Category Archives: nepali economy

A Deviated Path: The Private Life of Nepali Private Sector

Siromani Dhungana/UWB

Nepal’s private sector, as evidences show, is shying away from its major responsibilities and becoming much like NGOs. The current situation is such that the private sector is acting like nonprofits or as a project implementing body. Popular perception is that our private sector lacks innovative approaches and entrepreneurial mindset.

Recently, me and my friend Hom Nath Gaire did a story on the recent trend of private sector engaging in appeasing donors for projects instead of being involved in businesses. I want the news to speak and help you readers make a judgment about our private sector:

A Donor-Dependent Private Sector

By Siromani Dhungana and Hom Nath Gaire

Aid orientation has been evident among Nepal’s private sector organizations as they are hell bent on bagging projects from donor agencies to carry out activities for their own welfare and day to day activities. Sometimes, their race for getting projects appears to be ‘unhealthy’.

Here are some examples:

• USAID Nepal Economic, Agriculture and Trade (NEAT) activity provided grant to the Confederation of Nepalese Industries (CNI) to conduct Public Private Dialogue (PPD) on draft of Foreign Investment and Technology Transfer Act (FITTA) last year. Continue reading

Women Entrepreneurs in A Country Where Business was Men’s Domain

Women entrepreneurs in Nepal have come far but they still have a long way to go. Women entrepreneurs are still waiting for a situation where they will get a chance of working as freely as their male counterparts.

Siromani Dhungana/UWB

Over the last few weeks, I have met several women entrepreneurs who are doing amazing work in the entrepreneurial world. I listened to women entrepreneurs and got motivated from their amazing journey of struggle.

I was truly inspired by the struggle of the first generation women entrepreneurs in Nepal. I know, women still face problem from their very commencement of enterprise in Nepal. The society still does not believe in their capacity and even their own family does not want to invest their capital in the business run by women due to lack of confidence in the women’s ability to run a venture successfully.

Yet, they are doing very good especially in Small and Micro Enterprises (SMEs) field. Currently, women own about 14,300 small and medium enterprises in Nepal, accounting for 2 percent of GDP (registered formal sector) and employing over 200,000 workers. A study commissioned by International Finance Corporation (IFC), private sector lending arm of the World Bank Group, suggests that meeting their current credit requirements of US$ 106 million can increase their contribution to the economy.

Long Journey

The other day, I spoke with Hajuri Bista, a first generation women entrepreneur in Nepal. Business was men’s domain even few decades ago, she says. You know people used to laugh at women who were in favor of setting up venture, she shares her experience. Entrepreneurship was a male preserve and the idea of women taking up entrepreneurial activities was considered as a distant dream, she adds. Continue reading

A Conversation with Departing Nepal Chief of the UK Aid Agency

Dominic O' Neill on his last day in office as Head of DFID Nepal.

Dominic O’ Neill on his last day in office as Head of DFID Nepal. Pic by Amish

By Siromani Dhungana
UWB

At one point on his last day in office as head of DFID Nepal, Dominic O’ Neill was waiting for reporters. And a photographer.

“So, you guys want to take a picture?” He said as he fixed his tie. “This will probably be the last meeting with journalist in my nearly two years of stay in Nepal.”

“Tomorrow,” he said on Friday, “I will be leaving this beautiful country. I will never forget this land. Be it Humla, Mustang, the Tarai or Hilly belt, my desire to visit all the parts of the country will always remain the same. This county will always stay fresh within my heart.”

In an hour long conversation with us (friends Gaurav Aryal and Amish), Dominic addressed a range of issues- from donors’ role in Nepal to socioeconomic situation. What Dominic says as head of DFID Nepal is important because the UK aid agency, called Department for International Development (DFID), is currently the largest bilateral donor in Nepal. DFID “disbursed £55.9m of bilateral development assistance” in Nepal in fiscal year 2012/13. The UK also “disbursed £3.56m as debt relief.” According to DFID Annual Report and Accounts, UK aid to Nepal for the FY 2012-13 was divided into several sectors: Continue reading

Tax Transparency: We Should Have a Good Debate

Siromani Dhungana
UWB

IMF working paper on ‘VAT Fraud and Evasion: What Do We Know and What Can be Done?’ says: Like any tax, the VAT is vulnerable to evasion and fraud. But its credit and refund mechanism does offer unique opportunities for abuse… After introduction of Value Added Tax (VAT) revenue in 1997, Nepal’s tax administration has been facing many challenges to effectively implement it. Multi-million VAT fraud scam was one of the serious threats faced by Nepal’s tax administration. The scam has once again come to limelight after Nepal’s tax administration — Inland Revenue Department — has moved to the Supreme Court challenging the decision taken by National Information Commission which had directed the government to reveal the detail of VAT fraud.

VAT Fraud in Nepal

In fact, 518 firms were not taxpayer but fraudsters. They had not tried to evade or avoid their tax compliances. The case was more complicated in nature since the fraud, according to officials involved in investigation, could ruin the entire economic system of the country if tax administration had failed to identify the problem on time.

