The Department of Customs (DoC) had targeted to collect Rs 57bn in revenue for the month of Baisakh (mid-April to mid-May) but ended up raising only Rs 33bn.
The story of the Inland Revenue Department (IRD) is not much different. IRD collected revenue of Rs 34.46bn in Baisakh against the target of Rs 51.76bn.
DoC and IRD are the two major revenue collectors of the federal government. With both agencies continuously collecting revenue below the targets, there has not been much improvement in the income of the government till mid-May, 2023. The overall revenue collection has only reached 53.9 percent of the target by mid-May amounting to Rs 756.25bn, a sharp drop from Rs 865.76bn during the same period of the last fiscal year.
The most worrying part is, revenue collection has not increased as expected even after five months of the lifting of import restrictions and 100 percent cash margin on opening letters of credit (LC).
Amid a sharp decline in revenue collection, the government lifted import restrictions as well as the provision of cash margin in Dec 2022 and Jan 2023 respectively.
While imports have gradually surged in the last two months, the revenue collection of DoC has not improved. One of the reasons behind the halt in growth in customs revenue has been the reluctance of automobile dealers to clear the vehicles parked at the various customs yards, say customs officials.
“Even after the import ban was lifted, automobile dealers have not rushed to import new vehicles. They have not even cleared vehicles parked for months at the customs yards from the customs office,” said a senior official at DoC. “There are around 4,000 four-wheelers parked in different customs yards for months.”
These vehicles were brought based on letters of credit issued before the import ban, and have continued to remain parked at customs yards. “If the four-wheelers are cleared, we can get as much as Rs 8bn in revenue,” said the official.
Automobiles are one of the largest revenue sources for the government due to higher rates of taxes. In the fiscal year 2021/22, the government collected revenue of Rs 66.30bn from four and two-wheelers, according to the customs department.
Nepal imported vehicles and parts worth nearly Rs 100bn in the last fiscal year 2021/22. As of the first three quarters of the current fiscal year, vehicle imports slumped to Rs 34bn, according to Trade and Export Promotion Centre (TEPC).
Similarly, both exports and imports of the country have gone down during the first three quarters of the current fiscal year. According to the TEPC, exports slumped by 26.3 percent by three quarters to Rs 118.27bn and imports also plunged by 18.1 percent to Rs 1.2trn.
TEPC data shows the import of capital goods including machinery and iron & steel has also declined drastically. “It is because of the lack of the market demand for goods,” the customs official said. “This also reflects sluggishness in the economic activities.”
In early May, the National Statistics Office said that Nepal’s economy could grow by as low as 2.16 percent only in the current fiscal year though international agencies like the World Bank and Asian Development Bank had projected a growth of over 4 percent.
The impact of sluggish economic activities is clearly visible in the inland revenue of the government. According to IRD, revenue collection is very poor compared to the target. In fact, the government has failed to collect equivalent revenue collected in the last fiscal year.
IRD collected Rs 371.15bn in revenue as of mid-May of the current fiscal year which is 98 percent of revenue collected during the same period last fiscal year.
IRD data shows revenue from income tax and value-added tax (VAT), the two major components in the inland tax system, have declined in the current fiscal year. The department has collected Rs 159.05 billion in income tax in the first 10 months of this fiscal compared to Rs 173.40bn during the same period of the last fiscal. The income tax collection has decreased by 8.27 percent. Similarly, VAT stood at Rs 88.67bn this year against Rs 90.68bn in the last year. The collection of VAT has declined by 2.21 percent.
According to Raju Prasad Pyakurel, Director of IRD, the slowdown in economic activities, the decline in imports, and poor capital expenditure have contributed to the poor state of the revenue collection this year. “The revenue from the construction sector, manufacturing sector have declined this year,” he said.