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CHAPTER V

SUMMARY, CONCLUSION AND RECOMMENDATIONS


5.1 Summary
In most low-income countries, like Nepal, the tax administration are often corrupt,
inefficient and do not operate in a transparent manner. This condition is the result of
the mix of the taxes used, their faulty design, and the methods of tax administration.
These tax administrations are generally affected by policies relating to the traditional
public sector personnel system, salary levels, and criteria for advancement or
discipline that usually are rooted deeply in the countrys history. In these countries,
the systems of tax administration follow a predictable pattern of behavior, - but in a
traditional way. Governments have been able to generate revenue by setting revenue
targets for the tax administration while not being very concerned about how these
targets are achieved. Tax officials cannot be blamed individually; any official joining
tax administration will have to follow existing practice and procedures. This has
created a stable system in which government revenue targets are met, most taxpayers
pay less than their legal tax liabilities, and tax officials make considerable income as a
result of side payments, which arise from their negotiations with taxpayers. A great
deal of uncertainty and administrative congestion are by-products of such a system.
Among various revenues of the government of Nepal, the VAT is one of the major
revenues. To make the VAT administration more transparent and much effective, the
government formulated VAT Act Nepal, 2052, which is later replaced by VAT Act
Nepal, 2058. However, whether such Act has been administered in a way it was
supposed to be done while making the plan is still a big question. Nonetheless, the
persistent efforts of the government and bureaucracy to improvise the VAT
administration are significant. Thus, to know the VAT administration in Nepal, the
present study has been conducted by analyzing both the primary and secondary data.
The study is empirical, descriptive, and analytical in nature. To collect the primary
data, the study sets a questionnaire related to the VAT and collects opinions from
employees of tax office, businessmen and customers. The study finds that to some
extent the administration of VAT is satisfactory but still the exercise to make the
administration much effective is insufficient.
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5.2 Conclusion
The VAT is the prominent source of revenues in Nepal. It can be said that VAT source
of the government relies heavily on the contribution of tremendous small and medium
firms run by individual. Day by day, the awareness among the people to operate any
business activity only by registering in the Company Registrar Office and under VAT,
if applicable, has been increased, as a result the number of registrants on VAT has
noticeably increased. The activity of the Tax Office in actively reducing the VAT
defaulters and punishing fines and penalties and even seizing the business in some of
the cases truly reflects the gradual increasing activeness of the Office. However, still
the targeted number to undertake the legal action needs to be increased. Moreover, the
number of upgrading of PAN to VAT and the number of forced registration in VAT
have increased due to the market survey of VAT office.
From the primary data analysis, it can be concluded that the effort to government to
aware the people about the benefits of the tax payments in the form of the
development of the basic infrastructures and the opportunities of the employment and
the economic benefits is not sufficient. As a result, the cases of VAT default are high
in most cases, making the VAT administration inefficient and requiring to be
improvised. For effectiveness of VAT administration, the coverage of the VAT should
be widened and should not be only urban centric. The necessity of educating people
about VAT is also urgent, and the government can use various medias, mainly digital
media like radio and television and press media like newspapers, to make mass aware.
The customers are not demanding VAT bills in most cases, as they think it is
unnecessary for them. Lack of physical infrastructure, trained manpower, expertise,
prevailing of corruption and bribing and others are also making the VAT
administration lame and need to be curtailed. Further, it can be said that the
employees behavior to the taxpayers are also preventing the taxpayers to pay VAT,
and the problems related to registration in VAT, account keeping, billing and tax
refunding are also the other hinders. Basically, it can be said that to make the VAT
administration much effective, the effort of all the stakeholders; government, tax
payers, tax office, customers and others, are equally significant.

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5.3 Recommendations
Finally, the following measures are recommended for the enhancement of the VAT
administration of Nepal;

In Nepal, VAT administrations use traditional techniques and procedures, which


are far from desirable. VAT administrators are guided by the traditional sales tax
mentality. A computerized and modern administrative techniques needs to be
adopted by the VAT office of Nepal.

One of the important functions of the modern VAT administration is to raise the
level of voluntary tax compliance. In order to encourage this, the VAT
administration needs to carry out an extensive taxpayer education program.

Simple and transparent tax provisions enhance compliance with the law, while
consistently applied penal provisions discourage noncompliance. Therefore,
along with the simple and transparent provisions, uniformly enforced penal
provisions also form the basis of the effective income tax administration.

The VAT office is advised to follow the unified functional system. Under this
system, a VAT officer is made responsible for the administration of each and
every aspect, including the registration, assessment and collection of VAT in
particular area.

The personnel development is one of the major problems for the inefficiency of
the VAT administration. So the VAT office is recommended to pay concern to
the human resource development. A specialized group should be created for
administrating taxes with special rules relating to recruitment, transfer, training,
promotion, salary, and so on. The Office should contrive to change the attitude
of the VAT officials, if necessary, so as to make them more service-minded.

It is necessary to establish an appeal system that is independent and impartial. At


the same time, there must be specific rules and time requirement in order to
maintain revenue levels. The appeals system should be structured to balance a
number of interests.

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