Unable to collect taxes, the government is going brokeBased on the current revenue stream, the government could soon be unable to pay salaries, pensions, social security allowances, and its bills, finance ministry officials say.
The national treasury is fast emptying and with few means of raising taxes and supplementing income, the government could soon be unable to pay employee salaries, social security allowance, pensions and bills from contractors and suppliers, according to Finance Ministry officials.
“We are in a more-or-less breakeven position in terms of income and expenditure,” said Uttar Kumar Khatri, the finance ministry spokesperson. “We need to be able to collect enough revenue to pay our bills, and to pay salaries and pensions.”
According to the ministry, the government has collected revenue of over Rs692 billion and internal loans over Rs175 billion so far. It has also received foreign grants of Rs11 billion and other receipts of Rs44 billion, totalling a collection of over Rs920 billion, according to the Financial Comptroller General. But it has also had an expenditure of nearly Rs889 billion so far.
With savings low and little income, the government is cautious about spending any more than it has to in the final month of the current fiscal year.
Already facing a shortfall in revenue due to the nationwide lockdown that has closed down most businesses, the government had attempted to impose a deadline to pay taxes. On June 3, the government had extended the deadline for the third time to pay value added tax, excise duty, tax deducted at source (TDS) under income tax, education service tax, telephone ownership fees, and telecommunication service fees to June 21, and income tax by June 28.
But the Supreme Court, in a June 11 interim order, asked the government to allow 30 days after the complete lifting of the lockdown to taxpayers to pay their dues. On Monday, the court turned down the government’s request to revisit the order, in light to the extreme shortfall in revenue collection.
On Sunday, Finance Minister Yubaraj Khatiwada, speaking at the House of Representatives, had warned of the dire state of the government’s treasury.
“The revenue situation is not good,” said Khatiwada. “There is no possibility that daily revenue collection will be able to sustain the government’s daily expenditures.”
According to Khatiwada, the government’s current revenue stream is insufficient to meet its liabilities as the lockdown, imposed since March 24 to prevent the spread of Covid-19, had badly affected revenue collection.
Salaries for government workers, pensions for retired employees, social security allowance for the elderly and disadvantaged groups, and payments to be made on internal and external loans are among the government’s compulsory liabilities.
Yagya Dhungel, chief of the revenue division at the Finance Ministry, said that the government expects to recover certain amounts from taxpayers, just like it has done so far during the lockdown period.
“Taxpayers have already paid over Rs38 billion,” he said. “We expect taxpayers to pay their dues voluntarily, despite the Supreme Court order.”
According to Dhungel, the court order will not affect customs-based revenue collection and non-tax revenue such as royalties and fees.
The government has also decided to shuffle funds around to the government revenue account in order to bridge the resource gap.
“We expect to gather between Rs20-25 billion from unused resources in various funds,” said Dhungel.
The government will also be able to collect a certain amount of excise duty despite the court order.
“The liquor industry cannot take liquor to the market without paying the excise duty. So we have absolute control over the excise duty paid on liquor,” said Thaneshwor Gautam, deputy director-general of the Inland Revenue Department.
But, the concern is whether the government will be able to collect enough in the last month of the current fiscal to meet all its liabilities, given the drastic reduction in imports given that the lockdown closed down the international border and the pandemic affected supply chains.
The finance minister said on Sunday that the government has been collecting just Rs15 billion as customs revenue, and a few billion rupees from other internal sources, against the country’s compulsory monthly liabilities of Rs40 billion.
The lockdown has yet to be lifted completely, but the government has relaxed some prohibitions on public movement and businesses.
Officials said that there had been a slight improvement in revenue collection since the relaxation, but the stream remained small, compared to normal times.
“There has been some improvement in revenue collection from customs, as daily revenue has increased to Rs600-Rs700 million from around Rs500 million in recent months,” said Dhungel, the chief of the revenue department. “But the situation remains precarious.”