By Dr. Suman Kumar Regmi

Export incentives are strategic tools used by governments worldwide to boost exports and enhance competitiveness. These incentives, whether financial or regulatory, help domestic industries expand into foreign markets, improve trade balances, and support economic growth. Nepal, like many developing countries, has experimented with export incentives over the years but continues to face a widening trade deficit. Learning from international models could help reshape and revitalize Nepal’s export sector.

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Global Practices in Export Incentives

Australia

Australia has implemented several export incentive schemes. The Export Market Development Grants Scheme reimburses firms for a percentage of eligible market development expenses. Another program provides cash grants to firms that increase exports compared to a three-year average. These grants cover a wide range of exports—from manufactured goods to services—and are taxable. Historically, Australia emphasized export incentives over tariff protection.

Hong Kong (SAR)

Hong Kong does not offer direct export incentives. Instead, its free port status, low taxes, excellent infrastructure, and minimal regulatory interference attract global investors and exporters, making it highly competitive despite the lack of financial subsidies.

India

India offers a comprehensive set of export incentives, including:

• Tax deductions for export promotion expenditures
• Duty drawbacks on raw materials used in exports
• Preferential import licensing and foreign exchange allocations
• Tax credit certificates

Bonded facilities enjoy tariff exemptions, and export-oriented units (EOUs) receive special treatment regarding imports of capital goods and components.

Indonesia

Indonesia balances export taxes with support measures. Low-cost export credit is provided through state banks funded by Bank Indonesia. Exporters also benefit from duty drawbacks and tax incentives for intellectual property and consultancy services.

Japan

Japan provides duty drawbacks to offset indirect taxes and duties on inputs used in exports. Special tax deductions apply to the export of technology, patents, and consulting services. While direct subsidies have been phased out, export credit insurance and tax benefits continue to support exporters.

South Korea

South Korea moved away from direct export subsidies in the 1970s and now offers:

• Duty and VAT refunds on imported inputs
• Special depreciation allowances
• Low-interest export financing through commercial banks

The Korea Export-Import Bank, established in 1976, provides medium- and long-term export financing, especially for capital goods.

Malaysia

Malaysia allows double tax deductions for export promotion activities and additional deductions based on export growth. Manufacturers investing in modern production to increase exports may claim accelerated depreciation allowances. These incentives are particularly targeted at non-primary product exporters.

New Zealand

New Zealand provides tax deductions for export-related market development expenses. Its Export Programme Grants Scheme offers non-taxable grants for firms exploring overseas markets. Tax relief is also available for companies increasing exports to new markets, encouraging diversification.

Pakistan

Pakistan offers one of the most generous export rebate systems globally:

• Up to 55% tax exemption on export income
• Duty-free imports for bonded factories
• Sales tax exemptions on exports and inputs

These incentives have helped maintain a strong export base in manufactured goods and re-exports.

Philippines

The Philippines promotes labor-intensive and resource-based exports. Exporters receive duty drawbacks, preferred enterprise status, and rebates on raw materials used in production. The Export Priorities Plan (EPP) identifies and supports high-potential products with additional incentives.

Singapore

Singapore offers:

• 90% company tax exemption on incremental export profits for five years
• Double tax deductions on overseas promotion expenses
• Eligibility based on export volume and value

Exporters investing in international market development benefit from tax-deductible operational and promotional expenses.

Thailand

Thailand exempts export sales from business and export duties. Firms can deduct a portion of increased export value from taxable income. Imported raw materials used in export production are exempt from duties if exported within a year. Other incentives include tax deductions for marketing and overseas trade missions, foreign currency accounts, and support from the Bank of Thailand.

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Nepal’s Export Incentive Experience

Nepal has implemented several export promotion initiatives since the 1960s:

• Exporters’ Exchange Entitlement Scheme
• Dual Exchange Rate System
• Seven Points Export Promotion Program
• Cash Subsidy Scheme (since FY 1971/72)

The economic liberalization of 1992, including trade liberalization, led to a brief period of growth from 1992 to 1997. However, structural reforms in the export sector remained limited. From FY 2067/68 B.S. (2010/11 A.D.), the government introduced cash incentives ranging from 2% to 8% for successful exporters.

Despite these efforts, Nepal’s trade deficit has worsened significantly in recent decades. This is partly due to:

• Heavy reliance on imported goods
• Limited diversification of export products
• Low value-added in exports
• Weak logistics, infrastructure, and institutional support

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Way Forward for Nepal

To reduce the trade deficit and strengthen its export sector, Nepal must adopt a more strategic and comprehensive export incentive framework. Key recommendations include:

1. Revise and expand cash incentives to include more products and services, especially high-value exports like IT services, herbal products, and handicrafts.
2. Introduce tax credits for investments in export-oriented manufacturing and innovation.
3. Develop export financing facilities, such as pre- and post-shipment credit at concessional rates, and enhance access to working capital.
4. Promote market diversification through grants and deductions for exporters exploring new markets.
5. Upgrade infrastructure to reduce production and transport costs, and ensure timely delivery of goods abroad.
6. Establish bonded facilities and customs reforms to facilitate duty-free imports of inputs used for exports.
7. Encourage export-oriented foreign investment by aligning incentive schemes with regional standards.
8. Digitize export procedures to enhance transparency and reduce bureaucratic delays.

Nepal must learn from countries that have successfully transitioned from trade deficits to export-led growth. Rather than replicating every policy, Nepal should adopt tailored solutions that match its economic context, institutional capacity, and strategic trade goals.

The writer is the former deputy executive director, Trade and Export Promotion Centre, Nepal.