In a bid to expand the tax net, the Ministry of Finance is considering levying a tax on the transfer of ancestral property though. Finance Minister Dr Yubaraj Khatiwada has said that this concept of inheritance tax is in its initial phase.

Inheritance tax in not a new concept as it is in practice in many countries across the world. It is understandable that the Ministry of Finance has been searching for new sources of revenue as the government is finding it hard to finance its expenditures from the existing sources of revenue. However, it is likely that the government’s attempt to introduce the tax on the transfer of ancestral property will not be greeted well by citizens. Already, people from various quarters of the society, including businesspersons and professionals, have raised their concerns regarding the inheritance tax. It indicates that the taxpaying readiness of Nepalis has not reached the level of advanced economies. Also, the socio-economic sentiment for such taxes is also negative in a country like Nepal where acquiring ancestral property is considered a right of the citizens. First, there are some questions on why the government is looking to increase its tax revenue. Already, Nepal’s tax-to-GDP ratio is comparable to developed countries at 23-24 percent; it is 12-14 percent in developing and emerging nations. This means, the government’s unproductive spending has swelled and that the tax revenue has not actually decreased.

Despite the fact that corporate tax in Nepal is among the lowest in the South Asia region, high rate of taxes and problems in taxation are among the top concerns in the business sector. A few months ago, the government and the business sector were seen locking horns over the implementation of the Value Added Tax (VAT) on transportation services and mandatory permanent Account Number (PAN) all bills of transactions of than Rs 1,000 that were announced in the Federal Budget for FY2019/20. Besides, there are regular complaints from businesspersons about the increase in tax rates by the government in its annual budget. This indicates that the issues related to taxation are becoming complicated even further. The general public is increasingly feeling the heat of the tax burden. The increase in import duties and business taxes are actually transferred to the consumers and they are the ones who are forced to carry the burden. Besides, dual taxation has become one of the major concerns of the people after the implementation of the federal system of governance. It has been found that they are required to pay some five types of taxes including agricultural income tax, vehicles tax, entertainment tax, advertising tax and house registration tax to both local and provincial governments. These taxes, which are yet to come into effect, have been mentioned in the Common List of Rights of local and provincial levels. The lack of clarity in the Federal Constitution and the Intergovernmental Fiscal Management Act, 2017 regarding the distribution of resources has led to this situation. This is where the role of the federal government and the lawmakers come into play in order to add clarity to the constitutional and legal provisions related to taxation.

There is a need to make the country economically competitive and the government should refrain from increasing taxes that would hamper the investment climate. The government and the lawmakers need to heed this. Neighbouring India can be taken as an example regarding reformation in taxation to add vibrancy to economic activities. The government there recently announced a reduction in corporate and Goods and Service Tax (GST) rates to boost investment in the country. At a time when the actual realisation of FDI is low in Nepal compared to commitments made by foreign investors, lowering the pressure of taxation and resolving issues related to ambiguity in the laws and rules can add to the country’s economic viability.

Madan Lamsal
madanlamsal@gmail.com