The tax authority has started conducting a study to link its system with computer billing machines of retailers in the Kathmandu Valley in a bid to gain access to real-time data on financial transactions of vendors and improve tax compliance.

The Inland Revenue Department (IRD) had begun the study as per the instruction issued by the Ministry of Finance.

“We’ve directed the IRD to link its system with computer billing machines of at least one organisation within December 1,” said Bishnu Prasad Nepal, head of the Revenue Management Division at the Finance Ministry. Such an organisation, according to Nepal, could be a supermarket or even Nepal Oil Corporation and gas stations under the state-owned oil company.

“We will then gradually link the IRD’s system with computer billing machines of other retailers in the future,” Nepal said.

This move will help the taxman to monitor each and every good or service sold by retailers in real time.

Based on this information, the IRD can crosscheck value added tax returns filed by taxpayers with data collected through its system. If there is discrepancy in two sets of data, the IRD can initiate action against the taxpayer and impose penalties.

Also, the information on retail sales will help the taxman to derive a ballpark figure on the taxpayers’ income tax liabilities.

This initiative is being taken at a time when many retailers have been found submitting fake tax returns to evade value added tax and income tax. It is easier for retailers in Nepal to evade taxes because their transactions are not electronically recorded. This is because many of them do not use computer billing machines and store all the data in hard copies.

Once the taxman starts linking its system with the systems of retailers, it will be mandatory for retailers to install computer billing machines.

“We hope the move will help us improve tax compliance which will eventually increase revenue collection,” said Nepal.

Many governments across the globe have already started collecting transaction details directly from taxpayers’ systems in real time. This information is also tallied with amount parked by taxpayers in banks to track cases of tax evasion. These initiatives reduce compliance-related risks and help tax authorities to respond accordingly.

“Nepal is late in this regard, but we are aware about the gravity of this issue,” said IRD Assistant Spokesperson Sharad Niraula. “We are currently conducting a study on infrastructure and system that we need to install to link our system with those of retailers. We will then see what else needs to be done.”