With the coming to power of the left government that now enjoys a two-thirds majority in the federal parliament, as well as effective control over all seven provinces, people were hope­ful that the ruling parties would honor their twin electoral promises of stability and prosperity. But while the government certainly appears stable, its record on prosperity has been repeatedly questioned over the past five months. The central government seems to believe that the remedy to the country’s economic woes is higher taxes, which is why the new budget increased taxes across the board. Everything from cars to liquor to daily edibles are now dearer, the rise in their prices directly or indi­rectly attributable to tax increases stipulated in the budget. The sev­en provincial governments, on the other hand, believe the center has shortchanged them in revenues and are devising their own formulas to collect more taxes. There is thus a lot of duplication in tax collection, which in turn is making the lives of Nepalis difficult.

 

The federal government for instance recently imposed a 13 percent Telecom Service Charge (TSC) on telecommunications and Internet Service Providers, add­ing to the cost of voice calls, text messages, data packages and internet services. This made tele­com and internet services in Nepal one of the most expensive in Asia, even though the left coalition’s elec­tion manifesto had clearly stated that free and widespread availability of internet would be one of its cen­tral goals. This year’s budget also broadened the scope of the Value Added Tax (VAT), much to the cha­grin of small businesses.

 

Why pay?

 

“We had people from the tax office coming to tell us that we needed to register with VAT soon,” says a beauty salon owner in New Road who didn’t want to be identi­fied as she feared being accused of cheating on taxes. “We are regis­tered under PAN and pay our taxes regularly. I don’t understand why a small business like ours needs to register with VAT too.” (The new budget had listed beauty salons, among other small businesses, to be registered under VAT.)

 

“There is no point in paying extra taxes when we’re not getting any­thing in return,” she says. “Look at the pathetic state of New Road. Basantapur is still under con­struction, we get waterlogged when it rains and we have run out of parking spaces. So what do we pay the taxes for?”

 

Likewise, an IT firm owner in Kathmandu, who also declined to be named, believes the current gov­ernment is not friendly towards entrepreneurs. “The government seems to have no idea how much income IT companies generate for Nepal from abroad,” he says. “IT professionals can work in any part of the world yet we’re still trying to work in our own country and create new jobs here. But the government keeps discouraging us.” H clarified that his laments were based on the recent increases in internet charges, the imposition of VAT on IT compa­nies and the ban on cryptocurrency.

 

As the taxes are now levied under three levels—federal, provincial and local—common folks feel the tax bur­den on them has greatly increased. Provinces, metropolitans and rural municipalities have started their own taxes and are increasing local service charges. For instance, having a birth certificate made will now set you back by up to Rs 1,000 when earlier it used to cost next to nothing.

 

Storm brewing

 

At present, all provinc­es except Province 4, the Gandaki province, are in conflict with the central government over taxes. Province 1 has intro­duced taxes on exports of 207 different mate­rials to other provinc­es. Provinces 2, 3 and 6 have introduced 0.5 per­cent “Natural Resourc­es Tax” on the export of stones, crushed stones, sand, slate, grav­el and also cement and clinkers produced under its jurisdiction.

 

Province 5 has passed a man­date to impose a tax of between Rs 160 to Rs 320 on Indian vehicles plying within its jurisdiction. At the same time, province 7 has introduced extra taxes for regis­tration and renewal of business firms under the “Province Develop­ment Tax.” Industries and business­es are feeling the pinch, and again their added costs are being passed on to the final consumers of their goods and services.

 

The federal government claims that the provinces cannot arbitrarily charge ‘unconstitutional’ taxes, and any such taxes would be summarily scrapped.

 

“We are aware of the various taxes provincial governments are levying and we have already taken mea­sures to control them,” says Shishir Dhungana, revenue secretary at the Ministry of Finance. “The pro­vincial governments have the right to manage their own finances but they must follow certain rules and guidelines. They cannot go against the constitution.”

 

Making them pay

 

Such conflicts of interest between different tiers of government are increasingly coming to the surface. When provinces 1, 3 and 4 intro­duced ‘District Export Tax’ on for­est, agriculture and mine products, the central government had to write to them, informing that such taxes violated the constitution. But in most cases the provincial govern­ments have refused to withdraw their taxes.

 

“The constitution gives the provin­cial and local governments the right to levy taxes as per their needs. But some local and provincial govern­ments have introduced extra taxes on their own,” says former finance secretary Shanta Raj Subedi. “It is the central government’s duty to make sure that the taxes don’t over­lap. Moreover, the mechanism of levying and collecting taxes should be scientific, practical and coordi­nated.” Only then, says Subedi, will people have faith in their tax system and will actually be inclined to pay timely taxes.