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The federal budget unveiled on May 29 by Finance Minister Yubaraj Khatiwada has expand­ed revenue base and emphasized job creation, with the ultimate goal of improving the lives of ordinary citizens. In other words, the budget attempts to make positive changes in the lives of low-income people by taxing high- and middle-income individuals. While individuals with annual income of over Rs 2 million have to pay a high tax rate, those earning below Rs 400,000 have to pay only 1 percent income tax. In fact, the budget tries to change other forms of taxation, not just income tax. Such amendments are aimed at bringing everyone into the tax bracket. This entails not just more transparency in financial transactions but also systematizing them through banking channels.

In a society with a huge infor­mal economy, the budget tries to convey another message as well: stop over-consumption. The hike in excise duties on motorbikes with engine capacity higher than 150cc and other vehicles over 1000cc capacity hints at this message. This has reinforced the old mentality that vehicles are luxury items.

The auto sector, which contrib­utes annual taxes worth some Rs 1 billion, had been slowly collapsing after the tightening of auto loans in 2017. The budget has dealt another blow to the sector. Anjan Shrestha, former chairman of Nepal Automo­biles Dealers’ Association, says, “We may not be able to rise again. This budget has wrecked our sector.”

Tightening the screws

The auto sector is but one exam­ple; the budget has caused many other entrepreneurs to lose sleep. The private sector in general will bear the brunt of the chang­es in tax­ation. The first hint of it came right after Khatiwada was appointed finance minister, when he issued an instruction to tighten customs pro­cedures. Implicit in his instruction was the intent to stop indiscriminate imports, which have increased sig­nificantly in recent times.

Khatiwada also made life diffi­cult for small businesses that were already in dire straits since the Goods and Services Tax (GST) came into effect in India in July 2017. The finance minister’s thinking is also reflected in his encouragement of the use of letters of credit. In other words, he wanted to curb import transactions carried out through other payment methods besides a letter of credit.

Finance Minister Yubaraj Khatiwa­da acknowledges that implementing the budget is a challenge. In a review session on May 30, a day after the budget, he said, “Businesses have to pay their due to the state. Those who don’t fulfil their responsibilities will be made to do so from now on.” He added that tax evasion has been categorized as financial crime and those committing it won’t be spared.

Despite many improvements in the taxation system, the revenue col­lection won’t be enough to finance current expenditure. This will exert heavy pressure on the government’s current account from the very first day of the upcoming fiscal. The cur­rent account is already strained as the national budget has to be allocated to three tiers of govern­ment. Data from the central bank indicate that in the first nine month of the current fiscal, the country is running a current-account deficit of Rs 171 billion. The economy will face further complications if rising imports cannot be curbed.

The production equation

Economist Madan Kumar Dahal thinks that the budget tries to incor­porate all sectors. Nonetheless, “the 8 percent growth target will be dif­ficult to achieve without a 40 per­cent capital expenditure. Because the revenue collection won’t be enough for even regular expenditures, high domestic and foreign loans will be necessary,” he says. The budget has set a target of 23.9 percent cap­ital expenditure for the next fiscal, 0.1 percent lower than the current fiscal’s capital expenditure.

In the review session, Khatiwada said that the budget rolls out red car­pet for investors in export-oriented industries. But although the finance minister stresses export promotion to reduce the country’s ballooning trade deficit, the task is easier said. Instead of focusing on export pro­motion, it might be better to raise domestic production in order to reduce imports.

In a meeting of the Nepal Commu­nist Party Parliamentary Committee held on May 30, Prime Minister KP Sharma Oli extolled the budget, claiming that it was the best-ever. “This budget will help the coun­try acquire a ship and will bring railway lines to Kathman­du.” He asked everybody to lend their support to the budget, which he argued paves the way for prosperity and, ultimately, socialism.

Others, however, are less san­guine.

