Revenue collection has been hard-hit this year due to the ongoing disruptions in supply lines at

Nepal-India border points, which started in the last week of September. The disruptions at the border points have severely affected customs revenue, which is the major contributor in tax revenue. The

government has already missed its revenue collection target by Rs 52.27 billion in the first half of

fiscal 2015-16. The government has been able to collect revenue worth only Rs 164.33 billion as

against the target of Rs 216.60 billion. It seems unlikely that the government will be able to meet the

annual revenue collection target of Rs 475 billion because problems at the Birgunj border point still

persist. Birgunj, which is the major supply line and also known as the gateway to Kathmandu, is still

being blocked by the agitating Madhes-based political parties. As a result, customs revenue is being highly affected. It has become a daunting task for the government to generate resources for budget

financing as the major source has been adversely affected. Rajan Khanal, Revenue Secretary at the

Ministry of Finance has said that his ministry has prepared a contingency plan to manage this gap and brought it into implementation. Pushpa Raj Acharya of The Himalayan Times spoke to Khanal on

how the government has planned to make up for the shortfall in revenue collection and

manage resources for the government’s expenditure in this fiscal.

The shortfall in revenue collection exceeded Rs 52 billion in the first half of this fiscal, which was mainly due to the squeeze in imports caused by the ongoing border blockade. We could witness a similar scenario in the coming months too. What is the government doing to address this situation?

The shortfall in revenue is mainly due to the sharp decline in imports in the last four months. We have missed the customs revenue collection target by Rs 32.64 billion in the first half of this fiscal because of short-supply of goods. Customs revenue can be recovered to some extent once the cargo vehicles stranded at the border points and third-country cargo stuck at the Kolkata port start entering the country. But the revenue that used to be generated through the import of consumable items like petroleum products and other consumable goods is being lost. We cannot increase the import in the coming days as a substitution for the past months. Similarly, import of other consumable goods that would have been imported during the festive season cannot be imported again. In this regard, we have been losing substantial amount of revenue that would have been collected from the customs points. It is not only the Department of Customs (DoC) but also the Inland Revenue Department (IRD) that has missed its collection target by Rs 9.64 billion in the review period. I believe that the IRD will be able to recover the shortfall in the coming days because we have extended the deadline to submit the tax details of the first four months of this fiscal by two months. However, a large number of taxpayers have not submitted tax details of that period. Once the taxpayers submit the details, the IRD would be able to make up for the shortfall. Apart from that, we have prepared an alternative plan to make up for the revenue shortfall and brought it into implementation.

Could you please elaborate on the alternative plan that you earlier mentioned about?

I am not talking about a perfect solution to recover the revenue that has been lost and could be lost due to various circumstances. We will be able to generate revenue through other alternative means so that we can be closer to achieving our annual collection target. The government has an aim to collect revenue worth Rs 475 billion this fiscal and we are largely dependent on imports for this. If you analyse the revenue collection data, the Department of Customs contributes 50 per cent of the tax revenue as it collects value added tax (VAT), excise, and customs tariff, among others and revenue lost by the DoC cannot be fully recovered. But we will be penalising the taxpayers who have not yet submitted the tax details within the given time. Similarly, the Inland Revenue Department and Department of Revenue Investigation have already started inspection of the stock position in trading houses. This initiative will compel traders to submit VAT to the respective tax offices. The government extended the deadline for submission of tax details of the first four months by two months considering the unfavourable economic situation in the country to help businesspeople manage their cash flows to run their businesses. However, even those businesses that have not been affected by the border blockade have not submitted VAT in a timely manner. Similarly, revenue determined by the Tax Settlement Commission (TSC) will be collected within this fiscal as TSC extended the deadline for the submission of the tax amount by 120 days from mid-October last year. TSC has settled 1,069 disputed cases worth Rs 9.55 billion. Similarly, follow-up with public corporations for the submission of non-tax revenue, expediting settlement of other outstanding dues of taxpayers, and auctioning the goods piled up at the customs since long are also being incorporated in our alternative plan.

You mentioned that the shortfall of Rs 9.64 billion of the IRD’s target will be recovered. Collection of income tax — individual and corporate — in the first half of this fiscal hovers at around 88 per cent of the collection target of Rs 48.02 billion. It is said that the unfavourable economic situation has adversely affected the income of corporate houses and individuals. In such a scenario will it be possible for IRD to recover the shortfall?

I think that IRD will not be affected much. This is because the service sector, which is the major contributor to income tax collection, has not been hampered due to the ongoing unfavourable economic situation if we analyse the tax details submitted by them. The financial sector and telecommunications sector are the major contributors and they have submitted the first instalment of 40 per cent of income tax in the first half. The amount that has been submitted by the financial and telecommunications sectors based on their projected annual profits shows that the collection target of income tax will be met easily.

Capital expenditure in the first half of this fiscal is below eight per cent of the Rs 208.88 billion that has been allocated. This situation reveals that the Ministry of Finance is not under any pressure to generate resources from additional tools like domestic borrowing, among others even as revenue collection decreases. What is your take on this?

Currently, our treasury surplus stands at around Rs 80 billion despite the huge revenue shortfall and it is true that we are not under pressure to utilise windows like domestic borrowing to generate resources for budget financing. If there is further revenue shortfall and expenditure goes up, then we are planning to utilise resources from funds that have remained idle like Rural Telecommunication Development Fund, among others. At present, such funds have huge amounts of money parked at various banks and financial institutions. So, the government can utilise such funds if required and return the amount later. On the other hand, we have also expedited the process of receiving reimbursements of donor funded projects. We had to earlier obtain Rs 32 billion as reimbursement from the development partners of which Rs 24 billion has already been received. The remaining amount is also in the process of being reimbursed. The reimbursement amount will support us in increasing the fiscal space.

The government has missed its revenue collection target in the first half of this fiscal due to the unfavourable situation. Is there any plan to revise the annual collection target of Rs 475 billion?

We are not going to revise the annual collection target. The government is planning to realign the programmes based on the current priority and that will definitely increase government expenditure. The government has decided to distribute Rs 10,000 to quake victims for purchase of warm clothes in the winter season and this decision has already created a liability of Rs six billion. As the National Authority for Reconstruction has commenced reconstruction works, capital expenditure will increase. The government will also provide support for rebuilding individual houses of quake victims and that will require Rs 40 billion. We are planning to mobilise the World Bank Group’s support in rebuilding individual houses and the Bank has started conducting the beneficiary survey in Dolakha and Kavre. Once the survey is completed we have to release the fund. Thus, we are not in a position to revisit the revenue collection target. We will try our best to collect Rs 475 billion till the last date of this fiscal. We have set a plan to utilise the idle funds as I mentioned earlier if there is a resource crunch, but we will approach them only when it is necessary. I do not think we will face resource crunch because we will be able to generate more revenue by April 12 as the second instalment of the income tax will be submitted by then.