Large Taxpayers Defy Laws in Biratnagar

Biratnagar. House rent tax is one of the main sources of internal revenue for local governments. It is almost impossible to address development and public expectations without a strong internal revenue, but in Biratnagar Metropolitan City, the capital of Koshi Province, large corporate houses and even government agencies are flouting the law by not paying taxes, holding the law in their fist.

On one hand, ordinary citizens are struggling to pay property tax and general business tax, while on the other hand, large hospitals, commercial malls, and government institutions doing business worth billions have not paid taxes worth crores of rupees to the metropolitan city for years. Even more serious is the fact that despite the Supreme Court issuing a clear mandamus stating 'House rent tax should be paid to the local level', these institutions are openly defying the court's order and refusing to pay taxes.

Due to this dominance of large taxpayers, the revenue collection situation of Biratnagar Metropolitan City has become very weak and disappointing.

Biratnagar Metropolitan City presented a budget of Rs 4.40 billion for the current financial year (2082/083). The sources of this budget include financial equalization grants, revenue sharing, conditional grants, etc. The metropolitan city had initially set a target of Rs 1.40 billion from internal revenue, which is considered the most important source, but due to the market situation and the defiance of large taxpayers, the metropolitan city was forced to withdraw from its target and revise it down to Rs 1.10 billion.

Even with the reduced target, the reality of revenue collection is dire. According to Saroj Kumar Gautam, head of the revenue department of Biratnagar Metropolitan City, only Rs 370 million in internal revenue has been collected as of Baishakh 16 of the current financial year. 'The revised target for internal revenue this year is 110 crore, but only 37 crore has been collected by Baishakh 16,' said department head Gautam. 'During this period last year, more than 1.75 crore, i.e., about 38.5 crore, was collected. The total revenue last year was only 63 crore. This year it has gone down further.'

The Constitution of Nepal and the Local Government Operation Act clearly give the right to collect house rent tax to the local level, but the federal government (Ministry of Finance and Inland Revenue Department) decided to collect the institutional house rent tax itself by issuing a letter in 2074 BS.

Biratnagar Metropolitan City went to court against the federal government's intervention on Ashoj 28, 2076 BS. A writ petition was filed in the Supreme Court seeking a writ of certiorari on behalf of Indira Karki, the then deputy mayor and coordinator of the local level revenue consultation committee. After a long legal battle, a bench of Supreme Court justices Kumar Regmi and Til Prasad Shrestha ruled in favor of the metropolitan city on Jeth 20, 2082 BS.

The Supreme Court's order states, 'The decision made by the Council of Ministers of the Government of Nepal on 2074/12/12, and the letters issued by the Ministry of Finance and the Inland Revenue Department based on that decision, are hereby quashed by a writ of certiorari. Furthermore, in accordance with the constitution and the aforementioned legal provisions, a mandamus order shall be issued to the respondents not to obstruct the local level from collecting house rent tax, which is the right of the local level.'

After the Supreme Court opened the way to collect institutional house rent tax, it was estimated that the metropolitan city's internal revenue would increase by Rs 200 million annually. The revenue target was set with that estimate, but large taxpayers who are defying the law are not even respecting the Supreme Court's order. Revenue chief Gautam said, 'After the court's decision, there is no legal basis for them not to pay the local level, but they are openly saying that they will pay the federal government and that it is not beneficial for them to pay the local level, and are making excuses. This is a clear violation of the law and defiance.'

Among those who are defying paying taxes in Biratnagar, large private sector organizations are at the forefront. One of them is Nobel Medical College and Teaching Hospital. The list of institutional house rent tax that Nobel has to pay to the metropolitan city is very long.

Medical shops within the hospital premises are rented out. The metropolitan city's records show that the cancer hospital itself is rented out to another party for approximately Rs 10 million per month. Besides this, hostels and canteens are all rented out, but Nobel has not paid a single rupee of house rent tax to the metropolitan city to date.

'Nobel pays about Rs 9 million annually as property tax, but it has not paid house rent tax,' Gautam said. 'In our estimate, Nobel alone should pay Rs 1.5 to 2 million per month as house rent tax, but it is being defiant.'

Similarly, Biratnagar's Central Mall has also not paid house rent tax so far. The mall has not even submitted details of how much tax it has to pay to the metropolitan city.

While the private sector evades taxes, the regulatory government agencies themselves have appeared as major tax evaders in Biratnagar. Agencies that are supposed to follow the law, such as the Civil Aviation Authority (Airport), Nepal Electricity Authority, and Nepal Food Corporation, owe crores of rupees in taxes to the metropolitan city.

Biratnagar Airport (Civil Aviation Office) has not yet got its terminal building's map approved. It is the height of irony that one state agency does not obey the rules of another. 'It is estimated that the Civil Aviation Office has outstanding taxes of 5 to 7 crore rupees,' said revenue chief Gautam. 'The terminal building map is not approved. Airlines like Buddha Air and Shree Airlines are rented out there, but they have not paid house rent tax for it either. It amounts to 6-7 crore annually.'

According to the metropolitan city's data, the outstanding property tax (land and building tax) owed by various large institutions as of 2081/082 has reached Rs 208,475,552. Anyone would be shocked to see the list of those who have not paid taxes.

Nepal Food Corporation has the largest outstanding tax to the metropolitan city, amounting to Rs 52,150,668. The Electricity Authority, which cuts off power for not paying electricity bills for even one month, has not paid Rs 38,716,430 in taxes to the metropolitan city.

Similarly, Raghupati Jute Mills has not paid Rs 29,765,345 in taxes. Nepal Water Supply Corporation has outstanding dues of Rs 28,302,928.

On the land owned by Morang Rice and Flour Mills in Biratnagar-9, Vishal City Party Palace is currently operating. Claiming the proprietor is the same, the land is operated under the name of Rice Mill and the business under the name of Party Palace, but the structure has neither a passed map nor has it paid taxes. Its outstanding amount has reached Rs 18,490,969.

In addition, Nepal Trade Company (Koshi) Limited owes Rs 13.3 million, Agricultural Inputs Company Rs 10.3 million, Eastern City Developers Pvt. Ltd. Rs 10.3 million, Virat Campus Rs 2.698 million, Himalaya Talkies Rs 2.267 million, and Gopal Bahadur Shrestha Rs 2.117 million in taxes.

There are approximately 50,000 potential taxpayers within Biratnagar Metropolitan City, but the metropolitan city has not been able to provide exact data on how many are actual taxpayers. According to the revenue department, only 60 percent of the total taxpayers pay taxes, while 40 percent are outside the state's purview or are evading taxes.

'We have an estimated 50,000 taxpayers in Biratnagar, but only 60 percent of them pay taxes, and the remaining 40 percent do not. Due to the fact that a single taxpayer may have up to three IDs, we have not been able to determine the exact number of actual taxpayers,' said Gautam.

Despite this, some institutions like Nepal Telecom, Ncell, Salt Trading, DDC, and health institutions like Virat Nursing Home and Morang Hospital regularly pay taxes, according to the metropolitan city. Neuro Hospital pays property tax but has not yet paid house rent tax.

The metropolitan city teams deployed at every junction to bring small traders into the tax net have not been able to enter the gates of big mafias, corporate houses, and government agencies. Even though the Supreme Court has paved the way, the metropolitan city has become helpless in using its authority to collect taxes.