Supporting the Tax Authorities
Title: Supporting the Tax Authorities in Nepal
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ)
Lead executing agency: Ministry of Finance, Inland Revenue Department (IRD)
Overall term: 2013 to 2017
For Nepal’s social and economic development it is essential that the state should collect higher revenues through taxation and to manage those revenues efficiently. Efficient tax administration is necessary for the state to provide poorer segments of the population in particular with public goods such as health services and education.
At just 18 per cent of the gross domestic product, Nepal’s tax revenues are among the lowest in the whole of South Asia. A few large companies (around 1,000) account for approximately half of the tax revenue. Taxpayers, particularly small and medium-sized enterprises (SME), incur disproportionately high administrative from their compliance with tax laws. There is an urgent need for simplified taxation processes, better services and comprehensive information and educational work to reduce these costs.
Taking due account of the corporate environment, the Inland Revenue Department (IRD) has improved its ability to collect government revenue in a transparent and efficient way.
The project cooperates with actors at central state and district levels and provides advisory services to the tax authorities in four areas:
- Efficient steering of strategic plan implementation
- Institutionalising training structures and processes
- Reducing compliance costs for SME tax payers
- Improving IRD’s access to relevant company data
The project is contributing to positive macroeconomic developments, while assisting the state in increasing its revenues. The number of income tax returns submitted increased by over 58 percent between the fiscal years 2010/11 and 2014/15. State income from taxes collected centrally increased by around 28 per cent in the fiscal year 2015/16 compared with the previous year.
The tax authorities now possess a relatively well developed IT infrastructure. Improvements in ICT have made it easier for people to submit income tax returns. This is exemplified by the improved access to sources of information such as FAQ, call centres, handbooks and national online services. E-services provide improved access to relevant data and increase data transparency. In 2016, 98 per cent of VAT and income tax returns were submitted electronically.
Newly collated material and empirical data have been used to support some wide-reaching, informative and educational campaigns. These use tools such as a ‘taxpayer education toolbox’, manuals on interpreting tax law, comprehensive brochures on a range of tax issues, and TV spots. The campaigns underpin the transparency of the system towards taxpayers, enabling people to view the tax authorities in a positive light.
The IRD has set up a Disaster Recovery Center at Bhairahawa (a different seismic zone from Kathmandu) for the protection of taxpayers’ data and to ensure the smooth functioning of its ICT system. To reduce the compliance costs to the taxpayers, as well as the costs of tax administration, the IRD has undertaken a study on e-payments in Nepal, the recommendations of which have already been implemented.
Responding to the needs of small and medium-scale taxpayers, in 2015 ten candidates completed the training-of-trainers programme and can now provide taxpayer training to SMEs at the district level. The training programme was conducted under the technical supervision of the Institute of Chartered Accountants Nepal, while the Federation of Nepalese Chambers of Commerce and Industries ensured its coordination.
The IRD has undertaken studies into the informal economy, VAT, excise, and the Revenue Tribunal Act. With the support of the project, it has also developed a human resource plan and evaluated its network of field offices.