Tuesday, January 10, 2006

Finance Ordinance 2006 approved; tariff cuts in 125 items

Kathmandu, Jan 10 - A special cabinet meeting held on Monday has approved the Finance Ordinance 2006 that slashes customs tariffs on about 125 third-country import items.
According to government officials, the average custom rate has been slashed to 8 percent from the existing 9.6 percent. “Customs rates have been adjusted mainly for third country imports, which won’t adversely affect the competitiveness of domestic industries,” the Kantipur daily quoted a government official as saying.

Customs rates have been lowered on some third-country manufactured two-wheelers, electronic goods, television sets, musical equipment and power generating sets, among others, added the source.

The source said the ordinance, however, hasn't laid out any policies and programs to compensate for possible loss of customs revenue due to the adjustment.

The tariff cut would cost the state coffers Rs 1.70 billion in estimated customs mobilization for the current fiscal year, said the source, quoting ministry estimates.

The ordinance has also made some minor changes in income tax, it was further stated.The state minister argues that the reduction in customs rates was essential to discourage undervaluation of imported goods, which, according to him, is a major obstacle in the effective implementation of VAT.

The state minister has also strongly argued that lower customs rates would encourage importers to use formal channels, which in turn would contribute to higher revenue mobilization.
Effective implementation of VAT along with encouragement of the use of formal channels for imports will easily make up for possible loss of revenue, argues the state minister.

However, some officials at the ministry were of the view that massive cuts in rates could destabilize customs realization and the plan of gradual reduction of customs as per the commitment under SAPTA.

The ordinance, however, has not changed the annual revenue target, recurrent expenditures and capital expenditures, said the source.

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