By Suman Kumar Regmi
Exporters may obtain origin certification for their exports from the Federation of Nepalese Chambers of Commerce and Industry (FNCCI). In addition to the FNCCI, the Nepal Chamber of Commerce (NCC), Confederation of Nepalese Industries (CNI), and Trade and Export Promotion Centre (TEPC) may also issue certificates of origin for Nepalese exports. Application documents comprise documents certifying the origin of goods, export declaration form, invoice, letter of credit, packing list, and visa for ready-made garments.
Nepal prohibits the export of some products, and levies export taxes on others. These export restraints may not be the best way to achieve some of the government’s objectives. Nepal bans the export of certain products for various reasons.
According to the Nepal Gazette, quantitative restrictions are used to be imposed for exports of paddy, rice, wheat, sugar, and items related to grains like lentils, pulses, soybeans, gram, vegetable seed, and peas as and when required. The Ministry of Industry, Commerce and Supplies may change the list of items from time to time, taking into consideration the supply situation in Nepal. Exporters must obtain permission before exporting any of these goods.
Permission is required for exports of stated timber products and forest resources, related to biodiversity and environment conservation. Permission is issued by the Department of Forestry.
Like for imports, Nepal uses an open “de-licensing” regime, with a view to reducing government interference in trade. Apart from restricted products, those requiring export quotas or special permission, no export licences are required.
Customs charges certain stated amount in Rupees for each export declaration for each consignment with a value above NRs. 5,000 which may be changed in another fiscal year. There are no other export service charges. Export taxes are levied on some products. According to the authorities, they are levied to protect the environment to discourage environmental degradation, ensure food security, and discourage trade diversion to neighbouring countries like India.
Export taxes were levied on some tariff lines at the HS 6-digit level, down from earlier lines and items. They comprise mainly vegetables, maize, rice, wheat, oil cake, sand and stones, and some wood. In particular, the export tax on some wood and wood products had raised questions to the Government. There has been a growing demand for wood and wood products in neighbouring countries, such as China and India, as well as other countries, and levying the export tax tends to discourage exportation or divert wood exports to informal trade. The authorities state that an export tax on wood is needed to protect the environment. It is justifiable from all aspects.
In accordance with the Customs Regulation, industries in bonded warehouses are allowed to import raw materials and auxiliary raw materials such as packing materials not manufactured in Nepal under bank guarantee. If the raw materials are incorporated into exports, and exported within eleven months of their import, and the value-added over the imported raw materials is at least ten percent , the bank guarantee is released by Customs within one month of submission of the application.
Industries outside bonded warehouses that import raw materials and auxiliary materials, may pay a cash duty deposit at the customs office. If the raw materials are incorporated into exports and exported within twelve months, and if the value-added is over ten percent , the cash deposit is released by Customs within one month of submission of the documents.
There is no separate export insurance company in Nepal. Imports into Nepal have been increasing rapidly in later years, while exports have lagged behind. The Government is aware that one of the main obstacles to increasing Nepalese exports has been supply constraints.
Tax revenue accounted for 85 percent of Nepal’s total government revenue. Major taxes include value-added tax, income tax, customs tariffs, and excise tax. Nepal’s income tax appears more complicated than others. Different tax rates for personal income depending on marriage status and income level are prevailing, corporate income tax depending on the line of business, and foreigners income, as well as income from export-related activities, are set. Royalties, technical service fees, and management fees are taxed at a concessionary rate of 15 percent. Interest on foreign loans is taxed at a rate of 6 percent which may be changed in a particular year.
Nepal uses a consumption-based VAT on goods and services consumed in Nepal. Small vendors with commercial transaction values below stated amount for goods, services, and mixed business for the previous 12 months, do not need to register for VAT, although they may register voluntarily. Importers with commercial imports of less than NRs. 10,000 at a time do not need to register for VAT purposes.
A standard VAT of 13 percent is applied to most goods and services, both domestically produced and imported. Some goods and services are exempted; others may be zero rated, i.e. exported goods and services, and goods and services imported by accredited diplomats. According to the authorities, VAT rates and exemptions are applied equally to domestically produced and imported goods/services.
Excise duties are levied on domestically produced goods and imported goods, at the same rates. Licences are required to produce, import, sell or store excisable goods. Excise tax is applied to domestically produced goods based on their ex-factory price, and to imported goods based on c.i.f. price. Currently, the excise tax does not apply to services.
Most incentives are provided in the form of tax exemptions. The purpose of these tax incentives is to ensure balanced industrial development, both regionally and sector-wise. According to the authorities, data on tax revenue forgone, and on recipients are not available.
The operation of special economic zones (SEZs) in Nepal has been said started but nothing has been implemented.. The Government is yet preparing a bill on SEZs, with the intention of attracting investment and promoting exports. Under the bill, a typical SEZ may contain an export processing area which is developed to establish export-oriented industry, a special business area which is developed to collect goods for export, through importation, storage, packaging, and assembling, or a tourism and entertainment area which is developed to establish industry related to tourism and entertainment. Firms established in SEZs may be exempt from VAT, excise tax, customs tariffs, and other taxes. They may be exempt from income tax for various periods. These firms will have to export all goods and services produced, but may be allowed to sell up to 25 percent to the domestic market.
The SEZ bill is yet still under preparation for a pass from Parliament, and there has been no change in this regard as earlier stage. Nepal also proposed six more SEZs in different areas of the country. However, progress in the operation of SEZ has been delayed. Infrastructure construction for an SEZ in Bhairahawa has been completed and has been opened for operation, and construction of access roads is under way in Simara, while feasibility studies are being conducted in four sites which include Dhangadi, Panchkhal, Jhapa, and Nuwakot.
The Government is encouraging the private sector to establish ancillary industries to the export-oriented industries located in the export processing zone at Bhairahawa and the proposed special economic zone at Birgunj. Nepal also plans to use the under-utilized industrial zones of Rajbiraj, Butwal, and Nepalgunj as product-specific special economic zones. However, lack of adequate legal provision and disputes in land acquisition have caused delays in establishing more SEZs.
The views expressed in this article are the author’s own and do not necessarily reflect People’s Review’s editorial stance.
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