Econ-ity » June 13, 2014

Daily Archives: June 13, 2014

So Politicians Are More Equal?

Bir Hospital What exactly distinguishes a normal ‘person’ from a ‘very important person’? Is it the money, power or self-proclamation of standing out as a very important person? Are we all very important or such a title is reserved for a few political personalities and bureaucrats? In our context the latter is mostly true. If you are not involved in politics then you are just a person who is meant to serve the country selflessly without asking questions. Only then can you truly call yourself a proud Nepali.

For quite some time now “equality” has been a major agenda of most of the political parties in the country. They do not, however, seem to practice what they preach. How can treating few a people as VIPs and the rest of us as general people be called “equality” in any way? Yes, equality is essential. But the kind of equality that the parties are preaching for needs to be defined—perhaps their equality means the equality in the eyes of the law. But law in our country is just a tool easily manipulated by those in power. There have been instances of political figures openly challenging the court, law and the police—and these are the ones revered as VIPs.

It has not been long since 16 mountaineering support staff and guides lost their lives in the Everest avalanche. The government announced a relief of USD 400 to the families of the deceased. A mere sum of USD 400 is promised at the demise of the Sherpas while on the other hand if a VIP sneezes he is rushed in an air ambulance to the most facilitated hospitals of Nepal and abroad, the expenses for which is borne by the government through taxpayers’ money. In this context, I would like to cite government’s decision to pay all the expenses for Mr. KP Sharma Oli.  He was airlifted to Delhi then to Bangkok for treatment. He is just one of the many VIPs we have to endure and take care. Like Mr. Oli former minister Govinda Raj Joshi and Siddha Raj Ojha were also provided with NRs 5 lakhs each and the expenses of the air ambulance service was also paid for. Do you see any equality in these two cases? Those Sherpas who risk their lives and promote tourism were provided with mere USD in compensation for the lives they lost while the VIPs were given tremendous amounts of money for treatment.

How is life of a Sherpa any less important than that of Mr. Oli or those former ministers? These VIPs are already provided with a handsome salary and a lot of other benefits. Why can’t these VIPs, like any other Nepali citizen who falls ill, treat themselves without any government assistance? If these VIPs cannot afford the treatment how can a normal citizen afford it?

While 25 percent of the people live under the poverty line and most Nepalese have a very low level of income it makes it impossible for them to get any health care. The awful memories of hundreds dying of diarrhea in the Jajarkot district cannot be just done away with. You might also have seen a number of newspapers reporting people asking for help in order to raise enough money to transplant kidneys or live a few more years post cancer diagnosis. Why does the government ignore these helpless poor people when it is readily available to help these VIPs?

No country or government is going to stand if there is no population to fund and support it. If the general people are always treated as sheep they will retaliate and when they do systems are bound change. If people can vote and bring these people to the top and make them VIPs, they can as well bring them down. “सबै नेतालाई चेतना भया”

Koshish Acharya

About Koshish Acharya

Acharya is a student of social sciences and has been associated with Samriddhi, The Prosperity Foundation for the last three years.

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Existence of Double Taxation in Air Service

Impact of Double Taxation

Impact of Double Taxation

The presence of double taxation unnecessarily increases the cost of any commodity to consumers and it also reduces the level of profit of investors. It is observed that the issue of double taxation is prevalent in air service sector of Nepal. In international flight from Delhi to Bangkok or any other destination, Nepal Airline Corporation (NAC) charges the certain prices on air ticket and various forms of taxes such as security charges, airport development charges are levied on it as per the rule of Indian government. The money which is earned from this service is taken as income of NAC by Government of Nepal (GoN) and Value Added Tax (VAT) is charged on it which is not common in other parts of the world. Thus, there is existence of double taxation in this service because various forms of taxes are paid to Indian government as well as Nepal government. It reduces the profit level of the national flag carrier and all airline companies which are based in Nepal and operate international flights. Such kind of practice of charging tax above tax by the concerned agencies of both countries is against the principle of established Tax laws globally. Additionally, the users have to pay a higher price as the burden of double taxation is finally shifted to the passengers of this service. Therefore, this practice is condemned by the president of Board of Airlines Representative in Nepal (BARN) by issuing a press statement on 20th March 2014 which was covered in Republica, the leading national daily of Nepal.

