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Krishna Hari Banskota Secretary(Revenue) MINISTRY OF FINANCE Government of Nepal 03 March, 2010

PRESUMTIVE TAX: IS THIS SUPPORTIVE TO FACILITATE SMALL ENTERPRISES IN NEPAL ? (Session on “Tax Policy Designs for MSEs”). Krishna Hari Banskota Secretary(Revenue) MINISTRY OF FINANCE Government of Nepal 03 March, 2010. OLD INCOME TAX SYSTEM.

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Krishna Hari Banskota Secretary(Revenue) MINISTRY OF FINANCE Government of Nepal 03 March, 2010

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  1. PRESUMTIVE TAX: IS THIS SUPPORTIVE TO FACILITATE SMALL ENTERPRISES IN NEPAL ?(Session on “Tax Policy Designs for MSEs”) Krishna Hari Banskota Secretary(Revenue) MINISTRY OF FINANCE Government of Nepal 03 March, 2010

  2. OLD INCOME TAX SYSTEM • COMPLEX- Too Many Paper Works, Multi-layered, and Bureaucratic • INELASTIC- Non-responsive to Growth/Discretionary • INEFFICIENT- Time Consuming and Increased cost of Compliance • INEQUITABLE- Not Much Progressive to create Equity

  3. TAX POLICY BEFORE 2002 • Inconsistent Policy Decisions • Discretionary Power of Tax Officials • Non-compliance of Tax Payers • Faulty Legal Provisions • Loopholes for Tax Evasion

  4. INCOME TAX ACT-2002 • DEPARTURE FROM NARROW ORTHODOXY- Departure from “Negotiated Settlement” to “Judgment Based” system • SELF-ASSESSMENT • OBJECTIVE CRITERIA FOR REASSESSMENT • CLEAR LEGAL REMEDIES

  5. OBJECTIVES OF NEW INCOME TAX POLICY • REDUCTION OF UNNECESSARY COMPLIANCE COSTS • REDUCTION IN THE ADMINISTRATIVE BURDEN • SOCIAL HONOR TO THE TAX PAYERS

  6. DIFFICULTY IN MOVING FULLY TO NEW REGIME • DESIRED TAX BASE IS DIFFICULT TO MEASURE, VERIFY, and MONITOR • KEEPING RECORDS OF PURCHASES FROM THE UNORGANIZED SECTOR IS DIFFICULT • TAX PAYERS FEEL COMPLIANCE BURDEN OF MAINTAINING BOOKS OF ACCOUNTS

  7. EASING THE BURDEN TO SMEs and INFORMAL SECTOR • PRESUMPTIVE TAX • WITHHOLDING TAX / TAX DEDUCTION AT SOURCE (TDS )

  8. PRESUMPTIVE TAX REGIME • COLOR OF NAME PLATE IN THE PREMISES - Indicates either Presumptive Tax Payer or not • OWNER OF VEHICLES- By Location and the Type of Vehicle • SMALL BUSINESSES- Annual turnover up to Rs. 2 millions or income up to Rs. 200 thousands • GAINS FROM LOTTERY/PRIZES

  9. PRESUMPTIVE TAX AT PRESENT SMALL BUSINESS RUNNING IN

  10. REVENUETREND AND GROWTH RATE (GR) Amount in Billion Rs. * Target of revenue collection

  11. CHANGES IN TAX REGISTRATION

  12. PROGRESS SO FAR • CHRONICALLY LOW INCOME TAX COLLECTION SINCE 1995 • INCOME TAX COLLECTION IMPROVED FROM 1995 and MADE A JUMP FROM 2006 • PRESUMPTIVE TAX REGIME WIDENED THE TAX BASE • PRESUMPTIVE TAX REGIME IS HELPING TO FACILITATE SMALL ENTERPRISES

  13. PROGRESS SO FAR • SIGNIFICANT STRIDE IN NUMBERS OF PRESUMPTIVE TAX PAYERS • RAPID INCREASE IN COLLECTION • DEMAND FOR INCREASE IN THRESHOLD • REQUEST FOR PAYMENT IN INSTALMENT

  14. CHALLENGES • RISK OF UNDERDECLARATION • CORRUPTION • DISINCENTIVES FOR GRADUATION TO ACCOUNT BASED SYSTEM • TENDENCY OF VAT REGISTERED TAX PAYERS TO FALL TO ANNUAL TURNOVER OF Rs. 2 MILLIONS (PRESUMPTIVE TAX PAYER) • HOW LONG TO CONTINUE WITH PRESUMPTIVE TAX REGIME ?

  15. WAY FORWARD • PRESUMPTIVE TAX BASED ON OBJECTIVE INDICATORS • INCENTIVES FOR GRADUATION ( SIMPLIFIED BOOK-KEEPING PROCEDURES ) • STRENGTHENING SELF-ASSESSMENT SYSTEM • LEGAL PROVISIONS FOR “REDUCED COMPLIANCE COSTS” • UPGRADE PAN REGISTERED TAX PAYERS TO VAT REGISTRATION

  16. THANK YOU DHANYABAD

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