Apr 162014
 


The wave of changes in the world economic order has affected all nations, big and small. In the process of adjusting the economy in line with these changes, neighboring countries have also adopted an open and liberal policy for strengthening their economic system. Accordingly, it is necessary for Nepal to introduce timely changes and reforms in various sectors of its economy to introduce dynamism in the process of economic development. In this context, it is opportune for us to make foreign investment attractive by framing a timely, liberal and open policy. The elected government has expressed strong commitment to this goal from the very beginning. Accordingly, this policy document clearly explains the objectives of foreign investment, the forms of such investment, their procedural aspects, the facilities and concessions to be provided to them, the quick and efficient administrative and institutional services to be made available through a one-window system and such other aspects with the belief that implementation of this policy will lead to the import of capital, modern technology, management, technical skills, access to international markets, development of competitive attitudes and awareness about increasing productivity, and thereby help in the development of an industrial culture in the private sector.

Objectives

The following objectives were set for the foreign investment:

  • To build a strong and dynamic economy by generating additional opportunities for income and employment through expanding productive activities.
  • To increase the participation of the private sector in the process of industrialization.
  • To increase productivity by mobilizing internal resources and materials in productive sectors and by importing foreign capital, modern technology, management and technical skills.
  • To increase the competitiveness of Nepalese industries in international markets.

Forms of Foreign Investment

  • Equity investment made by foreign investors in the form of foreign currencies or capital assets and reinvestment of the income there from.
  • Loans obtained in the form of foreign currencies or capital assets.
  • Use of rights, specialization, formulae, processes and patents relating to any technology of foreign origin.
  • Use of foreign owned trademarks, goodwill.
  • Use of foreign technical, consultancy, management and marketing services.

Permission for Industries to be established under Foreign Investment

  • Foreign investment in the industries classified in Annex shall not be permitted. In case of other industries, permission for foreign investment should be obtained.
  • Foreign investment will be permitted upto 100% in large and medium scale industries.
  • If an application is made for an investment, the Department shall, for the industries with fixed assets upto five hundred million rupees, grant permission itself. However, in the case of industries exceeding above mentioned limit, in accordance with the decision of the Board, grant permission within thirty days from the date of application. The Department will communicate the decisions so made to the applicant.
  • No permission will be granted for foreign investment to the industries as set forth in the Annex. However, permission for technology transfer may be granted for such industries.

Provisions for repatriation

Foreign investors who have received permission to invest in convertible currency can repatriate the following amounts outside Nepal at the prevailing rate of exchange.

  • The amount received by the sale of the whole or any part of the equity investment.
  • The amount received as benefits or dividends from foreign investment.
  • The amount received as payment or principal and interest on foreign loans.
  • The amount received under an agreement for the transfer of technology.
  • The amount received as compensation for the acquisition of any property.
  • Foreign experts, working in Nepalese industries with prior approval from countries where convertible currencies are in circulation, shall be permitted to repatriate in convertible currency upto 75% of the amount received by them as salaries, allowances etc.

Facilities and concessions: The following facilities will be granted to industries established with foreign investment, without prejudice to avail the additional facilities, if any, available under the Industrial Enterprises Act.

  • Interest income on foreign loans will be exempted from income tax.
  • Royalties, technical and management fees will be taxed at the rate of 15% only.
  • No income tax will be levied on the income earned from exports.
  • Industries established with foreign investment are entitled to enjoy all the facilities and incentives including income tax facilities provided to local investment under the Industrial Enterprises Act.

Other Facilities

  • Industries will be given priority in the supply of electricity. No fee will be charged if an industry generates electricity for its own use.
  • For the purpose of avoiding double taxation on incomes of foreign investors, Government of Nepal will take necessary action to conclude agreements for the avoidance of double taxation with the countries of the concerned foreign investors.
  • Custom duty, excise duty and sales tax levied on raw materials and auxiliary raw materials of export-oriented industry shall be reimbursed to the exporters on the basis of the quantum of exports within 60 days from the receipt of the application for such reimbursement.
  • Industries exporting 90% or more of their production are entitled to enjoy the same facilities provided to the industries established in the Export Processing Zone. The bonded warehouse shall also be continued.
  • In case an industry sells its product within the country in convertible foreign currency, the excise duty levied on the quantity so sold and the custom duty, excise duty and sales tax levied on raw materials used in such products shall be reimbursed to such industry within 60 days upon the receipt of the application for such reimbursement.
  • Custom duty, excise duty and sales tax levied on the production of intermediate goods used in the production of exporting goods and the sales tax levied on the production shall be reimbursed to the exporter on the basis of the quantity of goods exported within 60 days from the receipt of the application for such reimbursement.
  • Priority will be given to arrange infrastructure facilities required for the establishment of industries.
  • Government land and land within the Industrial District will be made available to industries for their establishment on a priority basis.
  • No intervention will be made in fixing prices of the products of any industry.
  • No taxes will be levied on machinery and equipment, raw materials and finished exportable products of industries established within the Export Processing Zone.

