Thoughts on re-implementing Value Added Tax in Nepal

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Ganesha
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Thoughts on re-implementing Value Added Tax in Nepal

Postby Ganesha » Sun Nov 29, 2009 7:39 pm

It is a known fact that almost 95 percent of the businesses do not pay the full Value Added Tax (VAT) amount and they do have some sound reasons as to why they do not, apart from the businesses' understandable greed to save more. One of the major problems implementing a realistic VAT system in Nepal is the VAT amount that is involved. The day you pay full VAT, you end up losing 12% of your revenues which otherwise could have gone to your own coffers. So no matter what the government does, its always painful for the unacclimatized (in the sense of paying full taxes) Nepali businesses (which believes VAT money is going to be spent mindlessly by the politicians, even if the amount were to be fully deposited) to pay the full amount. So I propose here a plan.

The plan is that VAT starts at one percent and increases by one percentage point every year or every two year. Now, in our society where "pachhi deula" is so common, 1 percent I think will make it easy for people to adopt VAT. The focus of the government during the first five years, when VAT is still low will be to make sure that everyone adopts it. The government can do this by handing out very harsh punishments to those found guilty. Once the majority of the businesses latch on to VAT, the rest will follow suit. Well, you can always say that with the current status of Nepal, people will again switch back to not paying VAT but then, it is better worth trying than not trying at all. Moreover, this will make it far easier for all those businesses who want to run a sound and clean business by paying all their taxes. Also, looking at the West, paying taxes is a habit and once people become habituated, it is easy to give continuity. What do you say, will it work?
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