In addition to this, Government of Nepal (GoN) has been charging 13 percent VAT on ground handling services which is also against the international practices because there is no provision of imposing any form of tax on goods and services within air side area. According to policy under Section IV of the International Civil Aviation Organization (ICAO), generally such kinds of taxes are exempted. Moreover, Nepal Airline Corporation (NAC) was never charged VAT on ground handling services when it used to carry passengers to 20 different foreign destinations in the past. The process of charging VAT on ground handling is not only monetary issue but it also causes negative impact in international relation as it is completely against the international principle and practice. Therefore, Nepal should avoid such unnecessary taxes and formulate policy which is internationally acceptable and better for bringing economic growth and prosperity.

Pramod Rijal

About Pramod Rijal

Pramod Rijal is a Research Associate at Samriddhi, The Prosperity Foundation. He is also a lecturer of Economics at Mega National and Unique College of Management and has contributed a number of articles in various national dailies.

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When being INFORMAL comes with incentives

faulty incentives' systemNepal’s economy is largely informal; informal sector here comprises of a group of production units that form part of the household sector as household enterprises or equivalently, unincorporated enterprises owned by households. Much likely, such units have limited capital investment and are a subsidiary activity of the owner. Their activities are not regulated under any legal provisions and/or they do not maintain any regular accounts. In Nepal, a good chunk of production and consumption is contributed through such informal sector activities. The sector also contributes to much of the income generation through employment thus providing means of livelihood to millions of Nepalese. Kirana Pasals that are small mom and pop shops selling groceries and fast moving consumer goods form a major segment of this informal economy in Nepal.

What makes these shops informal can be attributed to an endless list of reasons—a primary reason being that informality to these shops means a much better deal than choosing to formalize their operations. Given, the informal sector helps during economic crisis. But the fact that the benefits of informal employment may not be sufficient to achieve an acceptable standard of living as informal employment rarely comes with social protection, good working conditions and adequate wages cannot be ignored for long. But in our case, the scenario of choosing informal as opposed the formal begs to not be changed until a few things are set straight.

First in the list being the registration of these Kirana Pasals. Such shops are required to register at four different places; these fall under the jurisdiction of six major government agencies and they are subjected to 15 major laws and policies. Given their size and monetary weaknesses, these shops have less capacity than larger firms to navigate through the complexities of regulatory and bureaucratic networks. When formalized, the government has rights to inspect them and close them down if regulations are violated—here regulations are manifold and are more often than not subjected to interpretation and discretion of the official thus allotted for the job. Generally, Kirana Pasal owners are aware of few of those laws that are applicable to their businesses but there always remain minuscule provisions and clauses which the businesses would not be in compliance with, simply because of the volume and scattered nature of those regulations, which keeps the business always on offence. And as De Soto rightfully said, “informal economy is a by-product of over regulation and bureaucracy in the formal economy” and unless we do away with such hurdles there seems to be not enough hope for such small ventures to grow or even formalize their operations.

Secondly, empirical results have demonstrated that firms rank taxation as among the most severe obstacles to the long-term success of their enterprises. Likely, the shops in Nepal (if formalized) face a disproportionate burden from tax in comparison to larger firms. Those with turn over greater than 2 million rupees or income greater than two hundred thousand rupees are eligible to pay VAT tax of 13% and Corporate tax rate for Private Limited Co., Limited Co., Partnership Firm in the retail sector – a total of 25%. In many cases, not having books or audited accounts may result into the amount of tax to be paid being established by the tax official based his judgment, making use of a variety of indicators, including the observed standard of living of the entrepreneur. This might result in very high tax rates for enterprises.

Thirdly, there are standards that shops have to abide by. As much as the shops would be willing to do so in the light of protection of consumer rights, here too, the inability to bring in efficient intervention leads to losses on the part of the shop owners.

With problems as such to be encountered in terms of wishing to bring the shop into the formal stream, it seems that it is in the light of their own well-being that most decide to cling to their informal operations. Until and unless the aforementioned hurdles are done away with, the shops will remain informal because being so has more incentives than choosing to be otherwise.

Anita Krishnan

About Anita Krishnan

Krishnan holds dual degrees--in law and sociology. Currently, she works as a Research Associate at Samriddhi, The Prosperity Foundation.

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