Arrangements relating to the One Window System

The following arrangements will be made to provide services through a One Window System to industries operating under foreign investment:

1. Permission and registration

  • In order to provide, in a quick and effective way the approval, facilities and other administrative services to industries to be established under foreign investment or technology transfer agreements and in order to establish effective coordination among various agencies, the Department of Industry will be designated as the one window servicing agency with the Industrial Promotion Board as a focal point as spelt out in the Industrial Enterprises Act.
  • One Window Committee will be formed to provide infrastructure facilities such as registration, land, electricity, water and facilities on taxation etc. under a one window system for industries to be established with foreign investment. The Department of Industry will inform the applicant of the decision of the Board on foreign investment project within 30 days from the receipt of the application.
  • The facilities and concessions to which an industry is entitled shall be specified in the letter granting approval.
  • Application for the registration of an industry should be submitted to the Department of Industry within 35 days from the date of receipt of approval for foreign investment. The industry will be registered within 21 days from the date of receipt of the application.

2. Institutional arrangements

  • The Department of Industry will be reorganized and expanded with the objective of promoting foreign investment, granting approval and providing facilities and administrative services through the One Window System. The Department will be upgraded and the status of the Director General will be made equivalent to the position of an Additional Secretary of the Government of Nepal.
  • The power and authority concerning facilities and services of the agencies like Ministry of Finance and its departments, Department of Commerce, Nepal Rastra Bank, Department of Immigration etc. will be delegated to the One Window Committee.

3. Other arrangements

    Industries established under this policy will continue to enjoy all time-bound facilities to which they are entitled even if any subsequent change is made in this policy. This provision was made by First Amendment of 2052.


Apr 122014
 


Trade Policy 1993 adopted by the country for increasing the contribution of this sector to the economy by making the commerce sector liberal, competitive and market oriented, has given the private sector a lead role in the open and free trade. The country has liberalized other economic policies accordingly. The reforms in foreign exchange rules and regulations, simplification in the export process, construction of dry pots, institution of specialized committees for the promotion of major export items and the Export Promotion Fund have been undertaken. However, these efforts have proved to be inadequate for the development of new exportable items and widening the base of export. It is necessary to create new opportunities in export trade through the policy as well as working coordination, promotion and mobilization of resources, physical, human and social capital, structural changes and the development of technical competence. At the same time, it is necessary to maintain a proper geographical distribution of export oriented industries, so that the benefits reach the entire nation especially the underprivileged groups.

Review of the current situation: Some efforts were made during the Tenth Plan period in the field of the development of the proper policy and legal base related to commerce. During this period, Competition Act, Bankruptcy Act, New Company Act and Cyber Act were enacted for the development of a healthy and competitive market. In a similar way, Perspective Industrial Development Plan, Special Economic Zone Act were drafted to address the new challenges. Anti Dumping Act, New Industrial Policy, Trade Policy, and Foreign Investment Policy drafts have also been prepared. By bringing the scattered agencies related to export together, Trade and Export Promotion Center, and Trade Information Centre have been established. Private firms to be involved in trade can now be registered in any district of the country.To expedite the flow of commercial cargo, procedural simplification was made. In order to reduce costs in the foreign trade transaction, the construction of dry ports at Birgunj, Bhairahawa and Biratnagar have been completed. Initiatives have been made to establish special economic zones at Bhairahawa and Birgunj in order to provide the export oriented industries with tax free environment and remove the procedural hassles for them. In addition to this, the work of establishing Computer Software and IT business under foreign investment in Information Technology Park established at Banepa is going ahead. However, due to internal conflict and deficiency in reforms in strengthening of institutions and service delivery, expected results have not been accomplished by the export sector. As a result, the target of creating 250,000 jobs could not be met. During this period, Nepal having entered into WTO, SAFTA/BIMSTEC, new opportunities and challenges have cropped up.
During the Tenth Plan period, the total foreign trade stood at Rs. 1,059 billions. Of this, trade with India accounted for 60.6% and trade with other countries 39.4%. During this period, the target set for export was Rs. 320 billion. However, the actual export turned out to be only 283.6 billion. Of this export to India accounted for 63% and other countries for 37%.
In a similar way, as regards to imports, of the total import of Rs. 775.6 billion, India had a share of 59.7% and the remaining 40.3% was from other countries. During this period, a target was set to reduce the trade deficit to 12.2% of the GDP. However it has reached 17% of the GDP. IN the FY 2006/07, the ratio of trade to GDP stands at 35.1%.

