Govt to provide 50% VAT rebate on dairy products

PRABHAKAR GHIMIRE

KATHMANDU, March 7: Bowing down to pressure from big dairy producers, the government has decided to provide 50 percent Value Added Tax (VAT) rebate on sales of dairy products.

Local dairies were earlier exerting pressure on the government to exempt their products from VAT citing erosion in competitive power of their products to similar Indian products.

At one time, they had even threatened to re-introduce milk holidays and reduce fresh milk collection from dairy farmers to press their demands.


"We have recently decided to provide 50 percent VAT rebate on sales of dairy products as per the recommendation of the Ministry of Agriculture Development (MoAD) so that local dairies can strengthen their capacity and compete with Indian dairy products," Rajan Khanal, joint-secretary at the Ministry of Finance (MoF), told Republica.

Khanal said the new decision would be enforced once the government publishes list of VAT-exempt products through the gazette. Once the decision is enforced, the government will start providing 50 percent VAT concession on sales of paneer, butter, clarified butter, cheese, ice cream and powdered milk. Fresh milk and curd are currently exempt from VAT. Existing VAT Act has specified 13 product categories, including basic agricultural products, goods of basic need, live animal and animal products, agriculture inputs, medicine and health service, education, books and newspapers, artistic and cultural goods and services, transport service, services rendered by artists, writers, sportsman and artists, casinos service, financial service, insurance services, gold and woolen products, among others, as exempt from VAT. Pradip Maharjan, president of the Dairy Industries Association, said Nepali dairies would be capable to compete with Indian products once VAT concession is provided. "Indian products, which are entering Nepal without paying customs duty, are over 30 percent cheaper as compared to domestic products. VAT concession will help us bring down our production cost, making our products more competitive in the domestic market," said Maharjan. The government decision to waive VAT on sugar, refined flour and vegetable ghee had also drawn flak from revenue officials in the past. The latest government´s move to provide VAT rebate on additional dairy goods has also created dissatisfaction among MoF officials. "We are continuing to lose revenue from VAT every passing year due to waiver or concession of VAT on additional products due to pressure from different interest groups. Such trend has encouraged businesspeople to make unnecessary demands for VAT waiver," said an official at the Inland Revenue Department (IRD). List of goods included in VAT exemption list has increased significantly over the last couple of years as the government continues to bow down to demands from entrepreneurs without considering the impact on revenue collection. The government reserves the authority to waive VAT on particular commodities if it deems necessary. "Now, even tourism entrepreneurs have approached us to waive VAT on TV sets used in hotels, which is ridiculous," said the official. Worse, the government has failed to bring new sectors under the net of VAT despite repeated attempts. Large number of brick kilns, law professionals, medical doctors and stationary producers, among others, are still not covered by VAT regime. As per the government´s estimate, at least 400 brick kilns alone are evading VAT worth Rs 400 million annually. Collection of VAT--the largest government revenue source, which accounts for around 30 percent of the total revenue collection--rose to Rs 47.08 billion, up 18.06 percent, in the first seven months of the current fiscal year.
Published on 2013-03-07 04:00:43