KATHMANDU: Food prices are expected to rise further in the domestic market of Nepal as the government has decided to levy up to 10 percent income tax on import of food grains at a time when the Government of India has banned the export of non-Basmati rice and wheat.

The Finance Bill introduced alongside the budget for the next fiscal year (FY 2081/82) includes a provision to collect an advance income tax of 1.5 to 10 percent on food grain imports, depending on the item. Previously, the maximum advance income tax was 5 percent.

Under the new bill, a 2 percent advance income tax is imposed on rice imports and 10 percent on pulses. "Currently, we pay a 20 percent export tax to India, a 5 percent agricultural service tax to the Government of Nepal, and a 2 percent advance income tax, totaling a 27 percent tax," said Bivor Agarwal, a member of the Nepal Rice, Oil, and Lentil Industry Association. "We then process and sell the rice in Nepal."

This tax increase will raise the prices of rice by Rs 100 per bag, he added.

In an interview with New Business Age, Agarwal noted that pulses have become more expensive by Rs 10 to 15 per kilo due to the 10 percent advance income tax. Most of the daily consumables, including potatoes and onions, now face a 10 percent advance income tax at customs.

A 2.5 percent advance income tax is charged on flour imports. Businessmen argue that these high taxes on vegetables, potatoes, onions, and fish will increase prices and burden the consumers.

"Currently, the increased advance income tax will not be refunded to importers as before," said Anand Gupta, information officer of the Inland Revenue Department.

A former director general of the department told New Business Age that the non-refundable advance income tax will further increase the price of imported food. The government justifies this tax as a measure to reduce imports of goods that are produced in sufficient quantities domestically, thus boosting local production. The government asserts that domestic needs will be met by increasing local production.

According to the Ministry of Agriculture and Livestock Development, Nepal produced 7.11 million metric tons of food grains, including rice, corn, millet, wheat, barley, and peas in FY 2078/79. Nepal's annual requirement is 5.46 million metric tons, indicating a surplus of 1.65 million metric tons. However, customs department data shows that 1.606 million metric tons of food grains were imported the same year. Businessmen claim that importing food from India is essential for running mills due to the competitive pricing of Indian agricultural products, which has long hindered the marketability of Nepali products.

Last Wednesday, Finance Minister Barshman Pun addressed MPs' questions in the House of Representatives regarding the budget. He confirmed that the prices of imported goods would rise in the coming days. Minister Pun argued that imposing advance income tax on imports protects the domestic agricultural market. He believes that making imported agricultural products more expensive through advance income tax will naturally protect and promote local agriculture.