Govt sets 'ambitious' targets despite industrial slowdown

PRABHAKAR GHIMIRE KATHMANDU, June 12: The government has set an ambitious target of achieving 6 percent economic growth and increasing revenue by 35 percent in the coming fiscal year, despite slowdown in industrial growth due to labor unrest, persisting energy crisis and worsening industrial security, and low-performing agriculture sector. The high growth target has been set, up from projected growth of 3.63 percent for this fiscal year ending mid-July, even though the country is unlikely to see significant improvement in economic activities in the coming fiscal year. Those who are closely watching the country´s macro economic situation do not believe that the government will meet the target without giving a boost to economic activities and reforming tax system. VAT, income tax and customs duty are the major sources of revenue for the government. However, the government has yet to bring many potential sectors inside the tax net. Similarly, it should also discourage and control the tendency of undervaluation in trading at different levels - from customs to retail level - by making tax administration effective. Though the contribution of income tax in total revenue is increasing, the collection is highly dependent on petroleum products, vehicles, liquors and luxurious products. If the government wants to increase import revenue, it have to encourage import of such products. “The target of achieving 35 percent revenue growth is not so big. But what matters most is what the government will do to achieve the target,” Jagadish Agrawal, a revenue expert, said. “Putting more focus on import duty collection will not be beneficial for the economy, as it is collected from the products which are not of much importance to general public.” Agrawal suggested that the government widen the VAT net to make sectors, which are still not contributing to the national coffer, taxable. “The government won´t be able to achieve revenue target by focusing on import duty alone. It should widen VAT net and increase excise duty collection,” said Agrawal. Interestingly, revenue target set by the governments have been achieved over the past few years. The government has revised economic growth rate downward to 3.63 from 5.5 percent set at the beginning of fiscal year due to drop in farm output, political instability and industrial slowdown. Economist Posh Raj Pandey termed the government´s target of increasing revenue by 35 percent and achieving six percent growth an ´ambitious plan´. “We have not seen the possibility of economic activities improving significantly in the next fiscal year. Our agriculture output is always uncertain and the industrial slowdown is poised to continue in the coming year as well,” Pandey, who is also the former member of National Planning Commission (NPC), said, adding “It´s just an ambitious target.” According to Pandey, our economy can´t grow more than 5 percent even if agricultural output increased remarkably. He also termed revenue growth of 35 percent set for the coming fiscal year as ambitious. “It is very difficult to increase tax rates. Also our tax base is very narrow. Given the situation, the government´s revenue target looks unachievable,´ he added. Business community, however, are for increasing revenue target only after creating investment friendly environment in the country. “The government can´t collect more tax from the industrial sector which is in crisis. If the government wants to increase revenue mobilization, it should create favorable situation for investment,” Pashupati Muraraka, vice-president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), said. Though revenue officials are not fully confident of achieving the revenue growth of 35 percent, they see a huge scope in increasing revenue mobilization. “Achieving revenue growth of 35 percent is not beyond our capacity. We can achieve this if we penetrate into sectors that are still outside tax net,” Tanka Mani Sharma, director general of Department of Inland Revenue (IRD), told Republica. Sharma said the revenue target can be achieved by widening tax net, discouraging undervaluation in customs, land revenue offices and at retail level, raising awareness about tax among customers, increasing presence of tax offices across the country, and reforming tax administration. The government has set the target of collecting Rs 81 billion from VAT, Rs 55 billion from income tax and Rs 51 billion from customs duty in the current fiscal year.
Published on 2013-06-13 01:37:44

