Unedited first draft

Written and not revised on 31.07.2019

Adv. Rajib Dahal / rajib.dahal@gmail.com

It is really a tax on “knowledge” or a tax on “tangible marketable commodity” called Book?

This article does not take a side. It merely tries to explore what it means when a state imposes tax on
books – on the source of knowledge, and the current position with respect to imposition of imports
taxes (customs duties) in Nepal post Finance Act, 2076/77 BS which has recently been enacted by
Federal Parliament of Nepal. I hope I will be pardoned for not taking a side, or rather for not decrying
the move of the Union/Central/Federal Government of Nepal.

Basis of Taxation:

Chapter – 10 of Nepal’s Constitution, 2072 makes provisions for “Union Financial Working System”.
Article 115 states that no tax will be imposed, levied or collected except without the authority under the
law. It also provides that loans/debts will be accepted or guarantee be provided only under the
authority of the law.

Annex-5 of the Constitution read along with Articles 57 and 109, provides the list of topics on which only
the Union/Central/Federal Government will have exclusive powers to enact laws. Item 9 on this Annex
mentions “customs”, inter alia, other tax heads such as excise and Value Added Tax etc.

That helps to cross the first hurdle on the legality of imposition of customs duty by
Union/Central/Federal Government of Nepal. Union/Central/Federal Government has the authority to
enact necessary legislations to impose customs duty/imports & exports duties.

What has changed after Finance Act, 2076/77 BS?

The new Finance Act has amended Customs Tariff of Nepal. Under Chapter 49.01 of HSN (Harmonized
System of Nomenclature) based customs tariff, 10% imports duty has been imposed for books. Under
items 4901.10.00 to 4904.00.00, the necessary changes have been inserted. Before this, the items under
49.01 to 49.04 were exempted from the payment of imports duty as well as from the Value Added Tax.
So, the importers post Finance Act, 2076/77 BS need to pay 10% additional Customs duty at the time of
imports of books starting immediately (From the day of presentation of Finance Bill, 2076/77 BS).

Were Nepalese book publishers paying taxes on imports of books before Finance Act, 2076/77 BS?

This is, however, not very clear from the law. My reading of the Customs Tariffs was that any books
published by Nepalese Publishers outside Nepal (that is naturally, in India) were exempted from the
payment of Customs duty at the time of imports/at the time of bringing them to Nepal. However, Ajit
Baral and Niraj Bhari, to my knowledge owners of publishing company Fine Prints, have claimed in
various tweets that such books were already subject to 15% customs duty. However, this is not clear if
they were referring to component of VAT (which should have been 13%) in overall customs duty, or
customs duty per se. If it is VAT component, then, they would have got input credit of that which helps
to reduce the burden of tax on the publishers. In the absence of Bill of Entry, Payment receipt, and
their VAT returns corresponding to the month of imports, it is difficult to analyze their claims.
Notwithstanding the fact that, they might be correctly stating what they were stating.

How the imposition of 10% tax on books affects the book publishers, readers, buyers, people in
general?
Unedited first draft

Written and not revised on 31.07.2019

Adv. Rajib Dahal / rajib.dahal@gmail.com

Customs duty being the indirect tax generally gets passed/transferred to the ultimate customers – in this
case, the readers. That means the books are surely going to get expensive, at the minimum by 10%.
However, this affects only those books which are printed outside Nepal, and imported to Nepal.

As per the tweets from book publishers, since Nepalese book publishers are already paying 15% customs
duty (not able to verify their statements), this imposition of 10% tax mainly affects imports of books
from foreign publishers.

Government of Nepal (GoN)’s Logic

This move of government has been welcomed by the local printing press, and their associations. They
have thanked government for this imposition of tax because as per them, it helps to support domestic
printing industry. They have claimed that publishers will find it expensive to print books outside Nepal,
forcing them to employ local printing press. This is also the logic of government. Government wanted to
create a level playing field among local and foreign printing entities, and government claims that the
imposition of taxes is rational, sound and equitable. There is a counter to this argument from importers.
They say that the foreign publishers were never going to print books in Nepal anyway. So, what the tax
achieves is only to make books more expensive to readers.

Another argument government has advanced is that currently papers classified under Chapter 48 of
Customs Tariffs attract customs duty from the range of 5% to 20%, but books were exempted from the
payment of the duty. This unequal level of taxation did only encourage Nepali Publishers to get books
published elsewhere. Therefore, Government claims that it was essential to plug this hole. However,
Government could have created a level playing field by removing customs duty on imports of printing
papers. This should have been the ideal best solution.

In counter to government’s reasoning, book importers have claimed that it is a tax on knowledge
(Gyan). Is it really that?

Are books reservoirs of knowledge?

I want this question to be answered by yourselves.

