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Bill to scrap controversial Tax Settlement Act

The government on Monday registered a bill at the parliament secretariat to scrap the Tax Settlement Commission Act-1976 as the commission enjoying absolute power has been embroiled in several dubious decisions. Bill to scrap controversial Tax Settlement Act

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Prithvi Man Shrestha

Published at : December 25, 2018

Updated at : December 25, 2018 16:06

Kathmandu

The commission formed last in 2015 raised alarm bells after it decided to exempt taxes worth Rs21 billion. This led the Commission for Investigation of Abuse of Authority (CIAA) to launch a probe and file a corruption case against members of the commission last year.

In line with the Finance Ministry’s proposal, the Bill to Amend Some Nepal Acts, registered by the Law Ministry at the secretariat, has a provision to repeal the controversial law.

The government reasons that the commission is not required any more as there is a legal mechanism for tax settlement formed according to the Income Tax Act-2002, the Customs Act and other laws.

The Income Tax Act allows a taxpayer to appeal to the director general of the Inland Revenue Department, Revenue Tribunal and even the Supreme Court if s/he does not agree with the tax amount determined by the tax officer.

Since the commission led by Chudamani Sharma, then director general of the Inland Revenue Department, decided to provide controversial tax exemptions, questions have been raised about the need for such a mechanism in the first place.

The CIAA on July 16, 2017 filed a corruption case at the Special Court against Sharma and two members of the commission—Lumba Dhwoj Mahat and Umesh Dhakal—charging them with embezzling Rs10.02 billion.

In the biggest ever corruption case filed by the anti-graft body, it had sought fines amounting to Rs33 billion from the three officials.

The Act has also been controversial since it provides unprecedented protection for officials at the commission, as their decisions cannot be challenged as long as they act “in good faith”.

The Finance Committee of the previous Legislature-Parliament instructed the government in July 2017 to scrap the Act.

The 54th Annual Report of Office of the Auditor General first pointed out the irregularities in the process of tax exemption, attraction the attention of the CIAA.

Sukdev Bhattarai Khatri, then acting auditor general, who was instrumental in presenting the report that listed the irregularities, welcomed the government’s move to scrap the controversial law.

“The government has made the right decision because it has been the source of huge revenue leakages for long,” he said.

Tax experts argue that the TSC Act had been redundant when the Income Tax Act was introduced in 2002, prescribing a step-by-step remedy for settling the dispute related to income tax.

Although the TSC Act was introduced to collect tax dues, mainly from sick industries in a bid to revive them, even companies performing very well and earning good profits enjoyed tax exemptions.

Companies like Ncell and Tribeni Distillery, for example, which were capable of paying taxes, were exempted from paying billions of rupees under the scheme. The CIAA said the TSC exempted taxes even for those who had agreed to pay the amount. It accepted the applications of the firms that produced fake value added tax bills. Applications registered after the deadline were also accepted by marking prior dates on them.

The commission was formed by the Sushil Koirala administration. “The government can decide to scrap the TSC Act but we want a permanent mechanism to deal with tax disputes in a fast-track approach,” said Ashok Kumar Todi of the Federation of Nepalese Chamber of Commerce and Industry. He said businesses are forced to pay more in fine than the actual liability due to the lengthy settlement process.

Prithvi Man Shrestha
Prithvi Man Shrestha is a political reporter for The Kathmandu Post, covering the governance-related issues including corruption and irregularities in the government machinery. Before joining The Kathmandu Post in 2009, he worked at nepalnews.com and Rising Nepal primarily covering the issues of political and economic affairs for three years.