Q.

Increasement in salary of government employees and its impact in economy and private
sector.

The government of Nepal have proposed the budget of Rs 1.53 trillion to achieve the goal to
make Nepal middle income country by 2030. The current budget is set to target the economic
growth and focused to reduce the trade deficit. The inflation in 2075/66 was 5% and it is
expected to go down by .5% keeping the inflation at 4.5% as presented in the budget speech.
The government’s target is to achieve the economic growth rate of 7% for the year 76/77.
The government employees have seen their salary increased by flat 20% and this growth will
benefit the police, army, teachers, civil servant to uplift their life style. Here are the possible
outcomes that might come from Increasement in salary of government employees

a. Impact on Market and Economy

i. Government will collect more income tax

When people start to earn more money than people have to pay income tax based on their
earning and government will collect the more tax. Tax can be collected from both direct
and indirect ways. Direct tax is collected when we pay income, business tax and others.
But indirect are less we care about and it is calculated when we buy goods or acquire the
services. So, collecting of more taxes will see government generating the more revenue
coming from income tax.

ii. Increase in consumer demand

It obvious that when people start to earn more they spends more and their
spending is related to acquiring goods and services. People will have no problem
to start spending when economy is preforming and have a fixed amount of income
on regular basis. And when the salary gets increased then people have even more
flexibility, confident to spend in market and the product which used to have
limited market due to its hefty price tag now have opportunity to grow because
people now have more disposable income and people will demand for it. people
now have free to move on from their tight monthly budget.

iii. More excise duty will be collected

The increment in the consumer demand will lead to the more manufacturing and
production of the goods and when consumer starts to spend. The rate of
production will increase to meet the current consumer demand and excise duty is
added on the goods that is being manufactured and produced in the country. when
the more goods gets produced then the more excise duty will be collected by the
government. When companies evade paying excise duty then government can
charge from 25-50% of the amount of duty evaded. Excise duty is the income for
the government and it is also a type of tax. It is mandatory to pay excise duty for
the manufacturing companies that is in operating in the country.