Revenue collection growth rate plunges amid reduced importsExperts say that a heavy slump in average growth rate in revenue should be a cause for concern as it may lead to the government failing to finance development projects.
With domestic revenue failing to make up for the loss in import-based revenue, Nepal’s revenue growth rate stood at just 3.56 percent, compared to the average growth rate of 20.85 percent in the same period in the previous five fiscal years.
According to the Finance Ministry, revenue collection during the first four months of the current fiscal year stood at Rs256.77 billion, an increase of 3.56 percent from Rs247.94 billion during the same period last fiscal year.
The ministry said overall revenue collection was impacted by reduced imports of goods like diesel, petrol, cement clinkers and vehicles, which in the previous fiscal years made massive contributions to the state coffers. According to the Trade and Export Promotion Centre, import of petroleum products decreased by 15.4 percent, iron and steel by 26.5 percent, and transport vehicles and their parts by 6.3 percent. These account for three of the top four products, alongside cement, in terms of import value. Overall imports during the first four months decreased by 6.9 percent.
As a result, customs duty decreased by R2.43 billion and import-based value-added tax collection decreased by Rs3.94 billion.
Experts say that a heavy slump in average growth rate in revenue should be a cause for concern as it may lead to the government failing to finance development projects.
Bidyadar Mallik, a former finance secretary who later went on to become finance minister, said that reduced imports construction materials and equipment suggest that the economy is not performing well.
“When there is a slowdown, the government should be able to pump money into the market to stimulate the economy,” said Mallik. “However, decreased revenue will not give the government space to pump money in the market. This may lead to a vicious cycle of undergrowth.”
The government has targeted an economic growth rate of 8.5 percent this fiscal year but many economists believe that this rate unattainable. The World Bank has projected a more modest growth rate of 6.4 percent.
Government officials expressed concern about the slow growth rate in revenue collection but expressed hope that there will be an increase in revenue collection in the upcoming months.
According to revenue secretary Sishir Dhungana, reduced imports, which contributed to the slump in the revenue collection rate, will ultimately be beneficial to reducing the country’s ballooning trade deficit.
“The government is focusing on boosting domestic revenue and controlling leakages in customs-based revenue,” said Dhungana. “Another aim of the government is to increase non-tax revenue, such as royalty, rent, property income, dividends, sales of goods and services, and administrative fees.”
During the first four months, income tax increased by 25.5 percent on year-on-year basis while domestic value added tax collection rose by 29.4 percent, which barely covered the losses from import-based revenue. Non-tax revenue remained largely stable while other non-classified tax revenue also saw a decrease.
Dhungana, however, said that there has not been any impact on the government’s capacity to finance development projects as of now and that the government is confident that such a problem will not arise.
“There has not been much pressure on the government due to slow spending of grants provided to provincial and local governments and low expenditure in post-earthquake reconstruction,” said Dhungana. “When resource demands go up in the future, we will recoup the required revenue through alternative plans.”
According to Dhungana, these plans will include controlling leakages, increasing the valuation of goods at customs and increasing the government's non-tax incomes.
Last year too, the government failed to meet its revenue targets, which officials said was due to ‘overambition’. Despite massive imports in the last fiscal year, the government witnessed a revenue shortfall of Rs114.34 billion.