Monthly Archives: May 2013

The Economics of Vehicle import taxes!

Economics is a science and study of maximizing the social outcome of the all the available resources. The forces of demand and supply always determine this outcome, which economists call an economic equilibrium.

This equilibrium is a self-correcting phenomenon of real market need that is reflected by “an equilibrium price” at which both the forces come in harmony and hence buyers and sellers irrespective of their size become price-takers. Economists do of course distinguish market equilibrium from a social one. The argument here is that in only considering the free market forces of supply and demand, we are often neglecting a significant cost consideration: the social cost.

Classical Economists are of the view that such social equilibrium can always be achieved if the forces of supply and demand are drawn such that these externalities are internalized. Keynesians on the other hand point out that Government interference to shift the forces of demand and supply is vital to construct a new optimum equilibrium, which considers all the costs (including social costs).

Government interference can come in various forms – taxes, subsidy, support prices, etc. This write-up will concentrate on how Government can use taxes to curb the negative effects of free market equilibrium which has failed to maximize social welfare.

Everybody knows that Nepal Government puts heavy taxes on all motor vehicle imports. This works quite well on two fronts; it obviously helps the cash starved government, and it also keeps a check on the amount of petroleum imports (which is rising alarming even now). The petroleum imports, the pollution of environment, and import of more motor vehicles than the current infrastructure can support are obvious negative effects of the vehicle imports industry of Nepal.

In one recent media interaction, when asked why Vehicle imports tax was so steep, secretary of Ministry of Finance told “Nepal simply cannot afford cheap cars.” The statement is exactly fitting. Given the present scenario, I think it makes sense for Government to hike the taxes on all car imports and relax the taxes on public vehicles. I would not be hence surprised that owning a car in Nepal will continue to be a luxury only the very rich can afford in foreseeable future.

It is one policy measure that the government has to take to guarantee “maximum social welfare” and not only “maximum economic welfare”. The economic equilibrium is very far from the social equilibrium and this has to be corrected by Government Intervention.

Sajha Yatayat : a bus that rekindles hope.

After nearly a month of Sajha Yatayat going in operation, I finally got to hitch a ride in the coach of this symbolic brand. I have to applaud the people at Sajha for creating an almost flawless systems. My only complain (because I am a Nepali after all; so have to complain :P) being that it was a little overcrowded to my liking. However, it was far from inhospitable pushing and shoving that we have come to expect in a cramped box that we call a public commute (the tempos, the microbus, etc.).

Sajha Yatayat Ticket

An average trip in Sajha Yatayat costs you Nrs. 15.

The big coaches of Sajha Yatayat is definitely a luxury commute that we as a resident of a Metropolitan city have been denied because of the chaos we have got ourselves into. The chaos being called Democracy by some; federalism by some; and the revolution by some. A coach that is as good as any city coach of the developed world is definitely a crowd puller. A system of entry and exit (you need to enter from the back and exit from the front door); a flatscreen TV that plays the crowd favorite Dohori songs with an extra income source of advertisement added is without doubt a business model you feel should and will just work.

And the ride in a bus is so much better than the chaotic, dusty and dangerous experience of a two-wheeler owner. You focus on the shops, the developments instead of the pot holes on the roads. You get time to think about your life, what you need to do. For example, I thought of writing this blog as a tribute to the iconic buses.

When we were doing Business Environment Assessment course at college, the instructor painted a miserable picture of business prospects of Nepal. Sajha Yatayat, I hope will prove that theory wrong and be a case study for all business houses that if done right, with proper business etiquette, Nepal has tremendous opportunity. It could be a classic case of how 20 years of chaos (refer above for the definition of chaos) put a company into bankruptcy and then got itself back into contention due to pure business sense that obviously rode on the feeling of national pride it created. And there are many of such companies in Nepal; Trolley bus service, NAC to name a few. Imagine if all of these services got off their grounds.

The 40 minutes ride has rekindled the light of hope in me. Today, once again I believe, if we work together, we can build a better city, a better society, a better nation. For some strange reason, I think the future of Sajha is perfectly and positively in correlation with the country’s future itself. I wish all the best and a progressive future for Sajha Yatayat and our country.

Jai Nepal. 🙂