As customers (mostly businessmen and industrialists) are refraining from making their true financial disclosures, banks are finding it hard to increase lending. Pressed by Nepal Rastra Bank’s directive to implement the Know Your Customer (KYC) norms, the banks have started demanding full financial details of the customers, including copies of tax clearance certificates. According to bankers, this hesitation by customers to make their real financial disclosures available could hit the banking industry hard in the long run.  

 

It is a common knowledge in Nepal that most businessmen and industrialists keep three different versions of account books – one for the purpose of tax, another for the purpose of taking loan from banks and the last one is the real one which they keep with themselves to know the exact situation of their companies and businesses. Now banks have started demanding copies of the same audited balance sheets which businessmen and industrialists submit to the tax office. Unlike in the past, auditors too are refraining from preparing and certifying separate income-expenditure details for the same business.

 

But customers (read businessmen), according to bankers, are refraining from providing such information. They are even ready not to take loans when pressed for audited balance sheets. This hesitation from businessmen to make a true financial disclosure is not good; it is blocking transparency in the country’s financial system.

 

Everybody should be transparent. The business community needs to be even more transparent to set an example in society. Therefore, businessmen should stop preparing separate income-expenditure details for the same business. This is an old trick to evade taxes which has worked so far because it has been allowed to work. But if the government authorities are watchful enough, it is not going to work anymore.

 

However, it would be naïve to expect only the business community to be transparent. Our bureaucracy, political parties and politicians should be transparent as well. Because it is ultimately the country’s bureaucracy and political class that are making the country’s business non-transparent. Bureaucrats demand hefty bribes from the business community. Besides bribes, politicians receive hefty sums of money in donation from the business community who, on their part, cannot claim such spending as expenditure in their books. Similar is the case of the extortion money that the business community is forced to pay to different kinds of extortionists. Donations and extortion cannot be shown as expenditure in the books of account. So, businessmen resort to other ways for compensation. Evading tax, though illegal, is one such way.

 

The political parties should start publicly declaring donations as income in their accounts so that the businessmen, on their part, can declare such donations as expenditure in their accounts. The government should provide enough security to the business community so that the latter doesn’t have to yield to extortion threats from mushrooming criminal gangs. 

 

The NRB should go ahead with its plan to implement the KYC norms in the country’s banking system at the earliest possible. It seems the implementation of the KYC norms alone can right various wrongs at various places.