Small businesses were more affected by pandemic but paid handsome taxesLarge Taxpayer Office missed target by 20 percent last year.
The government failed to collect targeted amounts of taxes from large enterprises while collecting more than the target from small and medium enterprises in the last fiscal year 2020-21. What is interesting here is that the small and medium enterprises were affected more by the Covid-19 pandemic but have contributed better to the state coffers.
According to the Annual Report 2020-21 of the Inland Revenue Department, the Large Taxpayer Office collected around 80 percent of its target while the other tax offices collected 120 percent of their target.
The target set for the Large Taxpayer Office was Rs208.84 billion but it could collect just Rs164.41 billion in the last fiscal year. But the Inland Revenue Offices collected taxes totalling Rs118.74 billion against the target of Rs98.55 billion, according to the annual report.
Until the last fiscal year 2020-21, businesses having annual transactions of over Rs800 million needed to pay their taxes to the Large Taxpayer Office. But in the current fiscal year, the government revised the threshold for qualification as a large taxpayer to Rs1 billion. Following the revision, the number of such taxpayers has decreased to 556 from 683, according to officials at the Large Taxpayer Office.
Around 38 percent of the total government revenue in the last fiscal year was collected through the Large Taxpayer Office, according to the report.
In the last fiscal year, all tax offices including the Large Taxpayer Office under the Inland Revenue Department collected a total of Rs429.27 billion, which is 95.32 percent of the target.
The report has left officials surprised because several surveys had shown that small and medium enterprises (SMEs) suffered more than the large enterprises due to the pandemic.
A survey by the Nepal Rastra Bank conducted in June last year showed that around 64 percent of the small enterprises had fully closed due to the pandemic, while such closure among large enterprises was around 48 percent.
Large enterprises have recovered better than smaller ones, according to successive surveys conducted by the bank.
According to the latest survey report of the bank released on Wednesday, 81-88 percent of micro and small enterprises surveyed in June last year have been fully operational by October this year. Similarly, over 90 percent of large enterprises were fully operational by October this year.
Tax officials say usually the target set for the Large Taxpayer Office is relatively higher than that of other tax offices. “Besides the government’s trend of setting relatively higher targets for large tax offices, the impact of the Covid-19 on large enterprises is an important reason for the lesser tax collection by the Large Taxpayer Office,” said Shiva Lal Tiwari, chief tax officer at this office.
But, in the last fiscal year, the target set for the Large Taxpayer Office was not that ambitious—it was just 13 percent more than the collection of a year earlier or fiscal year 2019-20. The office had collected Rs184 billion in fiscal 2019-20.
The government, however, had set the growth target of 17.11 percent for all tax offices under the Inland Revenue Department including the Large Taxpayer Office. The tax offices under the department had collected a total of Rs384.53 billion in fiscal 2019-20.
But, a senior official at the Large Taxpayer Office said that one key reason behind low revenue collection compared to the target in the last fiscal year was that it could not, unlike a year earlier, receive the outstanding taxes related to the sale of Ncell to Axiata, Malaysia by the previous owner, in the last fiscal year 2020-21.
“In the fiscal year 2019-20, we had received an additional around Rs23.43 billion from Ncell after it paid its outstanding tax liability related to the sale of Ncell in 2016,” the official said. The private sector telecom giant had paid its tax liability as per the Supreme Court verdict in November 2019.
In the current fiscal year 2021-22, the government has increased the revenue target for the Large Taxpayer Office to Rs 228 billion, which is around 39 percent more than last year’s actual collection, according to the department.