BUDGET BUZZ: Facilitate aviation sector

Aviation sector is one of the growing sectors that has tremendous potentials in Nepal.However inconsistent policy of the government has hit the growth of the aviation sector. The budget for the fiscal year 2009-10 should ensure that the aviation sector -- one of the major revenue contributors to the national coffer -- be facilitated.

The budget should exempt Value Added Tax (VAT) on imports of spare parts for the aircraft. The airlines cannot charge VAT on the tickets for passengers but it has to pay VAT while importing spare parts for the aircrafts that is not practical.

The budget should widen the income tax exemption bracket to Rs 2,00,000. The present tax exemption bracket is not practical as the salary scale of low-and-middle level employees has gone up.

The budget should encourage the taxpayers by making them feel that the state and tax authority is responsible to its citizen.

Unless the state assures the taxpayers that their money has been utilised in building infrastructure, health care and education along with the state's commitment to provide basic securities the taxpayer will not be inclined to pay taxes and any tendency to evade tax cannot be morally challenged. This budget should reflect the accountability of taxpayer's money.

The budget should ensure that tax laws be reviewed to curb discretionary powers of the tax authorities and clarify prevalent ambiguities. This will decrease corruption and encourage people to pay tax. Also, tax procedures should be simplified for hassle-free tax payment.

Birendra Bahadur Basnet

managing director

Buddha Air

Shareholders cheer up as Nepse looks up

The shareholders of all the major sub-groups -- commercial banks, development banks, finance companies, hydropower and others -- gained this week as these sub-groups propelled the Nepse to 702.88 points. The Nepse surged by 35.45 points to 702.88 points from last week's closing of 667.43 points in a week after a long spell of bearish trend. The investors looked hopeful that the budget would bring some relief to them like the capital gain tax would come down to 10 per cent from the present 15 per cent.
The shareholders of commercial banks and development banks sub-groups posted a whopping gain as they gained 51.54 points to 736.57 points and 44.31 points 744.66 points in five day trading this week.
Similarly, the contribution of Group-A companies -- the blue-chip shares in the domestic market -- also increased to 44.36 per cent against week's 24.69 per cent. However, the transaction has decrease by 17.36 per cent to Rs 382.31 million against last week's increase of 103.88 per cent to Rs 462.61 million.
The 78-scrip sensitive index also flared by 10.73 points to 188.09 points from last week's closing of 177.36 points. The float index -- calculated on the basis of real transactions -- also gained 3.38 points to close at 67.47 7points from last week's closing of 64.09 points.
This week Nepal Bangladesh Bank (with Rs 62.37 million) topped the chart in terms trading amount followed by Bank of Kathmandu (with Rs 36.86 million), NIC Bank (with Rs 36.85 million), IME Finance (with Rs 19.59 million) and National Hydropower company (with Rs 18.92 million).
In terms of number of share units traded and transaction amount Nepal Bangladesh Bank topped the chart with Rs 62.37 million transaction of 2,49,000-unit shares changing hands, while Pashupati Development Bank topped the chart in terms of number of transactions with 895 transactions.

BUDGET BUZZ: Support Nepali handmade paper

Nepali handmade paper is one of the best industries due to its inherent features. The industry, which is entirely based on Nepali resources, simultaneously addresses poverty reduction due to its ability to absorb marginalised farmers in remote hills and mountains and also unskilled labor force in urban areas. Equally importantly, it is a major foreign currency earner as it is one of the top five handicraft export items.

The budget should focus on poverty reduction and export promotion of products. Such dual objectives can be fulfilled by boosting the growth of the handmade paper sector. The two contributory aspects of the handmade paper sector, namely poverty reduction and export promotion should be addressed with different budgetary tools.

Expansion of domestic market of labour-intensive industries like handmade paper sector can be achieved by the government with proactive purchase of Nepalese handmade paper for official use as the government is one of the largest buyers. In the case of Nepalese handmade paper, the government has recently decided to re-use it for citizenship certificate and other official documents. Such purchase should be prioritized while scripting the budget for the coming fiscal year.

New items like driving license, academic certificates for different universities and vehicle ownership documents should be added to the list. Categorical budget allocation with emphasis on Nepalese handmade paper products for these important documents will raise demand. Thus, the employment opportunities for marginalised labour force will increase and help reduce poverty. It also should be underlined that eventually most of these documents will be purchased by the user of the documentsand there will be no direct liabilities to the government.

Currently, Lokta paper is exported in different forms like stationery items, gift items, greeting cards, packaging items around the world. The budget should support the sector to expand its market in the world. The sector needs fiscal support to be competitive in the international market. Income tax incentive would be a major tool. Income tax exemption in export of Nepalese handmade paper will make it competitive as entrepreneurs can lower their price. Such income tax support will help cover up for the 'land-locked' cost of transportation from Nepal. Handmade paper sector is mainly manufactured by cottage and small scale entrepreneurs. They have limited human resources and managerial abilities to work with government sectors. It is essential to simplify procedures of VAT refund and duty draw-back facilities so that these small scale entrepreneurs can enjoy the existing facilities of VAT refund against export and duty draw-back facilities. There is strong potential for growth of Lokta paper in the international market. Nepal Handmade Paper Association is promoting Nepalokta brand in the global market. The government should support its marketing efforts by providing support to participate in important trade fairs. Funding for participation in trade fairs is essential as these entrepreneurs are small scale and cannot afford it from their own pockets. Allocation of such fund in the budget for participation in fairs will be a positive step in the promotion of Lokta paper worldwide.

