Income Tax System and Its Contribution to Revenue in Nepal

Abstract

This study entitled “Income Tax System of Nepal and Its Contribution to Revenue in Nepal” has been carried out in partial fulfillment for the Degree of Master of Arts in Economics. This study focuses on the structure trend and composition of income tax and its contribution to government revenue. The present study is based on secondary data published by the government of Nepal covering a period between the FY 2008/09 to 2017/18. In order to analyse the study different mathematical and statistical tools are used. The income of government is called government revenue to finance government expenditure. Nepalis an agriculture based under developed country. Various factors contributed to the economic underdevelopment i.e. lack of resource mobilization, landlocked position, weak infrastructures and a lack of policies conducive to development. Revenue generation is comparatively very lower than the expenditure in social and economic sector. Resource gap of the country has been widening since beginning. Developing countries like Nepal, highly depend on the indirect tax rather than the direct tax. Among the components of direct tax, income tax occupies the large share.The sources of income tax revenue are individuals, public and corporate enterprises, remuneration income and investment income. Findings shows that the contribution of income tax during the study period all sources of income tax are increasing in all fiscal years. Therefore, to collect additional revenue, develops investment friendly environment is necessary to tap the economic development. But in individual income there is higher chances to tax evasion bysubmitting false documents.The problems can be solved to some extent by proper management of tax system and will lead to substantial increase in revenue. Nepalese tax system has been attempting to modify itself to meet changes in technology and economic policies. Finally, Income tax is more convenient tools for collect government revenue, less procedural complication, easy to access, less paper work, more accurate information and safety of records and tax payers should be educate sufficiently on the importance of tax.