Centre to remove tax overlapsThe government is preparing to scrap the taxes imposed unconstitutionally or illegally by the provincial and local governments with the Cabinet endorsing on Sunday a proposal to implement the report prepared by a high-level committee formed to suggest ways to resolve the row.
The government is preparing to scrap the taxes imposed unconstitutionally or illegally by the provincial and local governments with the Cabinet endorsing on Sunday a proposal to implement the report prepared by a high-level committee formed to suggest ways to resolve the row.
The Finance Ministry presented the proposal to the Cabinet for implementing the report that calls for scrapping several taxes levied by the local and provincial
governments while broadening the tax base of the sub-national administrations.
The report recommends that the arbitrary taxes should be scrapped and a composite federal revenue law introduced to provide legal clarity.
The committee headed by Dinesh Thapaliya, secretary at the Ministry of Federal Affairs and General Administration, submitted the report to Finance Minister Yubaraj Khatiwada in the third week of September.
The Cabinet has decided to implement the necessary measures recommended by the committee on taxation, Minister for Federal Affairs and General Administration Lal Babu Pandit told the Post.
Finance Ministry officials confirmed that the government will instruct the provincial and local governments to follow the recommendations.
The Thapaliya-led committee was formed after an uproar over hefty increments in taxes imposed arbitrarily by the provincial and local governments.
The federal, provincial and local governments are locked in a dispute over who imposes certain taxes and whether Kathmandu can infringe upon the taxation authority of the sub-national governments.
The committee concluded that only the federal government has the authority to levy tourism fees, which has to be shared between the provincial and local governments.
It also recommends an end to the practice of non-state actors such as various committees and projects collecting tourism-related taxes contrary to the spirit of the constitution.
The high-level committee also suggests that local governments cannot impose business taxes—on industries, trade, profession or occupation within a particular local federal unit—on transactions. Such taxes can be imposed only during the registration and renewal of business ventures.
“If imposed, it will be deemed as double taxation, which contravenes the value added tax (VAT),” the committee argues.
The report deems the Patake Sawari Kar (vehicle tax) and the District Export Tax as unconstitutional as they go against Article 236 of the constitution.
A number of provincial governments had introduced the district export tax law, allowing the local governments to levy taxes on agriculture products, and sand and gravel.
“As the government has adopted the market-friendly federalism, the movement of goods and services across the country should not be obstructed due to the taxes imposed by any layer of government,” the report states.
While the erstwhile District Development Committees imposed ‘District Export Tax’ on the sale of such goods to another district, the new constitution banned it. However, Clause 11 of the Local Government Operation Act allows the local government to collect sales and export fees on such items.
The high-level committee has suggested introducing a single local tax to incorporate asset tax, land tax, house rent tax, business tax, scrap tax and taxes imposed on the sales of medicinal herbs and animals. The measure, says the report, will end double taxation and create an investment-friendly climate.
There were complaints about the local governments increasing the fees for birth, death, marriage, divorce and migration registration. Since the federal government has already fixed the rate for listing these incidents, local governments cannot impose additional fees.
In some cases, disputes flared due to the inconsistencies between the constitution and laws and the lack of legal clarity. The row over wealth tax is one such case between the federal and local governments.
After the Financial Act introduced by the federal government amended the provision of the Local Government Operation Act-2017, local governments complained that the changes breached their right to collect wealth tax. The report suggested implementation of the Act’s provision. The report also stresses the need for a law on taxing the extraction of stones, gravel and sand as there is no legal clarity over their use.
- Patake Sawari Kar (vehicle tax) and District Export Tax are unconstitutional
- Only the federal government is authorised to raise tourism fee
- Non-state actors cannot collect tourism-related taxes
- Local government can impose business tax only during registration and renewal of business ventures
- Calls for adopting single local tax incorporating asset tax, land tax, house rent tax, business tax, and scrap tax, among others
- Local governments cannot increase fees for registration of birth, death, marriage, divorce and migration