Soon after the Supreme Court on June 15 vacated its earlier order to stay the collection of value added tax (VAT) during the prohibitory order period, the Inland Revenue Department issued notice asking taxpayers to submit their tax details and pay the taxes by July 9.

As per the notice issued by the department on June 16, taxpayers have been asked to pay the VAT, tax deducted at source (TDS), excise duties, education service tax, telephone ownership and telecommunication service fees of Chiatra (mid-March to mid-April) and Baishakh (mid-April to mid-May) and submit their details by July 9.

At a time when the department has been struggling to meet its revenue collection target, the court’s order came as a welcome surprise for the Department. Earlier, on May 18, the apex court had issued an interim order not to collect VAT or impose fines on taxpayers during the period of the prohibitory orders.

“As the last month of the fiscal year always remains very important for tax collection and government expenditure, we issued a notice to taxpayers to pay taxes and submit the tax details,” said Arjun Dhakal, information officer at the department.

“Due to the prohibitory orders, taxpayers had not been able to submit tax details and pay taxes although their business transactions were good until the imposition of the lockdown in April-end.”

After the second wave of pandemic hit the country in early April causing huge loss of lives and overwhelming the country’s health system, the government authorities had enforced lockdowns separately in most parts of the country starting from late April. As a result, business activities were suspended creating a cash crunch for businesses. Until last week, only 50 percent of the businesses were in operation, according to the Federation of Nepalese Chambers of Commerce and Industry.

Lately, along with the gradual easing of lockdown restrictions, the tax authority found it opportune to ask businesses to pay the taxes. On Monday, the administrations of the three districts of the Kathmandu Valley announced further easing of lockdown restrictions by allowing private vehicles and taxis to operate on the basis of odd-even number rule and most shops to open on separate days.

“The lockdown is expected to be relaxed further before the tax payment deadline, so those who could not pay the taxes due to the strict lockdown in the past month and a half can now pay,” said Dhakal.

According to the department, it could collect just Rs17.70 billion in taxes during the month of Jestha (mid-May to mid-June), the eleventh month of the current fiscal year, against the target of Rs33.07 billion.

Overall tax collection until mid-June stood at Rs360.70 billion against the target of Rs378.48 billion. The department’s tax collection target for the current fiscal year 2020-21 is Rs450 billion.

“Until mid-May, we were on track to meet the revenue target set for our office with around 99 percent of the targeted amount having been collected,” Dhakal said. “But, the disruption caused by the second wave of the pandemic affected tax collection lately and it will be challenging to meet the target for the current fiscal year.”

He, however, said that the Supreme Court’s allowing the tax authority to collect tax would be helpful in meeting the revenue target even though many taxpayers were also paying taxes voluntarily despite the court’s earlier interim order. The revenue collection target set for the department by the government for Asar (mid-June to mid-July) is around Rs72 billion, which is more than double the target set for the month of Jestha (mid-May to mid-June). The government usually sets a higher target for the last month of the fiscal year.

However, private-sector representatives and experts say even though the government needs revenue to run the state, it should be flexible with businesses, especially the small ones, considering the impact of pandemic on businesses.

Shekhar Golchha, president of the Federation of Nepalese Chambers of Commerce and Industry said that the federation is not opposed to paying taxes, but many businesses can’t pay immediately as they have not been able to collect payments for their sold goods and services due to the Covid-induced closure of businesses.

“Now, the cash flow is almost nil and businesses cannot collect and pay the VAT and excise duties even though we know that businesses collect such taxes from customers,” Golchha told the Post. The business community often faces accusations of not depositing the VAT and excise duties that they pass on to customers.

Private sector bodies including the federation, Confederation of Nepalese Industries and Nepal Chamber of Commerce citing the transport disruption caused by the prohibitory orders had jointly asked the government earlier this month not to impose any fine on businesses for their failure to submit details of the VAT, excise duties and other tax liabilities.

They had also appealed to the business community to pay the taxes if they are capable of paying.

And, the tax authority has been mindful of the situation. While calling on the taxpayers to pay taxes by July 9, the department has not asked them to pay any fine and penalties for delayed submission of tax details and applicable taxes. “We took the decision considering the difficulties caused by the pandemic,” said Dhakal.

Experts meanwhile say the private sector should be ready to pay the tax dues as the lockdown is gradually being relaxed and economic activities are heading towards normalcy.

According to a follow-up survey conducted by the Nepal Rastra Bank, the central bank, in April, as many as 81.2 percent of total businesses were fully operational against 4.1 percent during the lockdown last year, when the first survey was conducted.

Likewise, transactions of businesses had reached 61.4 percent of the pre-pandemic levels in April this year compared to 28.8 percent last year.

“As per the law, taxpayers can pay tax by calculating the amount on their own. If there has been no profit, they can submit tax details only and pay no tax. If they are in loss, they can carry over the loss to next year and deduct it from that year’s taxable income. So, they should not shy away from paying taxes as the government also needs resources,” said Dr Shankar Sharma, former vice-chairperson of the National Planning Commission.

He, however, said that the government should not penalize taxpayers next fiscal year even if a large discrepancy is found between the amount of tax paid this year and the actual tax liability, considering the current crisis. “As they collect the VAT and excise duties from customers, there should be no problem for taxpayers to deposit the amount collected from customers once the lockdown is relaxed,” said Sharma.

Former Minister and Finance Secretary Bidyadhar Mallik said more relaxed provision should be made for the businesses which engage in cash-based transactions and have no or little tendency of paying tax electronically.

“Large businesses can submit tax details and pay the taxes electronically so the lockdown does pose an obstacle for them,” he said.

“But, in the case of small businesses relying on cash-based transactions, it may be difficult for them to pay the taxes electronically so they should not be forced to pay the taxes as long as they cannot travel to pay the taxes.”

Until the latest Supreme Court court that allowed the government to collect taxes, the private sector was hoping to pay the taxes after the end of the current fiscal year.

Earlier in May the court had ordered the government to give businesses 30 days to pay the taxes after the lockdown is lifted. The court had issued a similar order last year too when the government imposed a lockdown from March 23 to July 21.