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August 17, 1998


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Price-rise, VAT rock Nepal as government blames it on nature

It has been a difficult few months for Rajaram Sharma, a government employee who lives in Nepal's capital with his wife and three children.

Each day, as he ventures out to the nearby market in Baneshwar, a Kathmandu suburb, he worries if the family will be able to afford the vegetables and fruits.

Potatoes have been selling at Rs 30 (one dollar is roughly Nepalese Rs 80) for one kilogramme, onions at Rs 40 and tomatoes at an exorbitant Rs 55, way beyond what the poor and middle class can afford to pay.

''It pains my heart to pay such outrageous rates for these common vegetables,'' says Sharma. ''Prices have been skyrocketing for the last few months. Poor people like us can barely afford to eat fresh vegetables.''

At the local market, a woman sitting on the pavement selling vegetables tries to tell customers that she is not to blame for the rising prices. ''We have to pay ridiculously high prices ourselves to the wholesalers,'' she laments.

For the last two months, prices of essential commodities including cooking oil, rice and lentils have been rising nearly daily. According to a government report on last month's wholesale prices at Kalimati, Kathmandu's biggest vegetable and fruit market, ''Most commodities recorded substantially higher increases ranging from 247 per cent to 47 per cent.''

The report blames the price rise on natural causes like the weather. ''The higher percentage increase of vegetable prices this year is mainly due to high rainfall, hailstorms and other seasonal factors which have damaged crops and led to less arrival of commodities in the market,'' says the report.

Already, consumer rights groups have attacked the nearly five- month-old centrist government for failing to control the runaway prices. In nearby Patan city and in Biratnagar in the Terai region, people have waged pitched battles with traders and small businessmen whom they blame for the price hikes.

Nepal is among the world's poorest countries, with a per capita income of $ 200. The majority of its 21 million people cannot afford to spend one dollar a day on vegetables.

Says economist Sudarshan Kumar Bista, ''The basic problem is that inflation has been allowed to run out of control pushing commodity prices higher. On top of that, the government has also largely remained silent, not even explaining the reasons behind the price hikes.''

After a long silence, Finance Minister Dr Ram Sharan Mahat tried to explain the reasons in Parliament last week, where he laid the blame on ''unscrupulous businessmen'' who, he said, were hoarding stocks and creating artificial scarcities.

The business community, however, squarely blames the government for the price increases. They say the government has failed to control inflation. Though official inflation stands at 7.8 per cent, they insist it is many times higher.

Inflationary trends have been exacerbated by the attempts of the finance minister to enforce the controversial value added tax, they add. Recent governments have been trying to overhaul the country's archaic taxation policies. After three years of acrimonious debate over VAT, the new tax went into effect with full force last month.

''This government has not done its homework on implementing VAT,'' says Bishwambher Aggarwal, a business leader. ''VAT is leading to escalation in prices. The government needs to scrap VAT and reassure the business community.''

The tussle between the government and business over the additional tax, apart from increasing inflationary pressures, has also muddled the economy and business environment in this Himalayan kingdom.

Early this month, a series of nation-wide shutdowns were called by disgruntled business groups to protest the imposition of VAT. Markets in Kathmandu and other towns all across the country were shut down for more than a week, further contributing to price rises.

Business circles claim that Nepal is not yet ready for a sophisticated tax system such as VAT. The government on the other hand says without VAT, it is impossible to raise additional revenue to finance various development works. As it is, official foreign aid doled out each year by donor governments and agencies is shrinking, says the government.

A temporary truce in the VAT war was called between the government and business community last week. The two sides have been negotiating since to work out a compromise, but so far there is no breakthrough.

On Friday, Finance Minister Mahat warned business that his government would not compromise on the basic principles of VAT, raising the spectre of another round of clashes.

''The common people are the victims of the VAT dispute,'' grumbles home-maker Rupa Shrestha. ''Contrary to government claims, prices of commodities have shot up in the post-VAT implementation weeks. If this is an artificial increase, then the government should punish those who are behind it.''


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