Govt prioritizes four sectors to achieve developing country status by 2022

PRABHAKAR GHIMIRE KATHMANDU, June 4: The National Planning Commission (NPC), the apex policy making body of the government, has prioritized four sectors, including infrastructure and agriculture, in the upcoming three-year plan with the target of upgrading the country from the status of Least Development Country (LDC) to Developing Country by 2022. The preceding three-year plan had set the target of achieving developing country status by 2030. Officials of the NPC said draft of the concept paper prepared for the next three fiscal years has identified those four sectors as crucial for economic development and for upgrading to the developing country status. Gopi Mainali, joint secretary at the NPC, said the concept paper envisages prioritizing programs focused on development of infrastructure, agriculture and economic sectors; human resource development and effective use of public resources. “We have prioritized those sectors that can play significant role in upgrade Nepal´s status to developing country from LDC by 2022,” Mainali told Republica on Monday. “We have reduced the focus areas to four from seven identified in the earlier three-year plan so that we can concentrate effectively on them.” Under the infrastructure sector, the concept paper, which is under discussion with stakeholders, has emphasized on developing energy, roads, and communications. Similarly, focus under the agriculture and economic sectors will be on farm commercialization, tourism, industries and trade. Likewise under the human resource development program proposed in the draft, the government aims enhance skill and capacity of available manpower to increase competitiveness. At a time when the government agencies have been failing to utilize the allocated budget, the concept paper envisages making officials responsible in implementation of the designed programs. “Though we have not specified the number of jobs that we will generate during the plan period, we have estimated that we should generate at least 150,000 jobs per year,” said Mainali. According to conservative estimate, around 415,000 youths enter the labor markets every year. Of them, around 300,000 leave for greener pastures abroad. “We can´t enhance effective utilization of budget until and unless we set up institutional capacity and effective mechanism to ensure better performance in program implementation side. So, the concept paper has attempted to make concerned official more responsible,” added Mainali. He further added that the four priority sectors will get as much as 80-90 percent of the total budget to be allocated in capital expenditure in the budget for the next fiscal year. In the earlier three-year plan that ends in this fiscal year, the government had identified seven priority areas, including infrastructure, agriculture, education, good governance, environment and national priority projects. Yuba Raj Bhusal, member secretary of NPC, said Nepal has achieved the target in economic indicators and inching closer to achieve the target in social indictors as specified by Millennium Development Goal (MDG) by 2015. “We will start programs of the concept paper from the next budget,” he added. Officials said Nepal needs to make more progress on achieving target of Gross National Product (GNP). The concept paper will be endorsed by the meeting of National Development Council once it is finalized after holding national level discussion.
Published on 2013-06-04 00:00:01

India lifts development tax on goods traded by Nepal

PRABHAKAR GHIMIRE KATHMANDU, June 1: India has stopped slapping development tax on imports and exports of goods that leave or enter Nepal via the Panitanki-Phulbari-Banglabanda route. The latest decision is expected to lower Nepal´s import and export costs via the far eastern route, which sees movement of around three dozen trucks and containers everyday for trade purpose. "India has finally agreed to stop collecting the tax on goods involved in Nepal´s overseas trade after diplomatic efforts of one year. The new development has paved the way for smooth movement of goods through the crucial route," Chandra Ghimire, Nepali Consul General in Kolkata, told Republica on Saturday. Nepali traders had long been complaining about unauthorized collection of the tax by the southern neighbor that infringed on the bilateral transit treaty. But after series of meetings with the state government of West Bengal, customs officials stopped collecting the tax from May 21, according to Ghimire. The Silgudi-Jalpaigudi Development Authority had been collecting the tax to facilitate development of West Bengal. According to Ghimire, the tax amount ranged from IRs 50 and IRs 80 per small and big trucks, respectively. This practice was violating the existing bilateral trade and transit treaties, affecting traders who were using the route to import and exports goods. The Article-4 of Nepal-India Transit Treaty prevents Indian authorities from collecting any form of tax on goods traded between Nepal and third-countries. Currently, India has designated 16 routes in West Bengal, Bihar, Jharkhanda and Uttar Pradesh for Nepal´s overseas trade. "Though the amount collected by West Bengal in the name of development tax was not big, it had set a bad precedent. If other states had followed West Bengal and introduced similar tax then Nepali traders would have ended up paying hundreds of millions of rupees every year," Ghimire said. Ghimire also informed that India has started upgrading the road along Panitanki-Phulbari-Banglabada route, responding to request made by Nepali consulate officials. "It is now building a four-lane track upon our request. This is expected to address problems of traders who always complained about poorly maintained road," he said, informing, the work will complete within next one and half months. Once the construction is complete, the cost of transporting goods is expected to go down significantly. This will also reduce the time of ferrying goods. In another development, West Bengal has also banned unauthorized ´levy´ slapped on goods exported from and imported into Nepal. "This will address problems of those facing hassles from different local groups," Ghimire said, adding, Nepal has also requested the Indian side to simplify quarantine process mainly for agro produces, establish internationally recognized testing lab and open a bank branch at customs point to facilitate traders.
Published on 2013-06-02 01:49:51

