Rupak D Sharma

For almost three years now, the country´s taxmen have been collecting one percent social security tax from monthly salary of every employee.

Since no person working in the formal sector is exempt from this tax, even those earning a minimum wage of Rs 6,200 per month are forking out the amount.

These people, who fall in the bottom rungs of the economic ladder, are not against the provision as they believe the launch of social security schemes would entitle them to various privileges, like health insurance and unemployment benefits. But considering the pace at which the government is building the social security infrastructure, they are likely to be disappointed.

The government in the budget speech had promised to roll out social security program within this fiscal year beginning with schemes on health, workplace accident and maternity benefit. These schemes were expected to reduce financial burden on workers in case they fell sick, had an accident while at job or had to take long leave because of pregnancy. But nine months into this fiscal year, the government has not given any substantial clue to make people believe that these schemes would be introduced.

Social Security Fund, which came into operation last May to implement these schemes, says it has not been able to do anything significant so far as the organization is currently rudderless without an executive director.

“If there is no person to take the authority and push things forward how can an organization work?” Mahesh Baral, director of the Fund, questioned. Leaders of major trade unions who are board members of the Fund also cited absence of executive director as one of the main reasons for the delay in implementation of social security schemes.

As per the social security regulation, the Fund should get its executive director through open competition. In case there are no other option, the government can appoint a first class officer to the post for a maximum period of one year.

As per this provision, the government last May appointed Krishna Bahadur Raut, a joint secretary, as the chief of the Fund. But following his trasfer after four months into the job, no one has filled the post.

To hire an executive director through open competition, the Fund´s board even drafted terms of reference and forwarded it to the Ministry of Labor and Transport Management - the parent authority of the Fund - for approval. But the ministry asked the Fund to keep the issue in the backburner until the Social Security Organization Act is drafted.

Following this, the Fund even created a draft of the Social Security Act and forwarded it to the ministry two months ago. “Again, the ministry has not shown any interest in endorsing it or forwarding it to concerned bodies,” said Bishnu Rimal, president of GEFONT and a member of parliament. “If this dilly-dallying continues social security schemes will not see the light of the day this fiscal year.”

The delay in enforcement of the Act is also expected to hit government plans of ensuring labor flexibility - one of the major demands of domestic and foreign investors who call Nepal´s labor market ´rigid´.

Currently, employers are asking the government to introduce provisions like ´no work, no pay´ and ´hire and fire´ to attract investment.

“Although these issues are still controversial, we believe workers will show more flexibility if social security schemes are introduced as they will provide cushion for them in case anything happens,” Rimal said.

Pashupati Murarka, vice president of the Federation of Nepalese Chambers of Commerce and Industry, also expressed hope that industrial relations will improve once the schemes are introduced. “We hope the government understands the gravity of the issue and enforces the act as soon as possible,” he said.

The draft of the Act has identified six core social security schemes - unemployment, disability, maternity, medical, dependent and old-age benefits - that would be rolled out over the coming years. It will be mandatory for all employers in the formal sector to enroll employees in these schemes once the draft is signed into law.

To run these schemes, employers have pledged to contribute 20 percent of employees basic salary to the Fund - half of which includes money that is allocated for provident fund. Similarly, employees will be slapped one percent social security tax, and another 10 percent of their salary, which until now is being deducted to contribute to provident fund, will also be channeled to the Fund. In total, 31 percent of the salary of every employee will go to the Fund.

Although employers are yet to start making contribution, it has already started collecting one percent social security tax from employees. Through this, it managed to collect Rs 742.46 million in social security tax last fiscal year.

The Fund is estimated to have collected similar amount in the fiscal year 2009/10, although there are no records of it as the money collected that year was diverted to other sectors because the government´s account book "did not have a separate heading for social security tax”.

"A huge chunk of this money is coming from people who work for monthly salaries of Rs 6,000 to Rs 7,000 per month,” said Shalik Ram Jamkattel, former president of All Nepal Federation of Trade Unions and added delay in introducing the schemes would be equivalent to "betraying" them.

Published on: 27 March 2012 | Republica