BBC Discussion with the current & former Vice-Chairs of the National Planning Commission

BBC Nepali Service's Mr. Narayan Shrestha moderates a discussion with Mr. Jagadish Chandra Pokharel, current Vice-Chairman of the National Planning Commission (NPC) and Pitamber Sharma, a former Vice-Chair of the NPC on November 7, 2010.

This discussion sheds lights on the inner workings of economic planning and implementation at the highest level of Nepal's government. The bottom line is that domestic politics and donors agenda over-rides the technocratic views of the NPC or the real economic needs of the people. Mr. Sharma even quotes the Godfather ("make an offer they can't refuse") to illustrate the position of the NPC within the economic planning hierarchy of the country.

We want to use donor support for self sustaining growth: Dr. Bhattarai

We want to use donor support for self sustaining growth: Dr. Bhattarai
Nepalnews, 14-Nov-08

Finance minister Dr Baburam Bhattarai has said that the Maoist led government wants to use donor support for building the process of self sustaining growth in Nepal.

Addressing the donors meet in Kathmandu on Friday, finance minister Bhattarai said the government had already set out policies in the budget and urged the donors to prepare their programmes accordingly.

Stating the government's major concern has been relief and rehabilitation, free education and easy access to health services for poor people, he was of the view that the development process was 'donor driven', and not fruitful for both sides.

He said it was mutual responsibility of both donors and government to make best use of money given to Nepal and stressed on the need of fusion between aid bureaucracy and the country's bureaucracy.

The current change made people politically sovereign, now we want make people sovereign economically, he added.

He further said though Nepal has been receiving foreign assistance since 1950s, it has not been associated high growth rate due to lack of good policies, weak institutional capacity and inactive civil society.

Representatives of different donor agencies participated in the meeting.

For VAT it's worth

For VAT it's worth
eKantipur, 12-Nov-08
AMRIT P. SHRESTHA

Globally, “money minting machine” is a familiar name given to VAT (value-added tax) by its experts. It brings the entire value addition chain down to distribution under its ambit, and is known as an offsetting non-cascading levy. This taxation system has been accepted universally because of its popularity, catch-up effect and self-polishing nature. It is also free from cascading and pyramiding and is a broad-based tax. The industrialization of Japan, Hong Kong and South Korea was made possible by their tax policies based on the VAT concept.

In Nepal, among the chief reasons for introducing VAT was providing incentives for increased productivity, industrialisation and creating an investment climate through the policy of refund and zero rate on export.

Unfortunately, VAT has not been enhancing the economic process as envisaged in Nov. 1997. In the present scenario, the system is at a crossroads because of professional ignorance, tax dodging tendencies, embezzlement and political turmoil. The system has not gone away completely, but it has merely been pushed to the sidelines.

The following mechanisms adopted by Nepal are fully contradictory to VAT concepts, and these barriers have to come down.

1) The government is generating revenue through coercion. This is state terrorism. Nepal has slipped several notches in Transparency International's ranking of the most corrupt nations on earth. However, no revenue or enforcement agency of the government has bothered to unearth the facts.

2) Refunds are an integral part of VAT. Nepal adopted the refund system to help big exporters on whom the economy relies. It was intended to boost capital flow into the country through the mechanism of zero rate which can influence investment prospects. Turning Nepal into a zone of good taxation could give a big impetus to economic growth. Unfortunately, the procedures are ambiguous and torturous. Tax officers have been auditing without basic knowledge and academic background. The answer to a particular query differs from one tax officer to another because of professional ignorance.

3) Operating manuals are most important for maintaining transparency. And both tax officials and taxpayers need to consult them. But the available guidebooks are incomplete and do not provide the required detailed information on the obligations of taxpayers.

l The compliance rate is very low compared to the number of registered taxpayers. The poor compliance rate is directly linked to procedural hassles during tax collection, poor surveillance and unofficial trade. We must do everything necessary to make tax paying convenient and achieve the highest degree of voluntary compliance.

