1 Concept

The state must collect from its citizens according to the law resources required for the operation of the state. The state needs revenue to run its governing activities, provide services, make development, provide internal and external security as well as share its universal identity with the world community.

There are different opinions on the concept and principle of revenue.The revenue system is considered to have started with the origin of state and government. It is one of the major sources of public receipt for the management of public expenditure of any country as it is a regular, reliable, sustainable, or reliable source of any state.

The concept of revenue was evolved from the concept of a mandatory collection of shares of the economic benefit by the state as per the law based on the belief that the citizens must contribute a part of the benefit from economic activities within the country or rely on the infrastructure provided by the state.

Revenue is the obligation to pay to the government or state under the law for being involved in various economic activities or earning income from those economic activities or increasing wealth or importing and exporting goods or servicesinternationally or producing, buying, selling goods and services or using luxury goods or services to add value, or for the production or consumption of goods or services that adversely affect human health or the environment, violating public laws, or for using public services, or for consuming public property.

It is usually a regular amount received by the government without any liability that does not include grants and loans.

In other words, the revenue is the amount of taxes and non-taxes received by the government.

Customs duty, excise duty, income tax, value-added tax, entertainment tax, hotel tax, vehicle tax, house tax, contract tax, real estate tax, registration tax, property tax, and other taxes, fees, penalties, and royalty levied under the prevailing law are called revenue.

All types of income received by the government except public debt and foreign aid are called revenue.

The monetary income of the state is a mandatory financial obligation of the citizen, person or organization, such amount is called revenue.

2 Types of Revenue

2.1 Tax Revenue

The amount to be paid to the government according to the tax law against the various economic activities is tax from that no return is expected for the amount paid.

Tax is the mandatory contribution that the government takes from the people in the form of money to spend on activities that benefit the general public.

Tax is a contribution to the state from which the state spends for the public interest.

It is collected from the persons or organizations involved in various economic activities to earn income from those economic activities or increase wealth or import and export goods or services internationally or produce, buy and sell goods and services for value addition or use luxury goods.

Italso includes the number of obligations to be paid to the federal, provincial or local government for the production and consumption of goods or services that adversely affect human health and the environment.

Taxes are considered the main source of revenue. VAT, income tax, customs, excise duty, vehicle tax, etc. are the major sources of tax.

In the current constitution of Nepal, the various taxes under the jurisdiction of the federal, state, and local governments are as follows:

Federal: Customs, Excise, Value Added Tax, Institutional Income Tax, Personal Income Tax, remuneration Tax.

Province: Real Estate Registration Fee, Vehicle Tax, Entertainment Tax, Advertising Tax, Agricultural Income Tax.

Local-level: property tax, house, and land registration fee, vehicle tax, advertisement tax, business tax, and land tax.

2.2 Non-Tax Revenue

The amount to be paid to the government for using goods or services provided by the government is called non-tax revenue. In other words, if the paying institution or the person knows what services or facilities they have to receive against the revenue, it is non-tax.Water charges,electricity charges, license fees, other fees, dividends, royalty etc. fall into the category of non-tax revenue. In addition, penalties and fines are also non-tax revenue. The service facility provided by the concerned government agencies

and the revenue raised from it goes to the government treasury.In the federal system of Nepal, federal, provincial and local levels of government have been earning significant income from non-tax revenue.

Major Sources of Non-Tax Revenue

Following are the major sources of non-tax revenue depending on the overall economic situation as well as the managerial capacity of the organization concerned.

Fees:This includes various types of fees - firm registration, agency registration, arms registration, examination fee, passport fee, tourism sector income,telephone ownership, service fee etc. Fees and duties have made a significant contribution to non-tax revenue.

Penalties, fines, and confiscations: Judicial fees, penalties and fines and administrative penalties, fines, and confiscations fall under this heading.

Income from sale and rent of government property, services, and goods: Miscellaneous income from government property, sale of goods, income from services, remittances etc fall in this category.

Dividend: The dividend received as a result of the investments made by the government is also considered non-tax revenue. It has also made a significant contribution to the non-tax revenue. Although the contribution of dividends to non-tax revenue is significant, the proportion of investment is very low.

