OAG flags increasing trend of revenue exemption

Kathmandu, April 15

Revenue exemption through the Financial Act is in a rising trend since the last few years.

The Office of the Auditor General (OAG) — the external auditor of the government’s account — has expressed concerns over revenue exemption under various headings through the Financial Act and urged the government to resort to other options to lure investment or facilitate development works and small and medium enterprises instead of offering revenue exemption.

According to the OAG’s audit report of fiscal 2015-16, the government provided revenue exemption worth Rs 51.31 billion in the last fiscal. In the three fiscal years between 2013-14  and 2015-16, the government has extended revenue exemption worth Rs 138.59 billion.

As per the OAG’s audit report, the Ministry of Finance (MoF) has not kept any tabs on the revenue loss to the government from the exemption on customs duty, value added tax, excise and other taxes.

“The fiscal budget must mention the tentative revenue amount that is going to be exempted and the possible outcomes from the given exemption,” the latest OAG report has stated.

The OAG report has highlighted some key areas where tax exemption has little significance. The government has extended tax exemption on import of agriculture, livestock products, hatchery and tea factories. However, the government has not conducted any study on the adverse impact on the concerned domestic industries in the country.

Likewise, according to the OAG report, people coming from foreign countries brought readymade ornaments and gold flakes worth Rs 2.52 billion by capitalising on the provision of VAT exemption. Import on VAT exemption covered around 16 per cent of the total gold import in the country in fiscal 2015-16.

The OAG report also suspected the misuse of the facility extended by the government for the particular purpose. Citing an example of the pellet feed industry that has imported maize, soybean and oilcakes worth Rs 4.19 billion, the OAG audit report has said that it is hard to be assured that the pellet feed companies have utilised the imported commodity for the aforesaid purpose.

The government, in fiscal 2015-16, extended revenue exemption under 23 different headings. A large chunk of tax exemption was utilised for agriculture and animal products, hatchery and tea factories worth Rs 11.77 billion, followed by chemical fertiliser import and distribution worth Rs 5.52 billion, and medicine, pesticide and their raw materials worth Rs 5.36 billion. Also, small and cottage industries enjoyed tax exemption of Rs 4.19 billion on import of raw materials.