These firms had made false claims for credit and refund by presenting forged invoices for non-existent or exaggerated purchases and succeeded to take rebate from state coffer to the transactions which were never happened in reality.

Inland Revenue Department – had completed the investigation of 518 firms involved in Value Added Tax (VAT) scam that had tarnished the image of the private sector in April 2012. The department had assessed a total of Rs 6.59 billion revenue — Rs 3.06 billion VAT, Rs 3.32 billion income tax and Rs 205.27 million excise — from the investigation.

Concluding the investigation director general at IRD Tanka Mani Sharma had said: “the trend of under-invoicing, attempt to avoid VAT and producing fake VAT invoices by creating fictitious transactions have been found during investigations.” He had also said that traders, contractors and firms across the country were involved in robbing national coffers by producing fake VAT bills.

Debate: Revenue a Public Information or Not

From the very beginning, there was tussle between civil society members and tax administration regarding information of VAT fraud. On the one hand, civil society members advocated for the reveal of entire information claiming that getting tax information is peoples’ right to know. However, tax administration constantly denied the name of firms and businessmen to reveal citing Nepal’s Income Tax Act.

Later the dispute reached to the National Information Commission (NIC) which directed Finance Ministry to provide the detail information of VAT fraud in July, 2011.

Giving its final verdict in October 2011 to the complaint lodged by Freedom Forum, National Information Commission has directed the Finance Ministry to reveal the names of VAT evaders. Concluding that the people have the right to know about their tax amount, the commission directed the government to reveal the name of firms involved in VAT fraud.

A New Twist

Quite paradoxical that Nepal’s tax administration is trying to protect them under Income Tax Act and Value Added Tax (VAT) Act. Civil society members claim that this is a direct protection of VAT defaulters by Nepal’s tax administration.

Nearly two years after the decision of NIC, Nepal’s tax administration approached the Supreme Court on February 20 asking it to annul the decision taken by NIC regarding public disclosure of VAT scam.

Tax can never be an issue of public interest in Nepal and businessmen and officials at tax administration, from their attitude, are trying to prove that tax is collected due to their effort, opines Kathmandu-based revenue analyst Anirudra Neupane.

The question whether tax issue should be public or not has been raised after the move of the tax administration. Chairperson at Freedom Forum Tara Nath Dahal says: “It was not simply a scam of tax evasion or tax avoidance. Some big and reputed companies, traders and business firms had involved in Value Added Tax (VAT) fraud producing counterfeit invoice. They produced fake invoice and claim refund to the transaction which were never happened in reality.”

General public are real taxpayers and they have right to know the status of their tax money, adds Dahal. But, tax administration in Nepal is trying to establish the notion that tax is not an issue of public disclosure by challenging the decision by NIC.

In spite of criticism from different quarters to prosecute criminal charge against businessmen and firms involved in the biggest robbery of state coffer, Nepal’s tax administration has been constantly protecting VAT defaulter invoking Income Tax Act which is not natural, says Dahal.

Gravity of the Issue

“Using fake VAT bill is a serious crime that equals to using fake currency notes,” former Finance Minister Bharat Mohan Adhikari had said during interrogation by then parliamentary Public Accounts Committee in March 2011.

The government should respect taxpayers but not fraudsters, according to Krishna Sapkota who has been closely observing VAT scam. The move of Inland Revenue Department has raised the question of role of Nepal’s tax administration.

In principle, the government should spend tax money in transparent manner but the latest move of IRD will be a stumbling block to civil society’s campaign of making tax issues transparent, says Sapkota.

Even poorest of poor people contribute taxes to government’s treasury, adds Sapkota. How the tax administration can protect the persons involved in cases which, according to responsible minister, is equal to produce fake currency.

If revoked from the Supreme Court, it will be serious setback to Nepal’s Right to Information movement, according to him.

Solution: Reform in System

Transparency and accountability should be at the core within the tax system in democratic country. The government should respect and protect taxpayers but not fraudsters. For that, national tax law and policy should be transparent. Public disclosure of tax will help reduce tax related fraud and maintain transparency in tax regime. Greater tax disclosure will create a fair and sensible approach in tax system. Transparency in tax should be in center of debate in Nepal’s tax policy and governance. The government should take the discourse created by VAT scam to bring about reform in VAT regime in the country. However, the government should not forget that it should be responsible to the real taxpayers. Accountable government should treat all taxpayers equally and tax administration should not act in a manner where public can feel discrimination between rich and hardcore general public. In fact, tax money is public money and all citizens has right to know on its spending.

Obstacles for Business in Nepal: Instability and Maoists

Political instablity and power outage are the two major contributors to Nepal’s poor investment climate, a World Bank report says. It forget to mention the number one reason: the Maoists.