Interest: The amount received from the government as interest on loans to various financial, commercial, and industrial establishments is also non-tax revenue. It has also become an important source of non-tax revenue.

Royalties and sales of government property: This includes the amount received by the government for mining, electricity, and other royalties and the amount received from the sale of government property.

Repayment: The repayment amount of the loan given by the government to various financial, commercial, and industrial establishments falls under this category.

Charities,Gifts and Miscellaneous Income: This includes funds received from various sources including the charities and gifts received from various organizations. However, there is no certainty of continuity in the amount to be received under this.

Jurisdiction of federal, provincial and local government in Non-tax revenue

Non-taxes within the jurisdiction of the federal government: Passport Fees, Visa Fees,Gambling,Casino, Operating Fees, Tourism Fees, Penalties,Service Fees

Non-tax within the jurisdiction of the province government: Service charges, tourism charges, penalties

Non-tax within the jurisdiction of local government: Service charges, tourism charges, penalties

It has been practised to collect non-tax revenue by making one's law within the limits of these constitutional rights.

2.3 Objectives of Revenue

To provide the government with sustainable, reliable, and regular resources for public expenditure management,

Taking advantage of the resources provided by the state through economic activities

Mandatory contribution to the government,

To maintain social justice by arranging distribution through various means for the weak or disabled class,

Collecting resources from the able orstrong class,

To achieve the highest returns by mobilizing the available resources including natural and human resources.

To implement the principle of taxation by adopting the concept of internationally recognized law and order.

To promote the observance of the law and make appropriate punishment for those who violate the law.

2.3.1 Objectives of Revenue Mobilization:Current Fiscal Year

To provide tax exemption and concessions to the industries and businesses affected by the COVID-19 epidemic,

Promoting internal and external investment through revenue policy and protection of indigenous industries and trade facilitation,

To mobilize additional revenue through expansion of tax base, protection of tax base, and control of revenue leakage,

To make the revenue system more progressive,clean,transparent, automated, and predictable,

Voluntary tax participation will be increased by increasing the efficiency of revenue administration, infrastructure development, and maximum utilization of information technology.

2.4 Principles of Revenue

The established methods, values, norms, rules, procedures, frameworks,criteria,and concepts generally introduced for revenue collection and mobilization are called revenue principles.

Some principles are presented below:

Principles of Equality: Revenue should be collected at the same rate on equal income/business/property,

Principles of Certainty: The rate, method, amount, process,place, time, and criteria of revenue should be certain,

Principles of Facilitation: There should be an arrangement for easy filing of revenue or there should be a facility for the taxpayers to pay revenue ina hassle-free manner.

Principle of Frugality: The collection cost and compliance cost should be minimal so that the maximum amount of revenue collected can be saved in the treasury.

Principle of Productivity:The state should collect revenue in such a way that it does not diminish the higher productivity of the economy.

Principle of Simplicity: Revenue policy, law, procedure, or types should be simple,

Principle of Ability to Pay: While levying the revenue, special attention should be paid to the ability of the revenue payer to avoid adverse effects due to high rates.

Principle of Coordination: If different institutions have jurisdiction over revenue of the same nature, it should be taxed in a coordinated manner without duplication,

Principle of Flexibility: Revenue policy and the law should be revisable and changeable according to the time context,

Principle of Transparency: Revenue collection and operations should be open and transparent,

Principle of Law: It is not allowed to collect and mobilize revenue without the law made by the people's representatives,

Principle of Accountability: Responsible parties involved in revenue collection and operations should be accountable for the work they have done,

Principle of Diversity: Government should make policies to diversify revenue in different ways to address diversity,

Principle of Progressivism or Social justice: Progressive rate should be used to collect revenue i.e. at higher rates with higher income or wealth and with lower income or wealth,

Principle of Exemption: To give revenue exemption to encourage small or special priority businesses,

Principle of Environmental hygiene.

Principle of not adversely affecting human health.

Principle of effective implementation of the law.

Principle of maximum use of natural resources.

Apart from these, while formulating revenue policy and law, the principle that it should be done without adversely affecting economic transactions, overall economy, the purchasing power of citizens, price rise, capital flow, external sector stability, social justice, etc. should be adopted.