4) The tax rate has been increased time and again for nothing. The government should weigh its action thoroughly before increasing the tax rate. International experience tells us that gradually lowering taxes is a more effective way to achieve the desired goals than increasing them.

5) Sham transactions are one of the invisible parasites robbing VAT blind. Sham transactions are intended to create the appearance that one transaction took place, whereas in fact more than one transaction or no transaction took place. The pathology of this crisis is that unless you get ahead of it and deal with it from a position of strength, it devours the weakest link in the chain and then moves on to devour the next weakest link. VAT may be thought of as a series of processes making up a chain. Each process is a link in the chain, and it is the strength of the weakest link that determines the strength of the whole chain.

6) A multiple-rate tax structure is a prime concern for the business community. Traders have been pushing for a four-tier taxation system. It has been seen globally that a multiple-rate structure distorts the choices of both consumers and producers and favours certain big business houses. The rate should be maintained for a long time for the sake of transparency and it must be incorporated in the VAT Act itself. Constant policy changes have also been an obstacle to enforcement of VAT and hurt revenue generation.

We are in transition to a new economic model. For a nation like ours, which is weighed down by solvable problems, economics only becomes meaningful when it results in a better quality of life for the masses. Immediate miracles are not possible, but pragmatic and sustainable efforts should be made to bring prosperity to the country. Sweeping and radical reform is needed in VAT to push the economy forward. Let's see how our responsible leaders translate their promises into action.

(The writer is a former director of VAT and a financial management expert for UNDP in Tanzania.

PPP is right development approach

PPP is right development approach
ekantipur, 23-Oct-08

The government and the private sector have concluded that Public Private Partnership (PPP) was necessary to spur involvement of the private sector in the nation building process at a time when the government is reeling under resource constraints.

At the end of a 2-day PPP symposium, they also agreed to work together in key sectors like education, infrastructure, health, tourism, hydropower and agriculture for their rapid development. Different ministries have also expressed commitment to eliminate legal and administrative predicaments to encourage involvement of the private sector in those sectors.

Presenting a conclusion paper on Thursday, Rajendra Bahadur Shrestha, advisor of PPP National Conference said PPP was the right instrument to enhance investment and increase technological inputs in health, tourism, agriculture, infrastructure, hydropower, education and other sectors.

“There were no second thoughts on the importance of PPP for development efforts and effective service delivery. But what we need is a conducive environment and favourable policy plus a hassel-feee bureaucratic system,” said Shrestha.

Representatives from the private sector pointed out lack of clear and stable government policy and supportive rules and regulations; lack of political consensus and traditional bureaucratic mentality as a the major obstacles in implementing the PPP concept in the country.

Federation of Nepalese Chamber of Commerce and Industry (FNCCI) President Kush Kumar Joshi said the private sector was ready to work with the government under the concept of PPP by participating in different development activities and the service sector.

“The concept of PPP will be effective in sectors where the government is lacking in resources and technology,” Joshi said. “But we want the government to play a catalyst’s role in this regard.”

National Planning Commission Vice Chairman Dr. Pitamber Sharma stressed on the need to link the agriculture sector with the industrial sector so as to encourage commercialisation in this sector.

“We can not get separate the agriculture sector from the private sector as farmers are also a non-government force. So development of agriculture depends on how it is linked with the industry,” said Sharma.

Representatives of the private sector also underlined the need to initiate export of pharmaceutical products, commercialisation of agriculture and increase private investment by formulating a clear and stable policy on PPP.

The 2-day symposium was organised jointly by the government, FNCCI and UNDP in a bid to explore common consensus between the private sector and the government on PPP. More than a dozen working papers were presented during the symposium attended by about 700 participants.

Elaborating the rationale of PPP in the education sector, Joint Secretary at the Ministry of Education and Sports Lekhanath Poudel said the PPP concept was crucial to increase management capacity, promote innovation, and generate resources.

He also informed that the government was coming up with different forms of PPP in education under the School Sector Reform Plan-2008 where community management for basic education, cost sharing for higher education, cooperative schools, management contracts and school choice will be taken as major policy options.

