Monday, February 16, 2009

Pay taxes, become responsible citizens

That is the title of my latest opinion piece. It is about Voluntary Disclosure of Income Scheme (VDIS), launched by Nepal’s Finance Minister last October in order to give an opportunity to tax evaders to pay all outstanding dues to the nation and divulge earned assets and income to the appropriate authorities. Ironically, the business community is clamoring against it. My simple question: why should any one flinch from fulfilling their basic duty as a responsible citizen?

Tax revenue forms the basis for government expenditure. It is the duty of the government to provide public goods and facilitate private sector participation in the economy. It is also the duty of citizens to pay taxes so that the government could fulfill its duties. Despite simple rules and low rates, tax revenue collection in Nepal is one of the lowest in South Asia. This is partly due to bureaucratic inefficiency and corruption. A much bigger problem lies in the tendency of some high-income earners and businesspersons to evade taxes.

It is ironic that businesspersons are needlessly clamoring against VDIS. They are apprehensive of revealing sources of their income and assets. What baffles me the most is that why anybody should be reluctant to reveal the total worth of their assets and income to government and pay taxes accordingly. This is the fundamental responsibility of a citizen, who in turn expects public goods such as defense, infrastructure, education, and health care, among others, from the government.

Any excuse for tax evasion is no less than cheating the nation. There is nothing wrong in disclosing one’s earned income and assets to appropriate authorities and pay taxes based on regulations passed by the parliament. The government estimated that 10,000 individuals, mostly from the business sector, have failed to disclose income and pay taxes. I believe this figure is an underestimation given the level of bureaucratic efficiency and missing trail of information about earned income and assets. Out of 10,000 individuals from whom the government requested compliance to VDIS, so far, only about 2000 have come to its terms. The government aims to collect Rs 2 billion revenue through VDIS and encourage (if not enforce) disclosure of Rs 20 billion worth of income and assets. The government expects to collect Rs 142 billion as tax revenue this fiscal year.

…Toward the end of first deadline of VDIS, one individual disclosed property worth Rs 1 billion and paid 10 million in taxes. How reckless is it to hide so much income and assets and not pay Rs 10 million in taxes for years? Hundreds of such individuals have amassed income and assets without disclosing them to the proper authorities. With an extra Rs 2 billion, the government could provide healthcare and education to millions of citizens. It could build new infrastructure and repair crumbling ones to connect production sites with markets and help businesses decrease transportation costs. It could invest in new hydropower projects to supply badly-needed energy to the industrial sector and households. The more revenue the nation generates, the more its capacity to invest in public goods.

Read the full column here. My earlier post on taxes, revenues, and expenditures in South Asia here.