2.5 Characteristics of Nepal's Revenue System

The revenue system of Nepal has been guided and given legitimacy by the Constitution of Nepal, Periodic Plan, Policies and Programs, Annual Budget, Acts issued annually, and various sectorial acts, rules, and policies.

With the division of powers between the federal units, the clear jurisdiction of the revenue at the federal, state, and local levels has been defined.

The Intergovernmental Fiscal Management Act 2074 has clarified the basis of revenue collection and distribution among the federal units.

The tax base such as income tax, value-added tax, customs, and excise duty has been determined to collect the most revenue for the central government (Federal).

The share of tax in the total size of revenue is about 90 Percent and around 70 Percent of thetax is collected from indirect tax such as value-added tax, customs duty, and excise tax.

About 30 Percent of the tax revenue is covered by the direct tax, of which 80 Percent is from income tax,10 Percent froma land tax, and the other 10 Percent from vehicles and other taxes.

Strategies have been adopted to reduce the tax rate on revenue, expand the scope and strengthen the collection.

To make the tax system taxpayer-friendly, concepts such as the voluntary tax system, tax concession, and taxpayer education programs have been adopted in tax assessment.

Efforts have been made to make the overall revenue system information technology friendly through mobile banking and electronic payment system.

The use of electronic devices such as KHTK, BKTHGMB, KSHK has transformed the revenue system of Nepal into a modern system.

For non-tax revenue, it has been tried to develop non-tax as a major source of revenue by collecting non-tax revenue based on the limit and rate prescribed by the prevailing law of the concerned entities at the federal,provincial and local levels.

Non-tax revenue contributes an average of 10 to 12 Percent to the federal revenue.

2.6 Major Arrangements for Revenue Mobilization

(A)Constitutional Arrangement

The state can levy tax on personal property under property rights,

Provision of non-imposition of tax by the Federal, Provincial, and local level except under the law (Articles 115, 203, and 228),

The specific procedure for carrying out public revenue and expenditure only under the financial procedure of the federal units and getting approval from the people's representatives.

Arrangements are made to distribute the revenue collected by the Government of Nepal equitably to the federations, states, and localities.

Provision is made in article 119 to submit the estimate of annual income and expenditure to the parliament by the government and get it approved.

Article 60 provides that the federal, provincial, and local levels may levy taxes on matters within their economic jurisdiction and collect and mobilize revenue from those sources.

Part 5, Articles 57, 59, and 60, and Schedules 5, 6, 7, 8, and 9 have a clear provision of the jurisdiction of the federal units and their rights regarding revenue.

(B)Legal Provisions

Financial Procedure and Accountability Act 2076

Financial Procedure and Accountability Rules 2077

Intergovernmental Fiscal Management Act,2074

Customs Duty Act 2064 and Rules 2065

Value Added Tax Act 2052 and Rules 2053

Income Tax Act 2058 and Rules 2059

Excise Act 2058 and Rules 2059

Local Govemment Operation Act 2074

Revenue Tribunal Act 2031

Revenue Leakage (investigation and Control) Act 2076

(C)Institutional Arrangements

Office of the Prime Minister and Council of Ministers and Revenue Investigation Department

Ministry of Finance

>Customs Department and Customs Offices

Inland Revenue Department

> Large, medium, and small Inland Revenue offices

Other tax collecting and Taxpayer Service Offices

Revenue Advisory Committee

The entities involved in non-tax revenue collection.

(D) Major Policy Provisions of Recent Years

To provide relief to businesses affected by corona.

To revive the weakened economic activity.

To develop internal revenue as a sustainable and reliable source of public finance.

To provide tax rate adjustments, exemptions,and concessions to revive the agriculture, industry, and service business affected due to corona infection risk.

To develop a progressive, equitable, transparent, and business-friendly revenue system by bringing taxable economic activities under the tax net.

To promote domestic production through industrial protection and to discourage imports of non-essential and environmentally harmful products.

Establishment of Inland Revenue Department in 2058 BS. A. A. The department was merged

Establishment of a large taxpayer's office in 2060 BS

Establishment of PCA office in 2067 BS

 

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