The mystery behind books and taxesThere is absolutely no proof that the customs duty on imported books has benefitted local printing presses.
The decision by Finance Minister Yuba Raj Khatiwada to impose a 10 percent customs duty on imported books has been widely criticised by readers and booksellers all over Nepal. Strangely enough, at a recent press meet, he was quoted as saying, ‘Trading books is not trading your knowledge. If you earn profit by selling books, you should also pay tax to the government’. It is quite unclear what he meant by this since the criticism against his decision is not about book businesses paying taxes on profits (which they have been doing for decades), but rather his decision to impose a customs duty on imported books, an imposition which started only last year.
It has been understood that the rationale for imposing the 10 percent customs duty on books is to 'protect' printing presses in Nepal. It is a well-accepted fact that printing books is significantly cheaper in India than in Nepal. Therefore, the intended objective of imposing the customs duty is to encourage writers and publishers to print books domestically rather than print them abroad. However, there is absolutely no proof that the customs duty on books has benefitted local printing presses; rather it has negatively affected readers and booksellers in the country. That’s a shame.
Imported books market
There is a severe shortage of imported books in Nepal. The 10 percent customs duty has sorely affected the profit margin of wholesalers and retailers. If the government continues to impose this customs duty, Nepali book importers will be forced to stop buying foreign books altogether.
When importing books, most booksellers add a mark-up of around 25 percent. This could be higher or lower depending on the book. For instance, a wholesaler who imports a book with a maximum retail price of Rs100 gets it for around Rs75 from the exporter who would mostly be from India. Let us consider two cases, before and after the customs duty, to examine its effect on the book market.
Case 1. Before the imposition of the customs duty, Nepali wholesalers could import books with a retail price of Rs100 at around Rs75. In addition to the cost of the book, there is a 5 percent shipping charge. The wholesaler, therefore, imports the book at a cost of Rs80 which can be sold for Rs100 retail. Assuming that the wholesaler adds a 10 percent profit, the cost to the retailer is Rs90. In such a case, the retailer can still have a profit margin of 10 percent.
Case 2: After the imposition of the 10 percent customs duty, there was a significant increase in the import cost. Let us break down the cost of the book which previously had a maximum retail price of Rs100. Before, the exporter would sell the book to the importer at Rs75. But now there is a 10 percent customs duty which comes to Rs7.50. The cost of shipping has increased to 6.5 percent of the retail price which comes to Rs6.50. When we add the customs duty and the transportation charge to the cost of the book, the cost to the importer is Rs89.
While previously book importers had a profit margin of around 20 percent of the retail price, now they have a margin of only around 11 percent. This is not a margin which both wholesalers and retailers can operate on. Therefore, it is not worth importing books anymore; and resultantly there is a shortage of imported books in the market these days.
Booksellers cannot pass on the increased cost to their customers. There is a law in Nepal entitled Black Market and Other Social Offence and Penalty Act 1975 which makes it a punishable offence to sell products at a price exceeding the maximum retail price. So if the government doesn’t act soon, there will be a severe shortage of imported books. This would, unfortunately, affect both consumers and booksellers all over the country.
One of the most important and difficult tasks that economists and policymakers are faced with is choosing the right policy tools to fulfil a specific objective. The imposition of a customs duty— a policy tool which has been chosen to meet the very noble objective of increasing production of domestic printers—clearly isn’t the right choice. This policy choice negatively affects consumers and booksellers, and there is no evidence that Nepal's printing presses are benefiting either.
A better policy solution to meet the intended objective would be to lower the costs associated with printing books domestically. These costs include the cost of printing paper, ink, plates for printing, printing machines and so forth. India produces most of these domestically, whereas Nepal has to import them currently at various customs duties. Either Nepal should produce the items required for printing domestically (which is quite difficult in the short run) or they have to be imported at a very low cost without any import duty. It is only then that Nepali printers can compete with Indian printers. Quite naturally then, a better policy solution to protect Nepali printers is to remove the customs duty on goods associated with printing; not impose a customs duty on books.
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