India has been levying additional tax on Nepal´s RMG exports for the past two weeks. According to exporters, this will further reduce Nepal´s apparel export to Asia´s third largest economy.
“As per the understanding between the two countries, India cannot levy countervailing tax on branded and made-off items which are exempted from excise duty. But India has been making Nepali exporters to cough up additional tax for the past couple of weeks,” Uday Raj Pandey, president of Garment Association Nepal (GAN), told Republica on Monday.
According to Pandey, Indian customs office has levied 12 percent countervailing tax on maximum retail price (MRP), making Nepali exports expensive than other products in the Indian markets.
India had stopped levying countervailing tax on Nepali products after the issue was raised by then Prime Minister Madhav Kumar Nepal during his India visit in 2010.
“Our RMG exports will decline further as our products will now become expensive than our competitors,” said Pandey.
Data compiled by Nepal Rastra Bank shows Nepal´s apparel exports dropped by 66 percent during the first eight months of the current fiscal year compared to figures of the same period last year. During the review period, Nepal exported RMGs worth Rs 124.5 million to India.
Statistics of Trade and Export Promotion Center (TEPC) shows that overall exports of Nepali apparels tumbled by 22 percent to Rs 2.34 billion during the review period.
Nepal´s apparel export has come down massively since 2005 when US ended duty-free access to Nepali RMG. Deepening financial crisis in European nations has also affected RMG exports from Nepal.
During the review period, Nepal´s RMG export to overseas market plunged by 36.9 percent to Rs 1.93 billion.
Meanwhile, RMG entrepreneurs have requested to the Nepali officials to exert diplomatic pressure on India to remove the unlawful levying of countervailing tax.
“Finance Minister Shankar Koirala has assured us that he would take up the issue with Indian officials soon,” Pandey said.
Nepali RMG products are already losing competitive edge in India with the flooding of Bangladeshi products. India doesn´t impose countervailing tax on products from Bangladesh. Also, the Bangladesh government has been providing different subsidies to RMG producers.