Former vice-chairman of the National Planning Commission Govinda Raj Pokharel thinks that the budget has spoilt the country’s investment climate. “The taxation system is unreasonably harsh on the private sector. This won’t help boost private investment,” he says.

To increase investment, the gov­ernment, the private sector and the international trade organizations all have important roles to play. Attracting foreign investment calls for a favorable investment climate. Former finance minister Ram Sha­ran Mahat thinks the budget has completely failed on that front. He also thinks that an 8 percent growth rate is talk only.

Flying horse, crawling snail

Former Prime Minister Baburam Bhattarai derided the budget by comparing it to a famous children’s game (one in which they expect a fish but get a frog instead). Imme­diately after the conclusion of the budget speech, he tweeted, “In all respects, this budget is a continu­ation of previous ones. What was needed was structural change to make a leap toward prosperity. That was seen neither in revenue col­lection and domestic and foreign investments, nor in regional alloca­tion and devolution of authority to provincial or local levels.”

As Bhattarai claims, the federal budget incorporates even the tasks that the constitution has devolved to the local level government, such as the construction of zoos, tourist trails and handicraft exhibition cen­ters. Such provisions, coupled with frugal capital expenditures, indicate that the budget is populist.

Nepali Congress came down heav­ily on the budget. “On the cam­paign trail, the parties heading this government claimed that the NC’s economic policies were flawed. But this budget is a strange hodgepodge of NC’s policies and communist orthodoxies,” NC central working committee concluded a day after the budget’s announcement. “It prom­ises to be a flying horse, but one that delivers results at a snail’s pace.”

BY SHREEDHAR KHANAL | Kathmandu

Chitwan: Minister for Home Affairs Ram Bahadur Thapa has hinted of a sting operation against the corrupt people. Addressing the first nation­al gathering of Nepal Federation of Photo Journalists (NFPJ) at Sauraha of Chitwan on May 31, the Home Minister urged journalists to go against the corrupt and the mid­dlemen who impede the country’s development and prosperity.

“It is important to launch a sting operation against those who are mired in corruption and who have sucked the country’s economy dry, whether they are in the judiciary or in any other profession,” he said.

Minister Thapa spoke on the need to publicize the photos of illicit drug peddlers, tax and revenue evaders, middlemen, smugglers and corrupt bureaucrats and crony capitalists.

The Home Minister urged journal­ists to write against the capitalists with black money and suggested that the photos of contractors who are against development also be made public. But those contrac­tors who contribute to the welfare of the society and the country’s development should be promoted, he added.

Saying the government was ready to work in collaboration with the journalists, he said journalism should be aimed at the country’s development and prosperity.

Nepal Communist Party leader and former Finance Minister Suren­dra Pandey said corruption is a key barrier to prosperity. He said no one could take away the rights of journalists in a democracy, while urging them to focus on economic development. RSS

The Ministry of Culture, Tour­ism and Civil Aviation has awarded the Tenzing-Hil­lary prize to Captain Siddhartha Gurung, a high-attitude rescue pilot with Simrik Air. The award carries a cash prize of Rs 50,000. Gurung was honored for his courageous acts of rescuing stranded moun­taineers and saving their lives. Minster of Water Supply and San­itation, Bina Magar, herself a moun­taineer, handed a certificate of appreciation and the cash prize to Gurung on the occasion of the 11th International Mount Everest Day on May 29. The day marks the first suc­cessful ascent of Everest by Edmund Hillary and Tenzing Norgey Sherpa in 1953. Also awarded on the occasion was Kami Rita Sherpa, who has successfully scaled Everest 22 times, and Lhak­pa Sherpa, who has successfully ascended to the top of the high­est mountain nine times, a record among women mountaineers.

Gurung was involved in the rescue operation of two Taiwan­ese tourists who had gone miss­ing for more than 45 days in the Langtang region in the district of Rasuwa last year. While one of them was rescued alive, another was found dead.