Problems and Challenges: Export trade of Nepal has not been able to contribute to the economy as expected, due to the following reasons:

  1. Inability to undertake legal and institutional reforms as expected to support trade.
  2. Inability to integrate export oriented industries with other sectors of the economy (agriculture, forestry, tourism etc.).
  3. Lack of forward, backward and parallel inter-linkages within exportable industries.
  4. The predominance of industries based on imported raw materials.
  5. The competitive capacity of Nepal’s readymade garments being reduced with the expiry of Multi-fiber Agreement.
  6. Quality deterioration of leading exportable products (carpet, Pashmina etc.) and lack of diversification in products.
  7. Inadequate development of physical infrastructure to support export.
  8. Lack of full utilization of the existing infrastructure (for example, dry ports). Nepal has entered the Multilateral and Regional Trade Regime. The countries within the regional trading arrangement seem to have similar export products. They seem to have better competitive strength than Nepal. So Nepal faces a lot of challenges in the export front,  such as:
    • To link the potential advantages of trade with poverty alleviation.
    • To execute programs related to legal, policy and structural reform in order to comply with the responsibility of trade liberalization arising from the entry to regional trade agreements.
    • To identify, develop and diversify markets of the exportable goods with comparative as well as competitive advantages, and to create a niche for Nepali products in the world market.
    • To reduce transaction costs by developing physical and trade related infrastructure, in order to expand export trade with the neighboring countries.
    • To bring quality in the value chain of the exportable goods through production of competent human resources in the field of commerce and industry.
    • To develop a multi-model transport system.
    • To reduce the transport cost by managing the supply chain.
    • To enhance capacity in bilateral and multilateral trade negotiations.

Long term vision: To support poverty alleviation and economic development by addressing the challenges emerging out of the process of globalization and by increasing the trade of goods and services with deep forward and backward linkages.

Objectives

  • To help alleviate poverty by ensuring that the benefits from trade reaches the people through the maximum use of local physical and human resources.
  • To mobilize trade to achieve the goal of economic development through the development and promotion of goods with competitive advantages and identifying areas of comparative advantages with the private sector involvement.
  • To help alleviate poverty by taking advantage from the opening of trade service under the WTO agreement.
  • To reform and develop commercial, physical and institutional infrastructure in order to take the maximum advantage arising out of the changes in the bilateral, regional and multilateral trade and transit system.

Quantitative targets

  • The export of goods to reach 100 billion in the final year of the Plan from 61 billion.
  • To create additional 200,000 jobs in the trade sector.
  • To reduce the existing trade deficit of 17% of the GDP to 15%.

Strategies: With due consideration of the present internal situation and international requirements, the following strategies are set for the plan with respect to the development of trade:

  • To make the supply-side strong by increasing production and productivity.
  • To develop physical and other infrastructure related to trade.
  • To give continuity to policy reforms.
  • To adopt the measure for increasing market access and export promotion.
  • To carry out trade facilitation services.
  • To give special emphasis on production and export of handicraft goods based on traditional skills.
  • To develop competent human resources in the trade sector in addition to institutional reforms.