Impact of 10% imposition of tax on books

As said earlier, 10% imposition of tax means the goods become costlier by 10% but who bears this cost
depends on how the importers behave. Generally, in a profit making business of book sale, the importer
may want to pass the entire cost to the buyer. If this path is followed, the end users will get all the heat.
However, if the financial position of the importer is sound and it expects to reduce the transaction costs
such as costs of logistics, shipping, handling, marketing, it may be ready to absorb the partial cost hike if
not the full amount.

In absence of Balance sheet, Income Statement and Cash flow statement of private entities that
dominate the market of importing and selling books in Nepal, it is difficult to assess if they are willing to
take a cut on their (surplus) profits.
Unedited first draft

Written and not revised on 31.07.2019

Adv. Rajib Dahal / rajib.dahal@gmail.com

The possibility of people being ignorant, and intellectually void due to little possibility of access to
books with full of Gyan (Knowledge)

- Unlikely
- First of all, only physical copies of books suffer from this additional 10% customs duty but digital
products do not get covered by this new levy. So, when there is a will, there is a way. If readers
find buying hard copies expensive, then, they can turn to digital copies which can be read on
PCs, notebooks, laptops, tablets, etc. Basically, Nepalese people know how to do “juggad” i.e.
find a way to get access of materials they need.
- It has been said that the books which suffer mostly are books meant for medicine, engineering,
law etc. That is books targeted to sophisticated readers of technical subjects. Generally, these
books are already so expensive that an additional 10% tax may not change the decision to
purchase or not. However, there will be additional burden on University and College libraries if
book sellers decide to pass on the entire burden of the tax to end users.
- One negative impact of this tax hike could be increased use of pirated products. Just like “the
Sun cannot be covered by a Palm”, as the Nepali saying goes, many people may resort to piracy.
The casualty would not be then, the gyan of ordinary people, but legitimate expectation of the
author to reap handy royalty amount.
- In many articles on Nepalese press, it was repeatedly mentioned that the taxation was against
UNESCO principle which asks for doing away with imports duties on books, but no
paper/article mentioned that Nepal is not signatory to these conventions. Not being a signatory
state does not mean that Nepal could or should impose import duties on books, it is just that
Nepal has not made a binding commitment before international community to be bound by
these obligations/restrictions.
- If you are interested to know which treaties and conventions to which Nepal is a party and a
signatory, this booklet from Ministry of Law, Justice and Parliamentary Affairs, Government of
Nepal can be quite handy. http://www.moljpa.gov.np/wp-content/uploads/2019/04/List-of-
Multilateral-Treaties-Signed-by-Nepal.pdf
- Nepal has given its accession to UNESCO Constitution in 1953 but has signed neither the 1950
Florence Agreement, nor the Nairobi Protocol of 1976.

Final Question: What is dissemination of knowledge and what is sale of tangible commodity?

From the business point of view, a book publisher and a seller of books is treated in the same
way as a butcher. Both have a commodity for sale and interested buyers pay for those goods.
Both need to take approval from authorities to register and open their business. Both expect to
make profits, both desire to have more sales. I do not think a book seller is engaged in his
vocation with some altruistic goals in mind. Even our Dharma, to my knowledge, does not
prescribe selling of books as one of the ways of attending Moksha. If somebody establishes a
Gurukul, or starts printing books for free distributions, that could be a different case. It is
understandable that for any businessman or even for a common man, the hardest thing in his
life is to sacrifice certain portion of his income which he earned by all honesty, as tax payment.
Unedited first draft

Written and not revised on 31.07.2019

Adv. Rajib Dahal / rajib.dahal@gmail.com

When states are irresponsible and non-responsive to citizen’s needs, the argument may sound
reasonable. Why should we pay taxes to government at all? Why any taxes?

However, when you engage in a business and treat the books around you as “stock-in-trade”,
you lose that moral ground to ask for a separate treatment. So long as the tax rates are
reasonable (and you are at liberty to ask and judge whether 10% tax is reasonable), you can only
hear the muted concerns. That’s been the case in Nepal so far.

How to avoid this tax?

Avoidance tax in general is a punishable offence and the word “avoidance” should not mean
non-payment of taxes and duties. What I mean is the need to think “out of box solution’. The
one thing Nepalese publishers can do is to get a license to make copies of such valuable books.
That is “right to use copyright on non-restrictable” basis. That allows Nepalese publishers to
print local copies meant for Nepali market. We have seen many South Asian editions mainly
printed in India, and now a revolution is required to print and make available low cost editions
for Nepalese readers, and probably to readers of neighborhoods. The VAT paid on licensing fees
paid to foreign party is creditable and it can be adjusted to output tax liability, which helps to
make the chains of transactions neutral and seamless from tax credit perspectives. It is time to
think about economics and finance of such possibility rather than crying over what looks like
irreversible.

The second thing and that should be the priority of the Government is to support domestic
printing sector by gradually reducing or if possible, providing exemption of taxes on imports of
printing machine, ink, papers and other accessories related to domestic printing industry. That
would be the right way of support domestic printing sector, and naturally discourage domestic
book publishers going out of the country to get their books published.