Tax revision may raise consumer prices

Kathmandu, June 3

Prices of consumer items will rise in the coming days following upward revision in taxes of a host of goods and services ranging from food items and essentials, such as cooking gas and communications service, to construction materials and home appliances.

The price hikes, brought about by a change in tax rates or withdrawal of tax rebates, are likely to make it difficult for the government to contain inflation at 6.5 per cent in the next fiscal as proposed by the budget for 2018-19.

The government has said VAT will soon be levied on goods and services sold by restaurants, bars, discotheques, health clubs, massage and beauty parlours, educational consultancies, food caterers, tailors and dry-cleaners located in metropolitan cities, sub-metropolitan cities, municipalities or any area specified by the government. Shops located in these areas that sell hardware, sanitary items, furniture, electronics, marbles, automobiles and motor parts will also have to collect VAT.

This means sellers of goods, whose annual transaction is less than Rs 5 million, and sellers of goods-cum-services, whose annual transaction is less than Rs 2 million, will have to come under VAT’s network, Revenue Secretary Sishir Kumar Dhungana said. This provision will make goods expensive in urban areas.

Other items used widely in urban areas, such as LPG cylinders, refrigerators, vacuum cleaners, mixers, grinders and juicer machines, will also become dearer soon, as the government has imposed five per cent excise duty on these items for the first time.

Food items generally consumed in urban areas, such as chewing gum, potato chips, dalmoth, papad, bhujiya, juice and energy drinks, will also witness price hike soon as the excise on these goods has either been introduced for the first time or revised upwards. For example, 10 per cent excise has been introduced on chewing gums, while energy drinks have been subject to excise of Rs 25 per litre. Excise on potato chips has been raised from Rs 7.5 per kg to Rs 15 per kg and excise on juice has gone up from Rs 4.5 per litre to Rs 10 per litre.

Among others, excise duty on cement has been revised to Rs 200 per tonne from Rs 180 per tonne, excise on paints has jumped from five per cent to seven per cent, and that on steel bars and window and door frames made of iron stand at Rs 1,500 per tonne.

Earlier, the highest excise rate levied by the government was 60 per cent which has gone up to 100 per cent. The government levies 100 per cent excise on motorcycles with engine capacity of over 800cc, cars and station wagons with petrol-powered engines of over 3,000cc, and cars and station wagons with diesel-powered engines of over 2,500cc.

The government has also stopped providing 50 per cent customs duty rebate on imports of crude soybean, palm and sunflower oil. These items will be subject to five per cent customs duty. Also, imports of mustard seed and rapeseed will be subject to the customs duty of 10 per cent, up from one per cent.

However, 50 per cent customs duty rebate will be provided on imports of sunflower and soybean seeds as before.

The government has also abolished VAT refund on sugar, flour, vegetable ghee, cooking oil, mobile phone sets, textile and dairy products. Also, telecom service fee has been raised to 13 per cent from 11 per cent, making telecom service expensive.

“Although inflationary pressure will build due to an upward revision in tax rates, we hope to contain inflation at an average of 6.5 per cent, as prices of some of the goods and services are likely to fall as well,” said Nara Bahadur Thapa, executive director of Nepal Rastra Bank. Education and healthcare costs are likely to fall marginally in the coming days, as the government has abolished one per cent education tax and five per cent health service tax and removed health service from the VAT network.

Higher inflation on cards, as…

• Many service providers in metropolitan cities, sub-metropolitan cities, municipalities will come under VAT network
• Five per cent excise duty to be levied on LPG cylinders, fridges, vacuum cleaners, mixers, grinders and juicer machines
• Rs 200 excise duty to be levied on a tonne of cement
• Rs 1,500 excise duty to be levied on a tonne of steel bars
• Fifty per cent customs duty rebate on imports of crude soybean, palm and sunflower oil scrapped
• Telecom service fee raised to 13 per cent