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The strangling effects of multiple taxation in Nepal

05 February, 2013 : 10:06

"Multiple taxes imposed on small scale subsistence farmers is a very common in Nepal – but this often means that once farmers finally get their produce to market, they are left with little to show for their hard work."

Bishnu Upreti, SLRC Nepal Leader

Back in November, Katherine Haver wrote in this SLRC blog about taxation and people’s livelihoods in eastern DRC. In it she talked about how ordinary people are forced to pay what are often exorbitant fees on their produce in order to gain market access, as well as the complex, hybrid nature of tax regimes in that particular part of the country. Unfortunately, this is by no means a unique situation. As can be seen in the case of Nepal, multiple taxes imposed on small scale subsistence farmers is a very common phenomenon – a phenomenon which often means that once farmers finally get their produce to market, they are left with little to show for their hard work.

So what happens?

Farmers living near big cities and town centres produce milk, vegetables, potato, eggs, chicken, honey and vegetable seeds, often with the intention of selling them in urban markets. Technically, according to the tax related acts and provisions of the government of Nepal, small scale farmers do not need to pay tax for their agricultural commodities while transporting them within the country. 

But the reality is very different. From the point of origin of their produce to its final destination, farmers are stung with multiple taxes enforced by a range of local government organizations, from municipalities to Village Development Committees (VDCs) to District Development Committees (DDCs). Acting autonomously, these various forms of local government have the power to decide exactly how much tax is imposed on agricultural commodities – and how many times it is charged. For example, a farmer passing through, say, five collection posts will be taxed an equivalent five times on the same produce.

And it doesn't stop there. When farmers go to collect their produce from neighbouring districts, the local government collects nikasi kar – essentially, an export tax – when the produce crosses a district boundary. Further, drivers transporting commodities are forced to pay a road tax, which they will often simply charge back to farmers.

Why does it happen?

Part of this situation arguably stems from the Local Self Governance Act of 1999, which empowered different forms of local government (such as those mentioned above) to collect taxes at the local level. While the Act represented a promising and much needed step towards greater decentralization in Nepal, it has also helped create a complicated and confusing regime of tax laws which has not been accompanied by effective monitoring mechanisms. Faced with a severe lack of alternative livelihood options, poor farmers are thus effectively left with little or no choice but to pay the multiple taxes in order to sell their produce at markets. 

In a promising move, this is an issue which has been presented to Nepal’s Supreme Court. However, while the Court reached the decision to outlaw any imposed taxes except those collected at a commodity’s origin, the implementation of this ruling has proven difficult to enforce. The lack of adequate monitoring mechanisms has not helped matters. Until these good intentions are followed up with proper implementation – which is in turn dependent on political support – Nepal’s farmers will continue to be subjected to the strangling effects of multiple taxation.

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This blog will feature reflections from our team of researchers on the practicalities of actually conducting research in conflict-affected situations. We will also be posting guest blogs written by key researchers and practioners working on livelihoods, basic services and social protection in conflict-affected situations.