NRB study confirms hefty loss of rental tax, LPG subsidy
KATHMANDU, Sept 1: A latest study of Nepal Rastra Bank (NRB), which estimates total consumption expenditure of the Kathmandu Valley standing at almost one-third of gross domestic product (GDP), has also pin pointed a couple of serious lapses in country´s fiscal operations.
The foremost weakness that the report portrays is poor enforcement of rental tax. If the study is anything to go by, the government is losing revenue of well around Rs 7 billion in rental tax from the Valley alone.
The loss of rental tax, which is slapped at the rate of 10 percent, was estimated mainly as the study reckons the people and firms residing in the Valley pay altogether Rs 85.44 billion in rent in a year, whereas total rental tax that Inland Revenue Department (IRD) collects barely crosses over Rs 1 billion.
“Clearly, the gap between the figures of rental expenditure we assessed and tax the government is collecting is huge. This is a serious lapse,” said a senior NRB official.
Of the total rent paid by residents and firms of the Valley, rent paid by temporary population alone stand at Rs 34.04 billion a year.
The report of the study on the share of the Valley in the national economy that the central bank released on Thursday has also disclosed how the state-pledged subsidy on petroleum products has grossly remained off target all through the past decade.
Over the period, the government always kept the price of liquefied petroleum gas (LPG) lower than the import rates because it felt consumers of LPG were ´needy groups´. But the NRB study shows 60 percent of LPG imported in the country is consumed by the Valley dwellers, who are definitely better off than people residing out of the Valley. Worse still, almost 40 percent of the total LPG consumers in the Valley are commercial ventures like hotels, restaurants, catering services, automotive and factories.
Considering that Nepal Oil Corporation (NoC) suffered a loss of almost Rs 5 billion from the LPG business alone in 2011/12. This means some Rs 3 billion worth of state-subsidy was enjoyed by the Valley dwellers alone. “Of that amount, subsidy worth around Rs 1.2 billion was enjoyed by hotels, restaurants, factories and other commercial ventures using LPG,” an official of Nepal Oil Corporation said, referring to the NRB´s study.
The first of its kind study estimates the Valley´s total consumption at Rs 328 billion, which is 26 percent of the total national consumption. “Of the total consumption expenditure of the Valley, food item alone accounts 26 percent, which is 12 percent of the national level consumption,” states the report.
The report estimates the total value of economic activities taking place in the Valley at Rs 316 billion, that is 23 percent of GDP. It also cites the gross capital formation of the Valley of standing at Rs 63 billion, which is just 15 percent of the national level gross capital formation and 5 percent of GDP.