Duplication in tax headings draws flak

KATHMANDU: The draft of the new constitution has overlooked the concerns related to effective levying of major taxes and duplicated some tax headings in central and state governments, as well as provincial and local governments.

Such duplications might pose a threat to the revenue system once the country adopts a federal structure due to disputes of power allocation between central and provincial government to levy taxes, according to tax experts.

The draft constitution has proposed that excise and individual income tax can be levied by both the central and provincial governments. Similarly, it has also proposed that many other tax headings be levied by the provincial and local governments, like registration tax, vehicle tax and tourist fee.

“Even as related Acts will have to be formulated, the power allocation in the central, provincial and local governments will result in disputes when the laws related to taxes are enforced in the coming days,” opined Rup Khadka, tax expert and the chair of the government-formed High Level Tax System Review Commission. The draft constitution has extended authority to levy taxes, but it is silent on power allocation regarding enforcement, like what portion of the excise duty and IIT can be levied by the province and the portion of the registration and vehicle and land tax that can be levied by the local government.

Giving an example of South Sudan, Khadka said, “The taxes proposed to be levied by the central government were also placed in the domain of provincial government, which led to a dispute. It was later sorted out by forming a task force under the chairmanship of the finance minister of the centre, comprising finance ministers of provinces.”

According to him, it would be better to extend the authority to levy a certain tax to a particular government that can effectively levy that duty. “That power can be shared among other governments.”

The HLTSRC has suggested the finance committee of the Parliament to put customs, VAT, excise, corporate and individual income tax under the domain of the central government for effective enforcement, as these taxes are of stra-tegic importance and strong institutional mechanism is required to levy them effectively. Likewise, registration tax and vehicle tax have been recommended to be levied by provincial government.

Who is to levy what

Central government: Customs, excise, value added tax, corporate income tax, individual income tax, passport fee, visa fee, penalties and royalty of natural resources Provincial government: Wage tax (which covers large portion of individual income tax), land tax, registration fees, vehicle tax, excise, entertainment tax, advertisement tax, tourist fees, agriculture income tax, penalties and royalty of natural resources

Local government: Land and rent tax, registration fees, vehicle tax, service fees, tourist fees, business tax, entertainment tax, penalties and royalty of natural resources