Dr. Bhattarai and capital market

Dr. Bhattarai and capital market
ekantipur, 11-Nov-08
Dr. Raghab D Pant

The speech made by the Minister of Finance Dr. Babu Ram Bhattarai, reportedly the No. 2 man of the CPN(Maoist), on Nov. 4 while inaugurating the Elite Merchant Bank is worth reading. The only problem (detail in a minute) with the speeches of Maoist leaders is that it is not taken seriously by many. The reason is simple: They are well known for giving speeches to please the present audience with little concern about the implications.

Dr. Bhattarai's speeches on economic issues are of different kinds, relatively speaking. It is, however, difficult to draw definite conclusion from the consistency test. A definite gap is easy to notice between the promises made and the policy or programmes pursued. His speech, for example, given at the World Bank-IMF meeting was very formal. But at the same time, it is reported in the press that the Nepali delegation, headed by the Minister of Finance himself, has indicated its need to borrow from the International Monetary Fund under Poverty Reduction Growth Facility (PRGF).

The loan under PRGF is used by the developing member countries of the IMF only in case of severe financial problems. The loan is available with a nominal service charge. On the contrary, the policy-makers have to accept severe conditionality imposed by IMF. In fact, our domestic financial policy will be dictated by IMF.

It is reported in the press that a mission from IMF is coming this month for detailed discussions. Are we facing financial crisis? If not, why is an interim government with the responsibility to prepare the constitution of the country planning to borrow from IMF under PRGF? On the one hand, the government is providing complete waiver of loan for the small borrowers of banks and financial institutions at the cost of Rs. 9.2 billion and, on the other extreme, it is planning to borrow under PRGF! Bhattarai sir, we are a bit puzzled.

The mind's first step, it is said, is to distinguish what is right from what is false. But as far as Maoist speeches and programmes are concerned, the contradiction is easily visible between what has been preached and what has been practiced. Further, the minister of finance, on other occasions, has announced with open confidence that their aim is to establish a communist society in Nepal. At the same breath, it has also been explained that it may not be achieved immediately as the country is still following feudalistic pattern of society.

The question is: How is the minister of finance -- or for that matter the Maoists -- planning to move from what they call current feudalistic society to communist society where, according to Marxian prophecy, each will have according to his needs. At the theoretical level, there are two schools of thoughts. Karl Marx has explained in detail with the help of theoretical model that it is not in the nature of economics to make jump from one type of economic system to another in that it must follow a unique pattern; socialism, for example, will come only after the full development of capitalism. This view, however, was not acceptable to Lenin. In his view 'it is a reactionary way of thinking to try to find salvation in the working class in any other way but in the top-heavy development of capitalism'.

Therefore, the minister of finance and the CPN (Maoist) as well has to make it clear whether they want to follow the path of Marx or Lenin. We can not have both. Lenin believed in the prophecy of Marx but not in the historic process developed by him. For him, it was nothing but historic determinism. Lenin, therefore, tried to impose a revolution at a time and in the country where Marx had foreseen that a revolution could not take place. As a result, it is safe to conclude that Marxian theory failed in 1917 and his prophecy began to dominate. And prophecy, by nature, functioned on a long-term basis is not possible to prove. In the long run, on the other hand, we are all dead.

We are not yet sure about the overall economic policy of the CPN (Maoist).

We can have a flavour from the afore-mentioned speech if it is a genuine policy rather than a strategy of the party that Dr. Bhattarai is associated with. "We are against the idea", explains Dr. Bhattarai, "of contracting the role of the private sector. We will play the role of facilitator so that more capital can enter the market to augment industrial capital and for infrastructure development". If this is what he aims to achieve with the government role confined to that of a facilitator, it will be easy to attain, as he had hoped, the goal of "simultaneous growth of the real sector along with the booming financial sector to achieve the expected level of economic development".

But the investors -- and the general public too -- have to be convinced first that the policy measures explained by the Minister of Finance will be implemented in the same spirit as it is announced. This trust has to be earned honestly. It cannot be earned by showing the political power that the Maoists command. The ball is now on Dr. Bhattarai's court. We hope it will be translated into action.