In the midst of multiple crises that Nepal faces, there is a pressing need to improve domestic revenue mobilisation. This can be achieved by enhancing tax systems and administration, strengthening enforcement mechanisms, reducing tax evasion and avoidance, making taxation more progressive, and broadening the tax base to include sectors of the economy that were previously untaxed, including wealth and corporate windfall gains. Yet, the bright side observed in terms of high tax-to-GDP ratio downplays the twin problems of ‘revenue deficit’ and ‘anti-poor element’ in Nepal’s budgetary system. The indirect tax dominates the revenue collection. Regressive taxation system continues to perpetuate gender inequality in Nepal as it is women who are disproportionately affected because of the pattern of labour force participation, earning, and asset and property ownership, which are skewed against women. The overall burden of imposition of regressive taxation policy, that mainly includes levying high flat VAT rate on goods and services of common use, affects women more than men.

In terms of wealth taxation, land taxes, commonly called malpot and bhumi kar, were being levied since early in the history of Nepal. Historically, such taxation was highly regressive – large landowners were provided with tax-free lands while the peasants, who actually cultivate the land and feed the country, used to be taxed the highest. Since FY1959/1960, the central government has been collecting “house and land tax” or “unified house and land tax”, which since FY 2000/2001, is being collected by the local government. This tax is imposed on the value of the real estate. While malpot and bhumi kar are a few hundred Nepali rupees, the “house and land tax” apply in proportionate to the valuation of the assets. The underlying problem is that the valuation of assets by the government, especially in cities, is much less than the market value. Likewise, 10 per cent tax is levied on house rents which suffers from the same problem of underreporting and undervaluation.

In Nepal, there is, however, no provision of progressive net wealth tax – levied on an individual’s total wealth (including assets such as property, investments, cash, and other valuable assets) minus liabilities or debts owed. Similarly, registration fee is imposed during inheritance or transfer of ownership, but inheritance of property till three generations does not require any tax payment. Progressive forms of taxation, such as net wealth tax, corporate windfall tax, and inheritance tax are found to have huge revenue potential, but they are not yet introduced in Nepal.

 LDC Watch and SAAPE, in partnership with APMDD, TAFJA, TAFJA Nepal and Rural Reconstruction Nepal, plan to organize a consultation titled “Wealth Taxation in Nepal: Scope and Limitation” on 18 February 2023. One of the premier objectives of the consultation is to foster meaningful discussions among civil society members, parliamentarians and relevant stakeholders to deepen understanding of the net wealth taxation and its potential in raising revenue for public services as well as reducing economic inequality. The aim is to increase collaborative efforts and knowledge-sharing among the stakeholders, including parliamentarians, to develop effective policies and strategies that tackle economic inequality through progressive wealth taxation. The forum also aims to produce a set of policy recommendations that address the dual issues of economic inequality and progressive taxation, which can be shared with national/local governments and other stakeholders.

Civil Society Calls for Fair Taxation at World Social Forum 2024

19 February 2024

Kathmandu, Nepal

We, participants from civil society organizations from around the globe, convened during the World Social Forum 2024 in Kathmandu, Nepal to voice our concerns against the unprecedented economic inequality further exacerbated by the pandemic, war, cost-of-living crises, and climate change impacts. We have gathered here to resist the neoliberal system that perpetuates the status quo or further enriches the already affluent. In this Forum, we explored alternatives that envision a fair, rights-based, equitable, and ecologically just world.

Amidst the growing wealth and income disparity, we recognize that tax systems are failing to generate adequate revenues to address the overlapping crises worldwide and invest in public services that reduce inequality. Moreover, overreliance on indirect and regressive taxation, as the case in many countries, hurts marginalised sectors and communities living in abject poverty. In this context, we firmly believe a progressive tax system that includes a tax on net wealth, is not only fair and just, it can be an effective policy tool for raising revenues and redistributing wealth. Combined with progressive public spending, it can help achieve a substantial reduction in poverty, and foster a fairer society with increased wages, benefits, and social protection. It can raise revenues urgently needed for climate action and a just transition away from fossil-fuel-based industries, for creating adequate green and gender-just jobs, and for boosting investment in care infrastructure to alleviate women’s disproportionate care responsibilities. Domestic revenue mobilization based on progressive taxation further serves to build stronger and self-reliant economies that move away from dependence on debt or aid.

We demand that corporations and the super-rich pay their fair share in taxes. We call upon the governments to increase taxes on corporations, the financial sector and the ultra-rich, introducing progressive taxes on corporate and personal income, net wealth, excess and windfall profits, digital services, and financial transactions; instead of regressive taxes such as Goods and Service Tax (GST), Value Added Tax (VAT) or sales tax. We demand universal access to free health, education and other public services, including care infrastructure, paid for by fair taxation, to reduce the cost of living and free up women’s time spent in care work. We further urge governments and International Financial Institutions (IFIs) to end austerity measures in the name of fiscal consolidation. We urge the governments to expedite gender budgeting processes to ensure that the fiscal system plays a transformative role in ending gender inequality.

Inequality is a political choice and we therefore need political will more than ever to build a more human economy – one that is more equal and values what truly matters.

SAAPE on X: "Global voices united in Kathmandu, echoing #AnotherWorldIsPossible as we wrap up #WorldSocialForum ✊Their unified message resonates: A call for #FairTaxation to build more just & equitable🌐Joint statement from @LDCWatch2001 @AsianPeoplesMvt @saape_network @RRNNepal TAFJANepal👇 https://t.co/CSRMcEOv4O" / X (twitter.com)