The Nepali government is mulling to introduce a dual rate on value added tax (VAT) with a view of making the tax regime wider and decrease tax evasion, The Himalayan Times reported on Wednesday.
A meeting of the Revenue Advisory Board Tuesday formed a high-level panel to suggest on the matter, a senior official at the ministry of finance told the daily.
The eight-member panel has been given three months period to submit its final report to the government.
According to the report, Nepal introduced VAT in November 1997 replacing four different taxes including the Sales Tax, Contract Tax, Hotel Tax and Entertainment Tax.
At present, VAT is the largest contributor to the government's coffer amounting for more than 30 percent of the total revenue.
The latest move is thought to widen the tax net as well as decrease the tax burden on agro-business. Under the dual rate system, the government is likely to decrease the VAT on agriculture produce and related products, while keeping the rate static on manufacturing goods and services.
It is also expected to address the private sector's demand to review the VAT rate on some consumer goods and agro-produces.
The government faced a strong opposition when it imposed VAT onagro-produce like mustard oil and wheat flour.
The rate of VAT was fixed at 10 percent, when it was first introduced and amended VAT Act 2005 raised the rate to 13 percent with effective from the fiscal year 2005-06.
Currently VAT is levied at 13 percent and in certain cases, the rate may be zero and certain goods and services are exempted from VAT. The tax is collected at every state of selling goods and services.
The collection of VAT is on a steady rise since its inception a decade ago with the collection standing at 18.90 billion Nepali rupees (some 300 million U.S. dollars) in the fiscal 2004-05, 21.93 billion rupees (348 million dollars) in 2005-06 and 26.55 billion rupees (421 million dollars) in 2006-07. The number of taxpayers under VAT system is estimated at around more than 200,000, according to the report.