Government revises tax structure and changes income tax slab for salary earnersTo encourage transactions under the VAT regime, finance minister announces a 10 percent return if payments are made digitally or through bank cards
The government has revised the tax structure as part of its bid to transition into a more sustainable revenue source generated through internal economic activities rather than existing import-based revenues.
Tax revenues and public borrowing are major contributors to the government’s financial resources, but it still relies primarily on tax revenues generated on imports.
Of the total budget of Rs 1.53 trillion for the upcoming fiscal year presented, the government plans to raise Rs 981.13 billion through revenue collection, Rs 57.99 billion through foreign grants, Rs 298.83 billion through foreign loans, and Rs 195 billion through domestic borrowing.
According to the Economic Survey unveiled on Monday, the share of import tax on revenue collection stands at more than 40 percent. Currently, two-thirds of the income from Value Added Tax comes from imports.
Likewise, 43.1 percent of excise duty collection is derived through imported goods.
“The tax structure will be revised to switch to internal economic activities from the existing import-based revenue sources to ensure sustainable revenue resource of the government,” reads the government budget.
The government has now targeted protecting and expanding the country’s manufacturing. Expansion of tax bases of both tax and non-tax sources and control of tax evasion and leakage through effective tax administration will be used to meet the revenue target, reads the budget document.
A reduction in the import of goods posing risks to human health and the environment, along with a revision in the tax rate of a number of luxury items are also among the government’s plans.
The budget has also envisioned the reduction of customs duty on the import of raw materials.
Entrepreneurs will also be receiving VAT refunds in four months from the date of transaction. Previously, entrepreneurs had to wait six months to claim the refund.
As is the practice every year, the government has again raised customs duty and excise duty on alcoholic beverages and tobacco products.
Furthermore, effective implementation of the personal account number, amendment of tax-related laws, and a reduction in capital gains tax on fixed property and stocks trading are included in the revised tax structure.
Since mid-April, the government has made personal account numbers mandatory for stocks investors investing more than Rs 500,000.
After criticism from investors, the government had backtracked on its decision last year to raise the capital gains tax. The capital gains tax has been reduced to 5 percent from 7.5 percent.
The government also announced a number of measures for effective tax administration.
Removal of double taxation, implementation of a biometric registration system, and updating taxpayers’ details in the new tax system are among the plans that the government will be implementing from the next fiscal year.
The government is also enforcing a new law on an integrated tax system.
Through a new customs act, the government has targeted implementing an electronic documentation system in the entire customs procedure.
To encourage transactions under the VAT regime, the government announced that it will pay back 10 percent of the amount paid in VAT to the payers’ account, if the payment is made digitally or through bank cards. Promoting the electronic billing system and integrating transactions to the Central Billing Monitoring System are among mechanisms that the government has planned to control leakage in VAT collection.
Furthermore, to control tax evasion in traded goods, the government has said that it will develop a mechanism to track the entire supply chain of specified products.
An independent revenue board will also be formed to replace the existing revenue consultation committee. The board will be mandated to carry out necessary studies on the tax system and will recommend the implementation of related policies and execution.
Similarly, the government has also introduced a new income tax slab for salary earners.
A single person earning up to Rs 33,333 per month and a married person earning up to Rs 37,500 a month will not have to file income tax. In the new slab, the minimum income tax threshold for individuals has been raised to Rs 400,000 per annum and Rs 450,000 for married couples. Both individuals and couples will have to pay one percent social security tax.
Previously, the income tax threshold for individuals was Rs 350,000 and Rs 400,000 for married couples.
This is the first time the government revised the income tax slab in the last three years.
Earlier, in the budget for the 2016-17 fiscal year, the tax slab had been raised by Rs 100,000 per annum for both single and married persons.
For the budget of the current fiscal year, the government revised the rate without changing the tax slab for salary earners.
Uttar Kumar Khatri, spokesperson for the Finance Ministry, said that the government has come up with a package tax system in order to provide respite to people and strengthen tax administration to generate more revenue.
“Revision in the income tax slab is expected to help salary earners while facilitation in the VAT payment system will help generate more financial resources for the government,” said Khatri.
According to Yagya Prasad Dhungel, spokesperson for the Inland Revenue Department, in the new income tax regime, a married person has to pay one percent social security tax for an annual income of up to Rs 450,000.
Married people with an annual income of Rs 450,000 to Rs 550,000 will have to pay 10 percent tax, while those with an annual income of Rs 550,000 to Rs 750,000 will have to pay 20 percent. Similarly, married people with an annual income of above Rs 750,000 and up to Rs 2 million will have to pay 30 percent tax. All those with an annual income of more than Rs 2 million will pay income tax of 36 percent.
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