Simrik Air was also involved in an international rescue operation earlier this month when a 45-year-old Bulgarian mountain­eer Boyan Petrov went missing for about 10 days while scaling Mt Sisapang in Tibet, the autonomous region of China.

Simrik Air, in recent years, has been carrying out high-altitude rescue operations for mountain­eers and trekkers who lose their way. It also transports patients from the remotest corners of the country. “We’re still in the devel­opment phase of rescue missions,” says Gurung, who has been flying since 1994. “At present, most of our competitors hire foreign per­sonnel for rescue missions, who are not available all through the year. We are training local people and working on making our rescue available throughout the year.” Gurung credits the Switzer­land-based Air Zermatt for begin­ning the high altitude air-rescue missions in Nepal in 2009 and for training Nepali manpower.

Besides Gurung, the compa­ny employs a number of rescue pilots, namely Surendra Paudel, Bibek Khadka and Ananda Tha­pa. Even in areas where landing a helicopter is hard, Simrik Air car­ries out a longline rescue, which involves the rescuer being attached to the bottom of a rope flown to the rescue site.

The odds of the thorny Budhi Gandaki hydro project, with an estimated cost of Rs 270 billion, being awarded to the China Gezhouba Group Corporation have gone up. The budget speech presented by Finance Minister Yubaraj Khatiwada this week does not mention the modality under which the project is to be undertaken. It only mentions that the project will be carried forward after giving compensation payments. Nor was the phrase ‘competitive process’ included in the federal government’s Policies and Programs unveiled on May 25 in the run-up to the budget presen­tation. This likely implies that the project will be given to the Chinese company.

This despite the fact that the white paper issued by the Ministry of Energy, Water Resources and Irrigation on May 8 had stated that a bidding process for the project would be initiated in the upcoming fiscal year.

Tug of war

Prime Minister KP Sharma Oli and his comrade-in-arms Pushpa Kamal Dahal have repeatedly declared that the Budhi Gandaki project would be handed to none other than the Gezhouba Group. The budget speech seems to be intended to make good on the prime minis­ter’s declaration, while going against the spirit of the Energy Ministry’s white paper.

Former Energy Minister Janardan Sharma had signed an agreement to hand the project to the Gezhouba Group without going through a competitive bidding process—the very next day that the government he was a part of was ousted and he was serving in a caretaker status. Shar­ma’s act was roundly criticized, for his term had already ended and his decision violated the Public Procurement Act. Following this, a joint meeting of the Agriculture and Water Resources Committee and the Public Accounts Committee of the then Legislature-Parliament directed the government to scrap the decision to award the contract to the Chinese company.

The previous Sher Bahadur Deuba-led government had then announced that the Budhi Gandaki project would be constructed with domestic investment. A taskforce under the coordination of Swarnim Wagle, the then vice-chairman of the National Planning Commission, had submitted a report to the government outlining a plan to carry out the project. Based on the report, the then Council of Ministers had decided ‘to undertake the Budhi Gandaki hydro project with domestic investment’.

The Energy Ministry’s white paper was in line with that government decision. But the recent budget speech, by omitting the word ‘com­petition’, has fueled speculation that Finance Minister Khatiwada has colluded with Prime Minister Oli to overturn the previous govern­ment’s decision and award the contract to the Chinese Company.

And what of West Seti?

What is more surprising is that the budget speech states that the West Seti hydro power project would be undertaken with domestic investment, although this is a project that has been deemed unviable even by the China Three Gorges Corporation, a global construction behemoth.

After Three Gorges wrote a letter to the Investment Board of Nepal implying that it intends to back off from the project, the IBN had formed a committee under Mahen­dra Man Gurung, a Secretary at the Office of the Prime Minister, to look into the matter. Although the committee has submitted its report, the IBN is yet to make a formal deci­sion. But Khatiwada, by preempting the IBN’s decision, announced in the budget speech that the West Seti project will be undertaken with domestic investment.