathmandu, March 1

Owing to concerns related to slow growth of tax revenue, the newly appointed Finance Minister Yubraj Khatiwada has instructed the Department of Customs (DoC) to plug all the loopholes to mitigate the revenue risks at the customs points.

Finance Minister Khatiwada has urged DoC to control the trend of ‘under-invoicing’ of goods citing that under-invoicing has been largely distorting the value added tax (VAT) billing enforcement mechanism in the market and the government is losing revenue at various stages of value addition until the sale of the imported goods in the domestic market.

The finance minister has summoned the chiefs of major customs points, including Birgunj — the major gateway for the country’s foreign trade. Customs chiefs have been asked to do some soul-searching as they have been unable to meet the revenue target this fiscal despite skyrocketing imports. As per the Ministry of Finance, the DoC collected revenue worth Rs 61.95 billion through customs tariff in the first half of this fiscal against the target of Rs 63.17 billion.

Customs officers have been urged to pay special attention to the customs valuation process to mitigate revenue risks. There are various factors involved in under-invoicing — false declaration by traders, lack of proper valuation by customs officials and false classification of the goods.

“Customs officials have been urged to be cautious regarding valuation, proper declaration and classification of goods,” said Shri Krishna Nepal, deputy director general of DoC.

Customs points have been largely digitised in the recent years. The wide area network (WAN) can monitor the valuation of goods, but declaration and classification cannot be cross-verified through this system.

Finance Minister Khatiwada has instructed to cross-check customs valuation with the transaction value of goods, through which he believes that revenue leakage can be controlled, according to officials. “This will not only boost customs revenue but also promote the level-playing field in the domestic market,” they stated.

When traders are able to bring in goods with false declarations, they will not be liable to issue proper VAT bills while selling the goods in the domestic market.

There is a cyclic impact of wrong declaration, classification and valuation at the customs points in domestic revenue, as per Nepal.

“False classification has been distorting the industrial base in the country, as traders try to classify their products asraw materials, even though those products can be used as finished products for a certain purpose or processed to make another product.”

To end such ambiguity in the classification of raw materials and finished products, the DoC has been urged to keep an eye on the credibility of the importers. Customs officials have been asked for physical verification of goods if they have doubts on the declaration. Physical verification is already in practice at the customs offices in selective cases, but the practice of physical verification has been gradually minimised in a bid to facilitate trade by accelerating the customs clearance procedure.

The finance ministry believes that the country can achieve revenue growth of 20 to 22 per cent in next fiscal 2018-19 if the under-invoicing at customs points is controlled.

Finance Secretary Shankar Prasad Adhikari said that the government could easily achieve revenue target of around Rs 875 billion to Rs 900 billion in the next fiscal by controlling leakages, which is largely through under-invoicing of imports.

The government aims to collect revenue of Rs 730.05 billion in this fiscal. It is close to achieving the set target due to high performance in collection from non-tax headings this fiscal.


A version of this article appears in print on March 02, 2018 of The Himalayan Times.


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