A section of Nepali traders refused to accept Tuesday's agreement between the government and the Federation of the Nepalese Chamber of Commerce and Industry (FNCCI) sparing small businesses from compulsory tax registration.

The No VAT Action Committee of traders criticised the government for ignoring their demands in the agreement reached with FNCCI. "We will launch our struggle against VAT (value added tax) if our demand is not met," Buddhi Prasad Poudel, co-chairman of the No VAT Action Committee, said.

The traders' body has been demanding that taxes be collected at source -- factory gates for domestic production and custom points for imports. Poudel said if the government did not agree to VAT at source then the committee would reject the new tax regime.

The pact between government and FNCCI officials exempts corporates with annual turnover of up to Rs 4.5 million ($66,176) from tax registration and gives incentives to those adopting the VAT system.

It also provides for settlement of tax disputes by a panel including corporates but does not allow tax collection at source.

The 10 per cent VAT, introduced on July 17, replaces sales, entertainment and hotel taxes as well as a tax on government contracts in an attempt to make evasion difficult and arrest a decline in revenue collection.

Nepal, which gets over 60 per cent of the cost of its economic development from Western donors, hopes to collect Rs 39.4 billion in fiscal 1998-99 (mid-July to mid-July) against last year's Rs 32.7 billion.

But the country's fledgling business community has opposed the VAT regime, saying the new system gives sweeping powers to officials. Nepali traders shut down businesses across the kingdom in August for 12 days to protest against VAT, saying it would make business expensive.