VAT 99-2/final - empcom.gov.in

Vol. 10 No. 2, March/April 1999 VAT MONITOR 75
are not important from a revenue point of view. So this
provision needs to be reviewed.
(h) It is necessary to draw clear provisions relating to
debit and credit notes which should be issued only in
genuine cases. For example, credit could be issued in such
cases as return of goods, reduction of prices due to damages
or broken goods but not when buyers do not pay tax.
(i) Unless bad debt provision is carefully handled it opens
up loopholes for tax avoidance. So no provision has been
made for bad debt relief. For the same reason, no relief is
provided for insolvencies. But in the long term, it is desirable
to introduce a policy of providing relief for bad debts
and insolvencies.
(j) Penal provisions need to be reviewed and an efficient
appeal system established. For the latter a revenue consideration
board should be set up. It must give its decisions
within 1 year of the application or day on which the taxpayer
submits required documents; otherwise decisions
should be considered in favour of the taxpayer.
6.5. Computerization
Although VAT can be implemented even in the absence of
computerization, as was the case in parts of Europe, it is
essential to computerize the VAT administration for its
effective implementation. For example, while tax audit is
an integral part of VAT administration it is not possible to
audit all taxpayers. So some criteria must be developed for
the selection of audits. Computerization makes it possible
to select suspect cases for audit, which would be very difficult
to do manually. Similarly, computerization also
makes it possible to detect non-filers and non-payers. Considering
this, a comprehensive computerization system
has been developed in Nepal but the successful implementation
of such a system is yet to be seen which may cause
serious problems due to the shortage of skilled manpower,
frequent power interruption and the lack of a suitable
physical environment. So special attention must be paid to
the proper running of the computer system, especially data
entry and processing at VAT offices.
6.6. Taxpayer education
Since VAT is not fully implemented yet and many potential
taxpayers are still outside the tax net, it is necessary to
continue with the taxpayer education programme which is
important for both traders and consumers once it is applied
effectively up to the retail level.
6.7. Lack of confidence
There is a lack of confidence between the private and public
sectors. As stated earlier, government officials and private
sector representatives agreed on several points
recently but they were not implemented in practice. Taxpayers
do not believe that tax officials will follow the
basics of VAT. They believe officials will rather run VAT
in a similar way to other taxes. Tax officials, on the other
hand, think that taxpayers would abuse liberal VAT policies.
They suspect, for example, that taxpayers would
grossly understate taxable values and pay less tax since
they would not have to get their prices approved by tax
officials. It would result in a considerable loss of revenue.
Now is the time to break this lack of confidence. It is also
time to make persistent efforts to make VAT succeed.
Adequate measures must be taken so that both taxpayers
and tax officials do not fail in performing their new
responsibilities.
7. CONCLUDING REMARKS
© 1999 International Bureau of Fiscal Documentation
The introduction of VAT in Nepal was inevitable for several
reasons, including broadening the tax base and creating
a transparent and fairer tax system. That is why no
major political party has opposed it so far. While some
politicians may be influenced by the business community
that is against VAT and might oppose it in the first quarter
of 1999 since an election is expected in April 1999, the
government of any party is likely to implement VAT
effectively after election. A detailed preparation was made
for its introduction. Despite taxpayers’ resistance, the government
has gone ahead with implementation without second
thoughts although it has made several compromises in
response to opposition from the business community.
VAT has survived and its implementation has been gradually
improving.
VAT implementation could have been even better had the
government adopted an integrated approach and a proper
strategy and coordinated all tax measures in a proper way.
Past experience indicates that there is a need to develop
professionalism both at policy and implementation levels
in the revenue administration so that there are people who
understand the overall tax system, are familiar with the
main stream of the current tax policy and tax development
taking place around the world, who can analyse the intricacies
of tax measures and who can think in a longer-term
perspective. It is also equally necessary to motivate personnel.
Similarly, it is necessary to minimize, if not eliminate
the lack of confidence between the government and
the private sectors on tax matters, which has been in an
increasing trend.
Effective and proper implementation of VAT is necessary
in order to streamline the overall tax system. Since the collection
of both the customs duties and income tax depends
to a great extent upon the effectiveness of VAT, every
effort must be made to strengthen this tax that will help
enhance revenue collection and avoid a possible fiscal crisis.