Former FinMin Pun’s tax policies reversed amid criticism

KATHMANDU: The current government has overturned several controversial taxation and customs policies introduced by former Finance Minister Barshaman Pun. These policies, criticized for favoring trade over production and enabling irregularities, had sparked significant opposition since their implementation.

One of the most contentious measures was the uniform customs duty imposed on raw materials and finished goods. Critics argued that this policy discouraged domestic production while incentivizing trade. Similarly, Pun’s decision to drastically increase the customs duty on gold to 20% was widely seen as a trigger for the rise in illegal smuggling and black-market activities. In response, the current government has acted swiftly, revising key provisions within just five months.

Revised Customs and Excise Policies

The most notable reversals pertain to marble, granite, and gold import duties:

Marble and Alabaster: Previously, rectangular or slab-shaped marble and alabaster were subjected to a 30% customs duty and a 15% excise duty. The government has now reduced the customs duty to 10% and eliminated the excise duty altogether.
Granite: The duty on rectangular granite slabs was 20%, with an additional 25% excise duty. These have been reduced to 10% customs duty, with excise duties dropped to zero.
Gold: Pun’s policies had raised raw gold customs duties to 20%, significantly higher than the 10% duty on gold jewelry, prompting concerns over smuggling. The current government has rolled back the duty on raw gold to 10%.

Impact of the Former Policies

Pun’s policies were met with immediate resistance, with stakeholders warning of their far-reaching implications. The uniform customs duty on raw materials and finished goods was particularly damaging to domestic industries, as it made imported finished goods more competitive than locally produced ones.

Moreover, the hike in gold customs duties created an environment conducive to illegal activities. Smuggling and brokerage flourished as traders sought to bypass the excessive tariffs, undermining the government’s revenue goals and promoting black-market practices.

Government’s Justification for Reversal

The current administration defended the reversals, citing evidence that Pun’s policies disrupted trade and unfairly benefited specific interest groups. “These changes were necessary to correct the distortions created by the previous policies and to encourage fair trade practices,” a senior official said.

Public and Expert Reactions

The revisions have been welcomed by traders and industrialists, who had long lobbied against the earlier policies. “By lowering duties, the government has created a more level playing field,” said a representative of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI).

However, some critics argue that the frequent policy reversals reflect deeper systemic issues within Nepal’s economic governance. “This back-and-forth approach creates uncertainty for businesses and undermines investor confidence,” said an economist.

As Nepal continues to grapple with balancing revenue generation and promoting domestic production, the latest policy changes are a step toward addressing the grievances of the industrial and trading sectors. Whether these adjustments will bring long-term benefits, however, remains to be seen.