Nepal 2009 Enterprise Survey points out lack of access to finance and labour regulations as other major obstacles. Obstacles, however, differ from industry to industry. Transport and electricity are especially problematic for the tourism industry, whereas labour regulation is the key impediment for the manufacturing sector. The survey conducted last year has covered 13 cities across the country. Nepal’s decline in export has rightly been potrayed in the survey. Only four percent of the firms are exporters against the South Asian average of 20 percent. Nepal, however, has fared better in some areas: Tax rates, tax administration, business licensing and permits and court functioning. (detail)

Maoists threat to GMR

Nepalis have been bearing the brunt of treacherous power cuts for some years and it is only projects such as these that can provide relief to them a few years down the line. The Maoists have no right to deny the people the future benefits that such projects will bring to them. Continue reading

TEN Reasons to Invest in Nepal

By Bhupendra Khanal

Many aggressive companies are staying away from Nepal, thanks to poor security situation. The power majors are considering of huge investment in Hydropower sector to export power to the power hungry states of India and China, and this is good news for Nepal. A country with very high hydro-power potential has one of the costliest energy, which simply is not acceptable. Nepal needs to reform the energy sector and prepare the base for development.

While the companies like Samsung, Kodak, LG, Kia etc have entered Nepal, their performance has not been very good in the past. The things are likely to change when Maoist are in the government. Many more companies are likely to follow the investment in this Himalayan country provided the early movers succeed. There are multiple reasons why companies would like to invest in Nepal:

1. Favorable Location: Nepal is a country between India and China, two fastest growing economies globally.

2. Power Sufficiency: Nepal is power rich (hydropower potential is more than enough for any future growth in economy).

3. Pleasant Climate: Nepal has one of the best climate on the world. The valley cities of Kathmandu, Pokhara, Surkhet and Dang are the front runners for this. Eastern city Dharan and western city Butwal are other places with comfortably moderate climate in the likes of Indian Silicon Valley, Bangalore. Continue reading

Bad Ass Economy: Inflation Soars to 13pc

A press statement issued by Nepal Rastra Bank said that food and beverage prices shot up by 13.4 percent while non-food and service rates were up 12.7 percent.

Propelled by a remarkable rise in the prices of food and non-food commodities, the rate of inflation during the first month of the current fiscal year climbed to an alarming 13.1 percent from 6.3 percent recorded during the same period last year. A press statement issued by Nepal Rastra Bank said that food and beverage prices shot up by 13.4 percent while non-food and service rates were up 12.7 percent. Of the items showing a double-digit price rise, the price indices of oil and ghee increased by a whopping 36 percent in mid-August 2008 compared to an increase of 11.4 percent a year ago, said the release. Likewise, the sub-group of grains and cereal products witnessed a rise of 23.5 percent in mid-August 2008 while the prices of rice and rice products increased by 27.8 percent compared to an increase of 7 percent a year ago. Continue reading

Maoist New Nepal: Industrial Capitalism Covered by Socialism

By Bishnu Pathak and Neil Horning

The reactions to the budget from the nation’s policymakers and critics are often guided by four motives. Those who made the budget in the past regard it as imbalanced and untenable and heap praise on their own budget. Others who suffered defeat in the CA polls from the Maoists are scared of the perpetual marginalization that stares them in the face and wish to see their Maoist rivals failing and faltering on all fronts and to stand thus vindicated. Another group of intellectuals, those affiliated to political parties other than the Maoist, appear inordinately critical in expounding their techno-statistical expertise on the budget and dub it as overtly ambitious and populist. The Maoists and the intellectual professionals close to them, however, claim the budget as a historical document, regarding it to be achievable, pro-poor, and growth-oriented, and blame their critics as feudal-minded. The donors, in general, remain neutral, at present, and the people are waiting for the budget to deliver in the field. For, that is where its ultimate test will lie. Continue reading

The Maoist Budget of Rs 236 Billion: Bold but Not Beautiful

In their first ever budget speech, the Maoists promise to build the infrastructures and propel the economic growth that they mercilessly destroyed and pushed back in the name of revolution during the decade-long insurgency

By Prem Khanal
the Kathmandu Post

The first fiscal-year budget of the Democratic Republic of Nepal unveiled yesterday by the Maoists-led government was extraordinarily ambitious both in mobilization of resources and in expenditures.

The budget for fiscal year 2008/09, which vows to start building a solid platform for putting the economy onto a double-digit growth track in two years, proposes to spend Rs 236 billion – almost Rs 647 million per day. However, experts say that the budget, which plans to raise expenditure by 45 percent in a single year, lacks concrete plans for improving the poor capacity for implementation of development projects, a key factor in the low absorption of allocated budgetary amounts. Continue reading

Nepal’s Per Capita Is $470 (Which Still Looks Like a Misprint)

Agriculture growth 14 yr high
By Prem Khanal

Propelled by the a strong growth in both the agriculture and non-agriculture sectors, the long-ailing economy has bounced back to record 5.56 percent growth in the current fiscal year, highest economic expansion in last the seven years. With the growth, the total size of Nepali economy in producers’ price has scaled up to Rs 828.8 billion (US$12.80 billion) while the per capita income has also increased by around 11 percent to Rs 30,361 per year (470 US$). However, with the creeping inflation, which is around 9 percent, the real purchasing capacity of Nepali consumers is estimated to grow marginally in the year. According to a preliminary estimate of national accounts prepared by the Central Bureau of Statistics (CBS), agriculture sector, which contributes 32 percent to national economy, grew by 5.65 percent while the growth of non-agriculture sector was around 5.52 percent. Continue reading