Provinces and Centre in tax rowThe federal and provincial governments are currently embroiled in a row over additional taxes the latter introduced recently.
The federal and provincial governments are currently embroiled in a row over additional taxes the latter introduced recently.
The federal government urged provincial governments last week not to impose ‘District Export Tax’ saying it was against the constitution.
The provincial governments have so far not taken any step to ‘correct’ their decisions. Some provincial governments are not only adamant on not withdrawing this tax, but to redefine it as tax as allowed by the constitution.
After provinces 1, 3 and the Karnali province imposed ‘District Export Tax,’ on forest, agriculture and mines goods, the federal government on July 20 sent them letters informing such taxes are against the constitution.
Article 236 of the constitution says, “No obstruction of any kind or levying of taxes or discrimination shall be made in the export and import of goods or services from one Province or local level to another Province or local level and in the transportation of any goods or services through the territory of any province or local level to another province or local level of Nepal.”
By introducing the Financial Bill, Province 1 has imposed such taxes on 207 agricultural and forest items. The tax rate varies for different products. Karnali Province imposed export tax on stones, sand, gravel, clay and mines from one district to another. Besides imposing such tax, the Province 3 has also imposed ‘collection tax’ as well.
Province 1 Minister for Economic Affairs and Planning Indra Angbo said they would not withdraw the District Export Tax, but adjust it in a way that tax remains within the definition of constitution. “For example, we can define it as ‘Sales Tax.’ Our aim is to boost the treasury of the provincial government,” he told the Post.
Karnali Province Minister for Economic Affairs and Planning Prakash Jwala said the state government was yet to receive the federal government’s letter although he was informed about it. “Once I get the letter, the necessary decision will be taken within the parameter of the constitution,” he told the Post on Monday.
He said that District Export Tax aims to increase revenue of provincial government. He said it does not violate the constitution. Province 3 Economic Affairs and Planning Minister Kailash Prasad Dhungel refused to comment on this issue.
Besides provincial governments, local councils have imposed different taxes that federal government objects to. The Birgunj Metropolis recently imposed entry fee on vehicles passing through the Metropolitan City and another tax on the sale of petroleum products within the Metro.
The Metro postponed the imposition of these taxes after the federal government on July 20 informed them to withdraw these taxes stating they are unconstitutional and against the Inter-Government Fiscal Management Act.
Mayor Vijay Sarawagi said, “We have postponed imposing these taxes following the central government wrote to us. We are imposing these taxes to rebuild the roads that are being damaged by heavy flow of the vehicles and address the issue of pollution these vehicles contribute.”
He said federal and provincial governments are in talks on how to raise this fund if these taxes introduced.
Haphazard taxation by the provincial and local governments worries the private sector. Federation of the Nepalese Chambers of Commerce and Industry Senior Vice-President Shekhar Golchha said they were alarmed by ‘haphazard’ imposition of taxes by the provincial and local governments. This could have serious impact on investment environment and could cause uncontrolled inflation.
“Some provinces and local units have imposed consumption tax on the use of construction materials. Some have imposed tax on the sale of cement which is a thriving industry in the country without following the constitution and the existing laws,” he said and added they have suggested to the federal government to resolve these issues by forming Central Tariff Board.