A government panel has suggested allowing only traders with strong financial credentials to engage in import trade, raising questions if such a policy to weed out small importers would violate their right to do business.

Firms need to state their paid-up, issued and authorised capital while registering with the Office of the Company Registrar, but the Nepal Revenue Advisory Board has suggested issuing import licences only to those individuals or firms that can import goods valued over a certain threshold annually.

According to the board’s report, this provision will limit the number of importers and make it easier to identify them and track their transactions. If only a few resourceful people or firms are involved in the import business, it will be easier to screen their imports, it says.

According to the report, when a limited number of firms import specific products in large volumes, the cost of goods will also come down. With the reduced cost, the tendency among importers of undervaluing the prices of the goods deliberately to pay less tax will also decrease, it says.

In order to address these issues, the report calls for amending the existing commerce policy and other relevant laws. The budget for the fiscal year 2021-22 presented by the outgoing KP Sharma Oli-led government, however, has made no such announcement as suggested by the board.

Experts and officials admit that despite the report’s good intentions to ensure proper monitoring of the transactions of importers, the recommendations may infringe on the constitutional rights of individuals to engage in trade. Article 17 of the constitution ensures that Nepali citizens have the freedom to practise any profession, carry on any occupation, and establish and operate any industry, trade and business in any part of Nepal.

Former minister and finance secretary Bidyadhar Mallik said that instead of stopping small traders from engaging in the import business, measures should be taken to control those who engage in illegal trade. “If you limit the number of importers, you may assign the task of importing goods to a handful of people,” said Mallik. “Without competition, they can put any price tag on their imports.”

According to him, local people in the bordering regions also import goods on a small scale, and barring them from importing goods may hit their livelihoods.

According to the report, a total of 21,683 firms were involved in importing goods in the fiscal year 2019-20, and there are traders who have imported goods worth as low as Rs1,714 and as high as Rs156.29 billion in a year. Some traders are involved in both importing goods and selling in the retail market. This has broken the regular chain of trade.

As there are a large number of importers, the failure of the tax administration to monitor small-scale importers, non-transparent modes of payment and importers disappearing from the scene are among the factors that lead to inadequate revenue collection for the government, the report says.

Over the last few years, there has also been a tendency of one person registering several import firms under several names and discontinuing business after evading massive amounts in taxes, the report adds.

The Department of Revenue Investigation in the fiscal year 2019-20 had filed cases against several importers for evading taxes amounting to Rs7.49 billion by registering multiple firms under various names, it points out.

Ram Prasad Acharya, director general of the Department of Revenue Investigation, said the major concern is that the government should be able to plug revenue leakage. The department is also represented in the discussions at the Revenue Advisory Body.

According to Acharya, there is a growing tendency of importing goods by registering firms in the name of dummy owners who have nothing to do with the actual business. “When revenue leakage from such firms is identified, the real culprits run away while innocent people under whose names the firms have been registered face charges.”

According to him, there are several such cases in the ongoing fake value added tax (VAT) bill scandal which the department has been investigating.

The issue is not that small importers should be barred from the import business, said Acharya. “We want to make sure that only genuine people are in the business so that illegal activities can be controlled and revenue losses reduced.”

He admitted that not allowing small traders to engage in import businesses might go against the constitution and laws.

Even though the government requires importers to obtain an Exim Code to engage in import business and deposit a bank guarantee, imports are taking place in the name of sham importers, according to the report.

In order to control malpractices, the board has recommended making due diligence of the individuals or firms applying for an import licence mandatory.

A system should be developed at both the customs and tax offices that will help monitor the transactions of the traders.

When traders open bank accounts, their income source and financial capacity should be specified in the Know Your Customer form. “Currently, we have to find out whether somebody is a real importer by carrying out investigative work. But if they are identified before they enter the import business, it will help control revenue leakage to a large extent,” said Acharya.