Pvt players chipping away at NOC primacy in petroleum trade

PRABHAKAR GHIMIRE KATHMANDU, May 30: The private sector involved in distribution and transportation of petroleum products seems to be chipping away at the primacy so far enjoyed by the state-owned Nepal Oil Corporation (NOC) in oil trade. Over the years, tanker operators, tanker workers, petroleum dealers and Liquefied Petroleum Gas (LPG) bottlers have made the government bow to their impractical demands by bringing petroleum supplies to halt time and again. The most recent of such incidents was the strike called by LPG bottlers who have been demanding a hefty hike in commission. Private players have become so powerful that they rule the roost in the petroleum sector. “Though NOC is a state-owned petroleum monopoly, it is the unscrupulous petroleum traders who call the shots,” says Jyoti Baniya, general secretary of the Consumers´ Rights Protection Forum. “It is a great challenge to the government that the private players have the capacity to bring the supplies of petroleum products to a complete halt whenever they want.” Though the existing laws do not allow strikes that affect distribution of petroleum products, the government has failed to effectively implement them. LPG operators have been receiving Rs 50.02 per cylinder from NOC in commission, but they have demanded a hike of Rs 15.61 in line with increased “overhead” expenses. LPG bottlers are even not willing to make public the details of overhead expenses to avoid public criticism. “There are so many expenses we have included in the overhead costs. But I don´t remember them all,” Shiva Prasad Ghimire, president of Nepal LPG Industries Association. Even NOC is ignorant about the expenses being included in overhead costs. “We have no idea about the costs included under overhead expenses,” said Suresh Agrawal, acting Executive Director of NOC. NOC has been suffering a loss of Rs 439 in the sale of each cooking gas cylinder. NOC which is suffering from over Rs 24 billion worth of accumulated losses and loan liabilities worth Rs 28 billion will have to face additional loss if the commission is increased. “The consumers will be the hardest hit though,” said Baniya. LPG bottlers have already been enjoying a profit of Rs 28 per cylinder. Profit on LPG gas for bottlers will increase to Rs 36.74 per cylinder if their demand is fulfilled. “They resort to protests as a bargaining chip to prevent the government from allowing free competition in transportation of petroleum products,” said Baniya, who has also been involved in the number of negotiations with the private players in the past. However, an official at NOC begged to differ. “LPG operators are powerful because the government is weak. The government has failed to act tough against unscrupulous transporters and dealers,” the official said. The petroleum and gas dealers have also challenged the government´s decision to introduce dual color cylinder system with different prices for industrial and household consumption. Tankers operators had already succeeded in preventing implementation of regulations that would allow private sector players to engage in import, processing and distribution of petroleum products. “They don´t want to see other private players because they have been benefiting from the inefficiency of NOC,” the NOC official said.
Published on 2013-05-30 01:00:00

ndia reimposes countervailing tax on Nepali RMG

PRABHAKAR GHIMIRE KATHMANDU, April 30: India has reimposed countervailing tax on readymade garments (RMGs) from Nepal. The move goes against the understanding between two countries to impose countervailing tax only on products on which excise duty is imposed. 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.
Published on 2013-04-30 02:30:06

Trade infrastructure development Nepal's top agenda

---------------Upcoming Nepal-China high-level meeting -----------------------

PRABHAKAR GHIMIRE

KATHMANDU, May 12: Amid Nepal´s soaring trade deficit with China, the government is putting forward a host of demands with high-level Chinese officials to boost Nepal´s trade with the northern neighbor.

