INTRODUCTION

1.1 Background of the Study

The Income Tax Act grants the Minister of Finance significant power to
recover income tax that is owed to Inland Revenue. The most recent
amendments to the Income Tax Act in this regard has far reaching
implications for people other than the taxpayer. Since 30 December 2015
these powers have been strengthened and, if exercised by Minister, will
ensure that tax debts are recovered successfully. Should Inland Revenue not
be successful to recover tax debt from the taxpayer itself, the Income Tax
Act empowers the Minister of Finance to make an arrangement with another
person to recover outstanding tax, interest and penalty on behalf of Inland
Revenue on terms and conditions as agreed with such person. The Minister
of Finance or an official that has been appointed by the Minister may issue a
notice to any person who owes the taxpayer any money to settle the
taxpayer‘s tax debt.( G.P Koirala 2011)

The Income Tax Act specifically provides examples of persons who may be
issued with such a notice. They include pension funds and the taxpayer’s
employer in respect of salary or other remuneration. Inland Revenue has
recently issued commercial banks with instructions to pay money that the
taxpayer has in a bank account at the bank to Inland Revenue to reduce the
tax liability of the taxpayer. Any person who is unable to comply with the
notice issued by Inland Revenue should provide reasons to Inland Revenue
why the requirements of the notice cannot be complied with. The person
must pay the money held on behalf of the taxpayer to Inland Revenue in

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terms of the notice received. If the person parts with the money contrary to
the requirement of the notice, the person will be personally liable to pay the
money parted with to Inland Revenue. Banks, retirement funds and
employers should therefore not ignore these notices and ensure that the
taxpayer is aware of contents of the notice issued by Inland Revenue. It is in
the interest of the taxpayer and the person who holds funds for the taxpayer
that the tax debt owing to Inland Revenue is verified and settled so that these
situations can be avoided. A person who is part of the financial management
of a taxpayer who has tax debt owing to Inland Revenue is personally liable
for the taxpayer’s tax debt if negligence or fraud is the cause that tax owing
to Inland Revenue has not been paid. A very good example of negligence is
where employees’ tax is deducted from the salaries of employees but the
employer fails to pay the tax deducted to Inland Revenue as required in the
Income Tax Act. (I.R. Bhattarai 2011)

The failure to pay the employees’ tax deducted from employees to Inland
Revenue is an act of negligence and the financial director or manager of a
company could be held personally liable for the tax owing to Inland
Revenue in such a case. To plead poverty as the reason for not paying the
employees’ tax is no excuse. The shareholders of a company or the members
of a close corporation can be held personally liable for the tax debts of the
taxpayer that arose during the period they were shareholders or members.
The Minister of Finance can also file a certified statement at any court to
recover the tax debt of a company or close corporation from any of the
persons referred to in the paragraphs above. The effect of this is that the
assets of such individuals can be confiscated and sold to settle part of the tax
debt owing by a taxpayer. Any person who is connected to a taxpayer that

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owes Inland Revenue any tax and who receives any asset from the taxpayer
without payment or for an amount below the fair market value of the asset
will be liable to settle the tax debt of the taxpayer. The liability of the
connected person is limited to the lesser amount of the tax debt at the time
the asset was received from the taxpayer or the fair market value of the asset
at the time of the transfer of the asset. Any person who assists a taxpayer to
get rid of assets so that the tax owing to Inland Revenue cannot be settled by
the taxpayer will be jointly and severally liable with the taxpayer to settle the
tax amount owing to Inland Revenue. The effect of this is provision is that
you may have to settle another person’s tax liability if you acquire an asset
and thereafter Inland Revenue cannot take possession of the asset to settle
the tax liability. Tax obligations should be settled when due to avoid a
situation where Inland Revenue has to exercise the powers they have such is
never pleasant for anyone. There is wide speculation that Government has
no money.

1.2 Statement of problems

Economic development is the prime concern of every nation of the world.

Underdeveloped countries are facing serials problems in the process of the
economic development. Nepal is also not exception to this condition. Nepal
has been suffering from resources constraints, massive poverty, rapid growth
of population, increasing seasonal and functional unemployment, diseases,
aggressive dependent on the agriculture, subsistence living standard and
poor infrastructure since four decades of planned development efforts.

i. What are the Collection of Income tax from Remuneration in Nepal?

ii. What are the Collection of Income tax from business in Nepal?

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iii. What are the Collection of Income tax from Investment in Nepal?
iv. What are the contribution of income tax in GDP of Nepal?

1.3 Objectives of the study

The principal objectives of this very study will be analyze the collection of
income tax on national revenue of Nepal. Other specific objectives of the
study are listed below:

i. To analyze the Collection of Income tax from Remuneration in Nepal.

ii. To examine the Collection of Income tax from business in Nepal.
iii. To analyze the Collection of Income tax from Investment in Nepal.
iv. To analyze the contribution of income tax in GDP of Nepal.

1.4 Significance of the study

Ironically, this study will be conduct in order to convert the theoretical

concepts and knowledge on income taxation to the practical aspects as a
partial fulfillment of the requirement of master of business studies (MBS)
under the faculty of management, Tribhuvan University. The prime focus of
the study is to accomplish the effectiveness of income tax collection
procedure in Nepal and its collection on national revenue. Thus, the study
helps to minimize the tribulations associating the income tax provisions
faced by tax payers in varied mode. The study is functional and constructive
to taxpayers, administrators, teacher, students and tax experts.

