Tuesday, January 20, 2009

Need of Service Tax in Nepal

Sometime back, in another blog, http://talkingforum.wordpress.com/ , I had advocated about need of service tax in Nepal.

In this blog post, I will be talking about the nature of service tax and in fact, I am writing what exactly service tax is. The explanation of nature of service tax will surely reinforce my belief of need of service tax, I believe.


Service tax is an indirect tax levied on certain services provided by certain categories of person including companies, associations, firms, body of individuals.

Service sector is occupying the centre stage of any country’s economy. It has become an industry by itself. In the contemporary world, development of service sector has become synonymous with the advancement of economy. Economics hold the view that there is no distinction between the consumption of goods and consumption of services as both satisfy the human needs.The Service tax is normally a destination based consumption tax and the principle of consumption of services would determine the liability of Service Tax.

In the present scenario, the government should initiate an exercise to explore alternative revenue sources due to resource constraints. The primary sources of revenue are direct and indirect taxes.

Central Excise duty is a tax on goods produced in one country whereas Customs Duty is tax on imports of goods into that country. But, the central excise and customs duty are in decline due to World Trade Organisation (WTO) commitments and due to rationalization of duties on commodities.

A system of selective approach in the levy of Service tax can be adopted while introducing service tax in its preliminary stages by levying tax upon selective services only. To start with, it should be the approach that no service tax be imposed on any of the environmental services, health and social services, legal services etc.

The service tax that should be imposed now should be on travel and tour services, hotels and restaurants for hospitality like body spa, massage, travel agency services etc.

There should be a clear attempt to tax all services in a uniform manner to avoid controversy and confusion.

Therefore, I feel that there is a great scope to tax services in Nepal under new legal framework if implemented properly by Maoists Governments.

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