Nepali official team to be led by Foreign Minister Madhav Prasad Ghimire is scheduled to request to the top Chinese delegation next week for Chinese support in Nepal´s trade infrastructure development including establishment of Special Economic Zone (SEZ) near the northern border and upgrading of Bhaktapur-Tatopani section of the Araniko Highway.

Yang Jiechi, councilor of State Council China, who is also the former foreign minister, is visiting Nepal on May 18-19.

Though China has already granted duty-free access to 7,787 products from the Least Developed Countries including Nepal to its market, Nepal´s trade deficit with China has continued to soar for the last few years.

Weak supply capacity on the back of slow agricultural growth and industrial production and poor infrastructures such as ill-equipped customs, poor road access and lack of well-managed dry ports are the principal hurdles in Nepal´s trade with the Asia´s largest economy. Similarly, insufficient number of functional customs points along the northern borders and existing non-tariff barriers such as stringent quarantine rules and non-cooperation by Chinese customs officials with Nepali traders are also among the major roadblocks in Nepal´s trade with China.

“Although Nepal has the potential to benefit immensely from trade with China, we are lacking in modern trading infrastructures. So, we are requesting the Chinese officials for their support in enhancing such facilities. We will also request for minimizing existing non-tariff barriers,” an official privy to the development told Republica on Sunday.

Agenda items

Upgrading Bhaktapur-Tatopani road
Customs simplification
Upgrading custom points
Establishment of cross border economic zone in Jielong and Rasuwagadhi
Establishment of SEZ near northern border
Discussion on Nepal´s ballooning trade deficit with China

The source said Nepali officials are scheduled to request for establishment of an SEZ in any place near the northern border and upgrading of the Bhakatpur-Tatopani section of the Araniko Highway. Similarly, Nepal will also ask for forming a cross-border economic zone between Chinese town of Jielong in Tibet and Rashuwagadhi of Nepal in a bid to give a boost to economic activities in those areas.

Although there are around a dozen customs points along the Nepal-China border, the one at Tatopani is the most used, so Nepali officials are also requesting for upgrading of other customs points with necessary infrastructures and facilities. Chinese officials have already shown interest to develop a dry port at Rasuwagadhi customs, the second largest customs bordering China. Construction of Larcha dry port in Sindhupalchowk has already begun from December 20 last year under Chinese assistance.

The source also said Chinese imposition of stringent quarantine rules for Nepali goods mainly agro produces and meat products will also be discussed. “As Nepali traders have been complaining of hassles at customs points we are also requesting for simplification of customs procedures,” added the source.

Officials from both the countries are also scheduled to discuss other measures to boost bi-lateral trade and also focus on reducing the ballooning trade deficit with China. Data compiled by Trade and Exports Promotion Center shows that Nepal´s trade deficit with China increased to Rs 51.94 billion during 2011/12, up from Rs 44.89 billion recorded a year before. During the first nine months of the current fiscal year, Nepal´s exports to China was recorded at Rs 1.76 billion against imports worth Rs 51.04 billion.

 

Published on 2013-05-13 00:00:00

Nepal losing opportunity for more foreign aid sans NDF

-----------ANALYSIS----------------------

PRABHAKAR GHIMIRE

KATHMANDU, May 3: It has been nine years since Nepal last organized the Nepal Development Forum (NDF) -- a gathering of Nepal´s donors to make fresh commitments for support. That one was held on May 5-6, 2004 in Kathmandu while an earlier NDF meeting had been held in Pokhara in 2002.

In the absence of clear government policies and strategies for new development plans, frequent changes of government and an uncertainty in the Constituent Assembly (CA) elections, Nepal´s position to negotiate with donors for larger aid commitments has been weakened. The widening gap has been felt in the communications between government officials and top officials representing bi-lateral as well as multilateral donors in recent years.