Policy and working policies

  • In order to make foreign trade regime, liberal, competitive, and market-oriented in accordance to the global trade regime and to ensure improvements in the price, cost effectiveness and quality of the export products through the private sector involvement, priority will be accorded to the identification, development, and production of export items with comparative advantages based on climate, biodiversity and topography of the country.
  • The value addition in export products will be increased through forward, backward and parallel linkages of the exportable industries with the agriculture, forest and tourism sectors.
  • Continuity will be given to incentives being provided to export oriented and supporting industries. Principal exporters and the foreign importers of Nepalese goods and local consumers’ organizations and agencies will also be facilitated.
  • In order to reduce transaction cost, physical infrastructure, rules and procedures will be reformed and upgraded.
  • In order to develop export oriented and supporting industries, export processing centres and industrial clusters will be developed. Further, procedural simplification and incentives will be provided for their operation.
  • Initiatives will be taken to further the concept of the growth quadrangle, including the international highway connecting India, Nepal, Bangladesh and Bhutan of South Asia, in consultation with the concerned parties.
  • All the agencies related with import and export (food quality, quality control, commerce, agriculture, forestry) will be brought under one umbrella in major custom points.
  • New trade policy will be prepared and implemented.
  • Import procedure of raw materials required for the principal exportable goods will be reviewed and made convenient.
  • Provision for the minimum quality assurance of the imported raw materials will be made.
  • Necessary initiatives will be taken to make the custom clearance process in the border custom offices simple and sound in coordination with the custom offices of the neighboring countries and an integrated custom inspection system will be adopted.
  • In order to protect domestic industries and consumers and to develop fair and competitive environment in domestic and international market, the Competition Act will be implemented effectively. Timely reforms in the Consumers Protection Act will be made. Countervailing, Anti-dumping, Anti-trust Acts will be prepared and implemented.
  • For the promotion of exports, various promotional programs fund incentives will be identified and implemented with the involvement of the private sector.
  • Participation of National Chambers and Associations of Businesses in single country trade fairs in partner countries will be facilitated in collaboration with trade related government and non-government agencies of the importing countries. The Export Promotion Fund will be used for these purposes.
  • Initiatives will be taken in a coordinated manner to get geographical indication recognized as Industrial property for export products like tea, coffee, carpet, shawls, honey etc. and patent, design trademark under TRIPS. In order to protect Nepal’s Intellectual Property, the international market will be promoted.
  • Collaborations with least developed countries and countries with similar interests will be encouraged in order to utilize the opportunities emerging from international and regional trade agreements.
  • In order to increase cost competitiveness in international trade and to enhance the capacity of the government agencies concerned with trade facilitation as well as the private sector, an action plan, after being prepared, will be implemented.
  • Provisions related to the following will be made simpler, export friendly and quick:
    1. registration/renewal of the exporting firms;
    2. process related to the import of raw materials imported by export oriented industries;
    3. process of refund of duty and VAT in case of the return of exported goods;
    4. custom duty for the sample received for an export order; and provisions related to duty drawback.
  • Procedural matters related to the following will be regularized and simplified:
    1. agency issuing the certificate of origin,
    2. agency making recommendations as per the need,
    3. service charge applicable in the utilization of these services,
    4. monitoring agency,
    5. working procedures and conditions related to the above.
  • Legal and procedural provisions related to multi-model transport will be implemented. Custom process will be simplified and custom reforms will be carried out in order to facilitate trade.
  • Mutual compatibility and acceptance will be ensured, by making procedures of custom, transit and quality certification, standards and policy regulation, uniform in the member countries of SAARC and with the two big neighbors in particular.
  • Reforms will be initiated with the study of alternate transit routes, for reducing the international transaction cost to Nepal and a process to avail alternate transit routes will be initiated.
  • Arrangements will be made to ensure the grant from the government, DDCs and town development committees for the infrastructure development in order to create industrial villages, which will be managed and operated by their stakeholders.
  • The involvement of cooperatives and export houses will be ensured in the marketing of export products of the industrial villages.
  • Study and preliminary works will be completed for the establishment of a separate promotion center for the production, processing and export of diamonds, jewels, precious and semi-precious stones, gold and silver ornaments. For this, a separate policy and procedure will be prepared as regards to import of raw materials, control of production or process, local sale, export, custom process and duty incentives and domestic human resources will be trained. An integrated technical institute will be established in joint collaboration with the private sector for quality improvement, product development and diversification.
  • Special economic zones will be established at feasible locations.
  • Foreign aid will also be mobilized to fulfill the identified needs after making a review of the needs assessment of Nepal’s foreign trade.