Itahari Drinking Water Users’ Committee is not paying the government the tax on the amount it saves after its operating expenses. In the last fiscal year, the committee saved around Rs25 million.

In order to renew its registration at the District Water Resources Committee, the committee needs to furnish a tax clearance certificate. The tax office has asked the committee to pay a 25 percent tax on the amount saved after reducing operating costs and other expenses. But the committee, which was formed as a non-profit organisation, is not ready to pay the tax for the saved amount.

“You cannot treat the saved amount as profit because we don’t distribute the amount as a dividend,” said Ram Prasad Chaulagain, chairman of the committee.

The users’ committee, which has been supplying drinking water to 13 wards in Iatahari Sub-Metropolitan City, has joined hands with many other consumer committees who are facing a similar tax issue.

Representatives of Anandawan Shankarnagar Drinking Water Users’ Committee in Butwal said they will not pay tax from its saved amount.

“There should be tax exemption on the committees responsible for supplying drinking water, as we don’t distribute profits,” said Keshav Neupane, chairman of the committee.

Office bearers of the users’ committees argue that since they are already paying value added tax for their transactions and deducting tax from their staff’s salaries, they should not be subjected to an additional tax on the saved amount.

The users’ committees are lobbying hard with the federal ministries to get a tax exemption. They have even reached out to the Ministry of Water Supply, Finance Ministry and Inland Revenue Department.

There are over 42,000 Water Users’ Committees who are being asked to pay tax on their savings, according to the Federation of Drinking Water and Sanitation Users, Nepal.

Such committees are responsible for supplying drinking water in most parts of the country while Nepal Water Supply Corporation has a coverage area of 20 cities across the country.

Rajendra Aryal, national president of the federation, said that the users’ committees have been told to pay tax on the saved amount for the last several years, which will be a huge burden on them.

“In the past, we were not informed about the need to pay tax, and they are now asking us to pay the tax on the saved amount. Furthermore, they are also demanding fines on top of the liable tax,” said Aryal.

Thaneshwor Gautam, deputy director-general at the Inland Revenue Department, said that the water users’ committees must pay tax on the saved amount as per the current Income Tax Act.

“They made earnings by charging fees on users, so the saved amount is taxable,” said Gautam. “Even the Forest Users’ Groups are paying tax.”