Balen Government's Janatamara Budget: Burden of taxes and duties on the middle class

Although the government has announced tax exemptions and reliefs in some areas through the budget of the next fiscal year, it is seen that some taxes, fees and duties placed in the economic bill may further increase the expenses of the common citizens and the middle class. Due to weak government services, there is concern that the budget may create more pressure on families who are forced to choose private options for basic services such as education, health, transportation, internet and energy. The most sensitive issue is related to education and health. Many parents in Nepal send their children to private schools. It's not always a luxury choice. Many families have to opt for private schools due to lack of quality, management, regularity and competitive education in government schools. In such cases, there is a risk that the fees or taxes levied on private education may eventually add up to the parents' monthly bills. For middle-income families, school fees, bus fees, books, dress and additional fees are already a huge burden, and additional taxes in the education sector could further strain family budgets.

The situation is the same in healthcare. Common citizens have been facing the problem of long queues, lack of equipment, limited availability of specialist doctors and delays in treatment at government hospitals. So many families are forced to go to private hospitals and clinics for general to serious treatment. Private healthcare is not only a "rich man's choice", but a forced choice for many. In such cases, health care fees or additional taxes associated with treatment can add direct financial pressure to patients and families. It is a serious matter that the treatment is expensive in a place where citizens should be relieved when they get sick.

Another controversial aspect of the budget is related to electricity services. In the economic bill, provision has been made to charge 5% VAT on the taxable price when providing electricity service to the end consumer. Although it remains to be seen how it will be interpreted and implemented, if the provision is applied to electricity services, apartments, private distribution structures, charging services or other electricity consumption, consumer costs may increase. Nowadays, the use of electricity is increasing in all areas of cooking, running a business, running small industries and charging electric vehicles. At such a time, additional VAT on electricity services can weaken the policy of "use clean energy".

Even for electric vehicle users, the budget does not look entirely encouraging. Despite the government's talk of reducing petroleum imports and increasing the use of clean energy, clean infrastructure investment charges have been added to EVs. Citizens looking to buy small EVs, scooters, motorcycles or electric cars may now have to bear the impact of additional charges along with the price of the vehicle. If 5 percent VAT is applied to charging services as well, the operating cost of electric vehicles may increase. Adding new charges on EVs at a time when policies are needed to incentivize the switch from petrol to EVs is a disappointing sign for the average consumer.

The situation is not easy even for ordinary vehicle users. The impact of levies like pollution control charges, green tax, road construction charges on petrol and diesel can ultimately affect the cost of transport. When petroleum is expensive, its impact is not limited to the car owner. It affects the price of public transport, transportation, food, vegetables, construction materials and daily consumables. In other words, if the tax on fuel increases, there is a possibility that the overall price increase in the market will increase.

Telecom and Internet charges are also a sensitive issue for common citizens. Today internet is not a luxury, it has become a basic necessity for education, work, banking, government services, online payments and business. Students need online education, small business owners need digital payments, expatriate families need video calls, and news and information are delivered over the Internet. In such a situation, the tariff on telephone, mobile and internet services affects all sections. If the government talks about the digital economy, but increases the tax burden on digital services, it will affect the common users the most.

The budget has also given a mixed message to stock market investors. In the budget statement, it has been arranged that the capital gains tax levied on the sale of securities of listed companies will be the final tax. This may give some clarity on tax calculations. But if the fear of increasing capital gains tax or increasing the tax burden spreads in the market, the morale of small investors may weaken. Many people who invest in the stock market in Nepal are not only from the rich class. Small savers, employees, housewives, youth and citizens who invest a small amount of money earned from foreign employment are also in the market. Tax policy should not discourage such small investors.

The budget talks a lot about the private sector and entrepreneurship, but the proliferation of tariffs and taxes could increase practical pressures on the middle class and small businesses. There is a risk that the monthly expenses of citizens will increase when the impact of taxes reaches school fees, hospital expenses, internet bills, electricity bills, transportation expenses, EV charging, share trading and digital services. The government may need to raise taxes, but the question of where the tax burden falls is more important. The reality of Nepal is that citizens have not received quality government services even after paying taxes in many areas. Private schools if you want good education, private hospitals if you want fast treatment, private internet and digital platforms if you want convenient services, private options if you want safe transport — all these citizens are forced to spend on their own. In such cases, imposing additional taxes or fees on those services can be a double whammy for the middle class.

The government has also made positive announcements such as increasing the income tax exemption limit, reducing some customs and excise duties. But if the fees are added to the services connected with daily life, the citizens may feel the cost to pay more than the relief they get. The success of the budget should not be seen in announcements, but in common citizens' kitchens, children's school fees, patient treatment expenses, internet bills, electricity bills and transportation expenses. So it is not enough to promote this budget as merely “reform oriented”. Its social impact should also be looked at seriously. The main question now is whether the government will focus the tax burden on the rich and luxury consumption or extend it to basic services as well. In a country where government services are weak, the policy of adding taxes to citizens who use private services is not justified. Such increased spending on the middle class threatens to ultimately reduce consumption, reduce savings, reduce investment, and make living conditions more difficult.