Dr Milan Dev Bhattarai

Former President

Nepal Handmade Paper Association

Japan tops in cost of living

According to the World Cost of Living 2009, Tokyo returns to the top position and Dublin ranks 25th of 143 in the Mercer 2009 Cost of Living city rankings, dropping nine places from 2008.
The decline of rental and food prices in Dublin, coupled with the fall in the value of the euro against the US dollar, has caused Dublin to drop down in the rankings. Noel O'Connor, Senior Consultant at Mercer, commented, "As a direct impact of the economic downturn over the last year many currencies, including the Euro and British pound, have weakened considerably against a strong US dollar causing a number of European cities to plummet in the rankings."
Tokyo has knocked Moscow off the top spot to become the world's most expensive city for expatriates according to the Mercer survey. Osaka is in second position, up nine places since last year, followed by Moscow in third place. Geneva climbs to fourth position and Hong Kong moves up to fifth. Johannesburg in South Africa is the least expensive city in the ranking. The survey covers 143 cities across six continents and measures the comparative cost of over 200 items in each location, including housing, transport, food, clothing, household goods and entertainment. For example, a large fast food hamburger meal can cost up to €7.15 in Dublin compared to €2.68 in Beijing.
The data is used to help multinational companies and governments determine compensation allowance for their expatriate employees. O'Connor also noted, "With significant exposure to multiple economies and currencies, multinational companies continue to be greatly affected by the financial crisis. The cost of expatriate programmes is heavily influenced by currency fluctuations and inflation rates. It is important for multinational companies to continuously review their compensation packages and ensure they are in line with the rest of the market." Tokyo moves up one place in the ranking to become the most expensive city for expatriates both in Asia and globally. The Japanese yen has strengthened considerably against the US dollar which also lifts Osaka into second place from 11th in 2008. Hong Kong follows in fifth place and Singapore has moved up three places to reach 10th. In 140th place, Karachi continues to be the least costly city in this region -- up one place from last year.
Moscow remains the most expensive city in Europe for expatriates in third place. However, a dramatic depreciation of the rouble against the US dollar has led to a sharp fall in the city's index score compared to 2008 (115.4 in 2009 V's 142.4 in 2008). The next European cities in the ranking are Geneva and Zurich in fourth and sixth place, up from eighth and ninth respectively. European cities have experienced some of this year's steepest falls in the ranking, with Warsaw plummeting from 35th to 113th and Glasgow (129th place) and Birmingham (125th place) in the UK falling 60 and 59 places respectively. German and Spanish cities all fell between eight and 11 places, whereas cities in Sweden, Ukraine, Czech Republic, Romania and Hungary all fell between 36 and 48 places. "As most European currencies have weakened against the dollar it has become more costly for companies based in this region to send expatriates and their families to US cities," said O'Connor.
Oslo and London, both previously in the top 10, are now in 14th and 16th place respectively. "The decline of rental prices in both London and Oslo, coupled with the fall in the value of British pound and Norwegian krone against the US dollar, have caused these cities to plummet in the ranking," said O'Connor.
New York remains the highest ranking city in the region and has also joined the global top 10 list this year, jumping from 22nd to 8th place. Los Angeles is up 32 places to 23rd and Washington is up 41 places to 66th. Winston Salem is the cheapest US city surveyed, ranked at 126. All cities in the US have experienced a rise in this year's ranking due to the strengthening of the US dollar.
Canadian cities have slipped down the index with its highest ranking city Toronto down 31 places to 85th. Ottawa drops 36 places to 121st and Montreal is now in 103rd place, down from 72nd in 2008. In 15th place and up 74 places from 2008, Caracas in Venezuela is the top ranking city in South America. Sao Paolo and Rio de Janeiro have experienced a reverse move, plummeting from 25th to 72nd and 31st to 73rd respectively. Buenos Aires has climbed 26 to reach 112th place. "Although the Argentine peso has lost value against the US dollar, the high inflation rate observed on goods and services have caused Buenos Aires to rise in the rankings," said O'Connor.