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1.5 Research Methodology

Research is defined as human activity will be base on intellectual application

in the investigation of matter. The primary aim for applied research will
discovering, interpreting, and the development of methods and systems for
the advancement of human knowledge on a wide variety of scientific matters
of our world and the universe. Research can use the scientific method, but
need not do so.

Scientific research relies on the application of the scientific method, a

harnessing of curiosity. This research provides scientific information and
theories for the explanation of the nature and the properties of the world
around us. It makes practical applications possible. Scientific research is
funded by public authorities, by charitable organizations and by private
groups, including many companies. Scientific research can be subdivided
into different classifications according to their academic and application
disciplines.

Historical research will be embodied in the historical method. The term

research is also use to describe an entire collection of information about a
particular subject.
Primary research (also called field research) involves the collection of data
that does not already exist. This can be through numerous forms, including
questionnaires and telephone interviews amongst others.
i. The term is widely use in market research and competitive
intelligence
ii. Could be very expensive because many people need to be confronted.
iii. Take too long and by the time the research is complete may be out of
date.
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iv. People may will be employed or avoid their primary duties for the
duration of the research.

v. People may not reply if emails or letters used.

Secondary research (also known as desk research) involves the summary,

collection and/or synthesis of existing research rather than primary research,
where data will be collect from, for example, research subjects or
experiments.

The term will widely use in market research and in medical research. The
principle methodology in medical secondary research is the systematic
review, commonly using meta-analytic statistical techniques, although other
methods of synthesis, like realist reviews and meta-narrative reviews, have
been developed in recent years.

Secondary research can come from either internal or external sources.

1.5.1 Research Design

Overall plan of any propose activity will be see in design of the study . A
complete research is accompanied by the effective research design indeed. It
constitutes the procedure, technique and overall frame work of the study.
Basically the data and information of the study will concern with past
phenomenon of the performance. Thus it will be also regarded as historical
research design. The historical method comprises the techniques and
guidelines by which historians use historical sources and other evidence to
research and then to write history. There are various history guidelines
commonly used by historians in their work, under the headings of external
criticism, internal criticism, and synthesis. This includes higher criticism and

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textual criticism. Though items may vary depending on the subject matter
and researcher, the following concepts will usually part of most formal
historical research:

i. Identification of origin date

ii. Evidence of localization
iii. Recognition of authorship
iv. Analysis of data
v. Identification of integrity
vi. Attribution of credibility

Thus this study also will be follow an analytical as well as descriptive

research design.

1.5.2 Source of information for this study

The information is basically will be base on the field work procedure.

Mainly two important sources:- primary as well as secondary sources were
taken during the study. Primary sources will be use for primary data and
secondary sources will be suppose to be use for secondary data.

1.5.2.2 Secondary Data

Secondary data and information will be obtain from various sources

specified as below:

i. Budget speech and Economic Survey of various years, Ministry of

Finance, Government of Nepal.
ii. Reports and records of Department of Taxation, Ministry of Finance,
Government of Nepal.
iii. Dissertation related to income tax.

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iv. Books related to income tax and public finance.
v. National and international newspaper, journals, and news , magazines.
vi. Other relevant records and data have been used in this study.

1.5.3 Population and Sample

The study covered only selected areas as well as select people as sample
size. The population of the study is the people who come under the income
tax bracket, who will be affect by the tax policy of the government. In order
to fulfill the objectives of this study, the sixty sample size will be selected
from Nepal.

1.5.4 Data Collection Procedure

Data and information will be use in this study will be collect from primary
and secondary sources. To get accurate and actual information in time, all
questionnaire will be distribution and collect personally through field visits.

1.6 Limitations of the study

Of course there exists countable deficiencies and hurdles as to this study as

information regarding the income taxation will not adequate. Every
individual study will be conducted under certain specific assumptions
accompanied by cascading constraints and limitations. Likewise this very
study is also confined by some constraints. Some of the specific constraints
of the study will be recapitulated as under:

i. As this study will be base on secondary data only and the reliability
entirely depends on it.

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 ii. Since the data concerning income tax are inadequate, the problem of
non accessibility of required data and information regarding income
tax may limit the scope of this study.
iii. Sampling error may occur in the study.
iv. Despite these limitations, this study tries to provide valid result as
well as in depth of income tax.

1.7 Organization of the study

The entire study will be design into five main chapters. Each chapter will
devote to some aspects of the study on collection of income tax on national
revenue.

Chapter - I: The introduction chapter will be includes general background

of the study, statement of the problem, objectives of the study, significance
of the study, limitation of the study and organization of the study.

Chapter - II: The second chapter will be review of literature is done to

know what research will be done in the related topic in various days and
what will be done at present or in future through different relevant books,
journals, published/unpublished dissertations.

Chapter- III: Research Methodology is mentioned in the third chapter,

which will be includes types of research, research design, population and
samples, nature and sources of data, procedures of data collection and data
processing and analysis procedure.

Chapter - IV: The fourth chapter data presentation and analysis is the main
part of the research. The content of this chapter are resource gap in Nepal,
tax-GDP ratio, Nepalese government revenue structure, composition of tax
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revenue in Nepal, composition of indirect tax revenue, composition of direct
tax revenue, composition income tax, collection of income tax on direct tax
revenue, total revenue and GDP, income tax collection performance in
Nepal, exemption limit and personal and corporate tax rate.

Chapter - V: Findings, conclusion and recommendation are presented in the

fifth chapter, which is the last chapter of this study. Lastly, essential
appendices and bibliography will be present at the end of the study.

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