Failure to hold the Nepal Development Forum (NDF) meetings, Nepal’s best opportunity to lobby for the greater external support, since 2004 has weakened its strength in securing more financial assistance from the donor community.

In 2000, the Paris Club meeting was held in Paris where different donors made commitments to support for the restoration of peace and development activities in Nepal, which was then in the midst of the bloody Maoist insurgency. The Paris Club is a group of the world´s biggest economies which provide financial services such as war funding, debt restructuring, debt relief, and debt cancellation to indebted countries. “We have been losing a great opportunity in securing support for our development strategies from our development partners in the absence of NDF meetings for more than nine years,” Madhu Kumar Marasini, joint-secretary at the Ministry of Finance (MoF) told Republica. As the political parties could not come up with a common minimum agenda and strategies for economic development, donors are not convinced to make fresh commitments to extend financial support to Nepal. “Donors are always showing their concern about the lingering political instability and lack of a common agenda from all political parties on economic issues. But, our prolonging political transition and lack of concrete commitment from political parties on economic issues has hampered our capability to secure confidence,” Rajan Khanal, another joint-secretary at the MoF, said. Khanal said Nepal, as a country passing through post-conflict transition, could have ensured more support from donors had it formulated clear strategies and programs to seek assistance from the donor community. In a bid to systematize the mobilization of foreign aid, the government is in the process of preparing a new Foreign Aid Policy which envisages securing foreign assistance in line with national needs instead of following donors´ priorities. “Nepal has to learn from Afghanistan, which organized donors meeting in Japan as a post-conflict country to drum up greater support to reconstruct war-torn the country,” Khanal added. Donors, who are skeptic about the transparency of the spending of aid by recipient countries, are demanding early elections followed by a stable government in Nepal to pave the way for their wider supports. However, in the absence of political stability, Nepal has failed to maintain proper communication about its economic agenda with international donors. “As we couldn´t communicate about our programs to our donors for last nine years, we have taken the initiative to maintain dialogue with local donors,” Marasini, who is also the chief of the International Economic Cooperation Coordination Division at the MoF, said. Rajiv Upadhyaya, External Relation Specialist at the World Bank-Nepal office, also said Nepal´s failure to call timely meetings of NDF created a vacuum in communication between donors and Nepali officials. “Donors are not clear about the exact priorities and strategies of Nepal. Frequent meetings of NDF is necessary to ensure greater support from donors,” Upadhya said. In a bid to win the confidence of donors, the government on Tuesday organized a local donors´ meet in the capital. Donors have been concerned about the uncertainty of elections, frequent changes of government, nominal level of capital expenditure and lack of the government´s development strategies. However, addressing the groups of representatives from bi-lateral and multi-lateral donor agencies, Finance Minister Shankar Koirala instead sought their long-term strategies that could fit the policies taken by the government. “In the absence of the concerned country´s policies and strategies, donors can´t make any strategies of support,” Updhyaya further said. However, we have also no dearth of people who think frequent meetings of NDF are not necessary if the country can better communicate with donors through their local representatives. “I have not felt any negative impact on donors´ commitments for aid in the absence of NDF meetings, which bring in top officials representing donors, as the government has been in regular discussion with donors’ representatives available in Nepal,” Lal Shankar Ghimire, joint-secretary at the Office of the Prime Minister and the Council of Ministers (OPMCM), said. According to the Development Cooperation Report of MoF, actual disbursement of foreign assistance during Fiscal Year 2011/12 dropped to US$ 1.04 billion from US$ 1.07 billion reported in Fiscal Year 2010/11. Ghimire, who was heading the International Economic Cooperation Coordination Division of MoF until last year, opined that Nepal should be able to propose its own priorities, agendas, programs and policies with the donors before organizing an NDF meeting. Foreign aid commitments were made through the Nepal Aid Group before it was renamed as NDF in 2002. Ghimire said Nepal has at least been engaged in discussions with local donors and in the Nepal Portfolio Performance Review (NPPR) meetings which are organized regularly in an annual basis.
Published on 2013-05-03 03:00:19