The Finance Ministry has proposed scrapping the Tax Settlement Commission Act as the last commission formed under the law was embroiled in a controversy over signing tax exemptions worth Rs21 billion.
Since the commission led by Chudamani Sharma, then director general of the Inland Revenue Department, decided to provide the controversial tax exemptions, questions have been raised about the need for such a mechanism in the first place.
The dubious way in which Sharma exempted a number of private enterprises of taxes also prompted the Commission for Investigation of Abuse of Authority (CIAA) to file a corruption case against Sharma and two members of the commission—Lumba Dhwoj Mahat and Umesh Dhakal—on July 16, 2017.
The case of Rs10.02 billion embezzlement, filed by the anti-graft body at the Special Court claiming fines amounting to Rs33 billion from the three officials, is the biggest ever corruption case in the country sub judice in court.The Act has also been controversial since it provides unprecedented protection for officials at the commission, as their decisions cannot be challenged as long as they act “in good faith”.
The Finance Committee of the previous Legislature-Parliament instructed the government in July 2017 to scrap the Act.
“We have proposed scrapping the Act,” Finance Secretary Rajan Khanal told the Post. If there is the need for special measures to settle taxes, the existing laws can be amended through the Financial Act passed every year as part of the budgetary system, he said.
Tax experts say the TSC Act had been redundant after the Income Tax Act was introduced in 2002. The law allows for appeal to the IRD director general, Revenue Tribunal and even the Supreme Court if taxpayers do not agree with the amount determined by the tax officer. The Act was introduced in 1976 to collect tax dues, mainly from sick industries in a bid to revive them.
In the four decades since the TSC Act was introduced, the government has formed 13 commissions for settling disputes related to taxes. The recent one was formed in 2015 when the late Sushil Koirala was the prime minister. Under the commission, even companies performing very well and earning good profits enjoyed tax exemptions.
For instance, companies like Ncell and Tribeni Distillery, which were capable of paying the taxes, did not have to pay billions of rupees under the scheme. According to the CIAA, the TSC exempted taxes even for those who had agreed to pay the amount. It accepted the applications of the firms that produced fake value added tax bills. Applications registered after the deadline were also accepted by marking prior dates on them.
The TSC even allowed the enterprises not to pay the VAT they had collected from consumers to the state coffers.
A former IRD director general said the practice has encouraged enterprises not to pay taxes. “There has been injustice to the taxpayers who paid their taxes honestly,” the former official said on condition of anonymity since he currently holds another post.
However, the business community has a different take. “The tax officer determines the taxes arbitrarily and the appeal process against such decision is too lengthy. So there should be a fast-track mechanism to settle tax issues,” said Pashupati Murarka, former president of the Federation of Nepalese Chambers of Commerce and Industry. “However, we are not saying that the current TSC Act should remain.”