Plug the loophole

  • Govt should remove controversial provision from the Tax Settlement Commission Act

Jun 20, 2017-

The parliamentary Finance Committee last week directed the government to amend the Tax Settlement Commission Act after commission members were suspected of exploiting a loophole in the law to illegally relieve business houses from tax liabilities of billions of rupees. 

This is a welcome move. The government should heed the committee’s advice if it wants to curb the practice of transferring the state’s wealth to the pockets of businesspersons under the pretext of tax exemptions.

The Tax Settlement Commission Act has given the authority to the government to form a three-member Tax Settlement Commission at regular intervals to collect outstanding tax amount. The commission also has the power to look into disputed cases that have reached the Revenue Tribunal and investigate them. After completing the investigations, the commission can even extend tax exemptions. 

Independent commissions like these should be delegated certain powers so that they can work freely. But what has raised eyebrows is a provision in the law, which says: “The Commission may, as required, specify modus operandi in relation to the assessment and recovery of taxes, and no question may be raised in any court in relation to the modus operandi so specified by the Commission.”

This basically means no one, including the court, can question the judgement of the commission and the rationale behind the extension of tax exemption to a taxpayer. Such carte blanche given to the commission is unacceptable in a country like Nepal where officials have been found receiving kickbacks from businesspeople. This is exactly what is suspected to have taken place when the commission was formed last time.

The government had last formed the commission in the fiscal year 2012-13 under LD Mahat, a chartered accountant. The commission also comprised Chudamani Sharma, the suspended director general of the Inland Revenue Department (IRD), who was recently arrested by the anti-graft body on suspicion of corruption. 

The commission had received 1,726 applications seeking settlement of the due tax amount of Rs40.8 billion. Of these applications, 1,069 were reviewed and the due tax amount of Rs30.5 billion was supposed to be recovered. But after concluding the investigations, the commission exempted taxes worth Rs21 billion and recovered only Rs9.5 billion.

In a display of sheer negligence, the commission even exempted value added taxes worth Rs770 million. Value added taxes are collected from consumers. So the commission’s move is tantamount to the government raising money from the general public only to hand it over to businesspersons. 

Many people in the country still do not want to pay taxes because they think the money goes into the pocket of corrupt bureaucrats. This indicates the government needs to work hard to mend its image. The first step to this end could be removing the controversial provision from the Tax Settlement Commission Act. The government should then take action against commission members if they are found guilty of colluding with corporate taxpayers to offer tax exemptions.

Published: 20-06-2017 08:01

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