Revenue collection takes a blow due to macroeconomic headwinds

The Annapurna Express

The Annapurna Express

Revenue collection takes a blow due to macroeconomic headwinds

After the import control measures led to a big slump in revenue collection, the government first lifted the over seven-month ban on the imports of automobiles, liquors, and expensive mobile sets effective from mid-December last year.

Then, on January 20, the Nepal Rastra Bank (NRB) annulled the nearly year-long provision of cash margin of up to 100 percent in the banks to open letters of credit (LCs) for the imports of around 300 goods.

However, the decisions of the government and NRB to roll back their previous steps, which were introduced a year ago to tackle the worsening problems in the external sector of the economy have not been fruitful for the government in terms of meeting the revenue targets.

According to the Financial Comptroller General Office (FCGO), the government’s revenue collection continues to remain dismal totaling Rs 584.29bn as of mid-March, 2023 compared to Rs 688.38bn in the same period of the last fiscal year 2021/22.

The revenue collected so far is not enough even to cover the recurrent expenditure of the government which stands at Rs 610.21bn as of mid-March, 2023.

The Department of Customs (DoC) and Inland Revenue Department (IRD), the major agencies of the country’s tax regime, have reported dismal revenue figures as of March 15 of the current fiscal year.

According to DoC, it collected Rs 250bn, which is 58 percent of the target of Rs 433bn. “The impact of the policy reversal on import control has not been reflected in the customs revenue,” a senior DoC official said.  The country receives nearly half of its revenue through taxing imported goods.

Import taxes on vehicles are among the largest sources of revenue. But even after the government lifted the import ban, automobile dealers have not rushed to import the vehicles.  In fact,  the automobile dealers have not yet cleared around 2,800 four-wheelers parked at Birgunj and other customs yards of the country, according to the customs officials. The vehicles were imported in recent months based on LCs opened before the import restrictions were imposed in April last year. “We have long been asking the auto dealers to get them cleared but they have refused to do so, complaining about the non-availability of loans in the automobile sector,” the official said.

In FY 2021/22, the government collected revenue of Rs 66.30bn from the imports of four and two-wheelers,  DoC data shows.

The story is the same with the inland revenue collection. According to IRD,  the revenue collection as of mid-March of this fiscal year stood at 79.68 percent of the target. A total of Rs 281.99bn has been collected by IRD as of mid-March against the target of Rs 353.91bn. The department had raised Rs 284.88bn in revenue during the same period of the last fiscal year.

In late January, the government decided to reduce administrative expenditure by 20 percent. Subsequently, the government trimmed its expenditure plan (budget) for the current fiscal year 2022/23 by 13.59 percent through the mid-term review of the budget.

This translates to a reduction of a staggering Rs 243.83bn in the budget for FY 2022/23. The revised budget now amounts to Rs 1,549.99bn. On May 29,  former finance minister Janardan Sharma had presented a budget of Rs 1,793.83bn with an ambitious 8 percent economic growth target.

But during the first quarter of the current fiscal year, the economy grew by just 0.8 percent. Industrialists and businesspersons say the demand for goods and services has slumped as the economy is facing several problems currently. According to revenue administration officials, meeting the revenue targets is difficult because of the macroeconomic headwinds.

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