NRB urges police, RID, IRD to investigate NDB honchos

Nepal Rastra Bank (NRB) today formally requested the Nepal Police, Revenue Investigation Department (RID) and Inland Revenue Department (IRD) to thoroughly investigate into financial crimes involving the board of directors -- serving at different time till date -- of Nepal Development Bank (NDB), including the patron Uttam Pun and chairman Amar Gurung.
All of them have been accused of fraud, financial embezzlement and misuse amounting to a massive Rs 1.08 billion. The NRB has also sought for the Finance Ministry’s coordination in the investigation process.
“The troubled NDB board of directors, chief executive officers, advisors and managing directors — serving at different times — have not been abiding at all by directives of the central bank, risking the depositors and shareholders’ money, but benefitting themselves,” the central bank’s Supervision Department said in the letter to Police Headquarters written on Thursday. Similarly, the department also wrote to the RID and IRD to probe the source of income and banking transactions of Pun, Gurung and all other directors. The NRB Board had decided to take the help of police, RID and IRD on July 6.
The central bank also sought the Appellate Court’s approval to appoint liquidator to begin the liquidation process as the bank could not be revived and deserved to be sent to liquidation under Section 77 of the Bank and Financial Institution Act 2007. Before moving the Appellate Court, the central bank had also sought NDB’s clarification on why it should not be sent for liquidation. In response, the first development bank in the country could not furnish satisfactory clarification.
According to the NRB’s findings, the NDB has a huge loss of Rs 670.87 million, though it possesses a paid-up capital of Rs 320 million. It has total assets of Rs 730.13 million but its non-performing assets stand at 55.09 per cent and capital adequacy ratio is a whopping 48.31 per cent: that is almost five times more than the permissible limit of 11 per cent.
The NDB had Rs 720 million deposit of 32,000 depositors till mid-March. Of the total deposit, the bank has not been able to return Rs 330 million worth of institutional deposits of Employment Provident Fund and Nepal Army´s Welfare Fund even after expiry of maturity date. The EPF and Army’s deposit constitute around 45 per cent and 27 per cent of the total deposit, respectively.

Nepal Development Bank stares at liquidation

Nepal Rastra Bank (NRB) — the central bank — has moved Patan Appellate Court to press for liquidation of the troubled Nepal Development Bank (NDB).
If the Court decides in favour of NRB, then NDB will hold the unenviable record of becoming the first banking institution in the nation’s financial history to be liquidated.
Liquidation refers to the process by which a company — or part of a company — is disbanded, liabilities settled and subsequently the assets and property of the company is redistributed among shareholders.
A liquidator — in other words an officer who is specially appointed to wind up the company’s affairs — oversees the due process. The liquidator is legally empowered to act on behalf of the company in various capacities. S/he is primarily responsible to bring and defend lawsuits.
Other duties and responsibilities include collecting outstanding receivables, paying off debts, finishing corporate termination procedures and settling all claims ahead of the dissolution.
Stating that the bank could not be revived and deserves the liquidation as per Section 77 of the Bank and Financial Institution Act, 2007, the central bank sought Patan Appellate Court’s approval to appoint liquidator to begin the liquidation.
However, the court has the prerogative to take a decision that could seek an alternative if any party evinces interest to run the beleaguered institution.
NDB — Nepal’s first development bank that started its operations in 1998 — is ailing for many years. According to NRB’s findings, NDB has run up huge losses. Though it has a paid-up capital of Rs 320 million, the losses are pegged at Rs 670.87 million. While, it has total assets worth Rs 730.13 million. But, its non-performing assets stand at 55.09 per cent and capital adequacy ratio (CAR) is a whopping 48.31 per cent, which is almost five times more than the permissible limit.
In this light, the ill-fated financial institution has little chance of a revival, especially after Dreams Capital Ltd’s failed attempt to pump Rs 280 million to put it back in business. One of the negotiators, who were involved in the revival bid, said that the capital injection could restore CAR to the required level of 11 per cent.
But he has reservations about Uttam Pun — NDB’s patron — who has shares worth Rs 1.6 billion. Pun claimed to have resigned from his post and showed willingness to sell his shares after the Dreams Capital Ltd declined to invest because of his presence. Pun’s actions smack of escapism to evade legal action as he cannot sell his shares that have been frozen for transaction.
Association of Nepali Development Banks and the Association of Nepali Finance Companies had also lobbied hard with NRB not to liquidate NDB. However, the central bank had no option but to opt for liquidation.
Earlier, Sunanda Shrestha and his group had injected Rs 86.2 million. Shrestha also bowed out, thanks to Pun and his associates, who did not want to let go the management.
NRB had declared NDB an ailing institution on October 11, 2007. Over the years, NDB never followed the central bank’s regulatory obligations, instead frittered away depositors’ money. Had the NRB taken bold step at the outset, then less depositors would have been in trouble today.
Uttam Pun — the then executive chairman and promoter of NDB — repeatedly moved the Appellate Court, got a reprieve from the judiciary even as the unsuspecting public continued to deposit in his institution.
NDB got many opportunities from NRB but each time it tried to get away by furnishing abstract clarifications. On June 2, NRB had sought a clarification within 15 days, citing Clause 86 of Nepal Rastra Bank Act. NDB, in turn, submitted a capital plan on June 18, seeking time till
October 17 to improve its financial health. It claimed that given the opportunity, it could sell Rs 10 million worth shares and recover Rs 90 million deposit from Nepal Cooperatives as
instructed by NRB.
Under the circumstances, liquidation is the only corrective measure that a regulator can
restore to prevent further losses, putting paid to the bank’s hopes to operate with doctored balance sheets and misusing public
money.
Legal action also has to be taken against NDB’s management and promoters to send out a strong message that depositors’ sums are safe and central bank is capable of living up to its regulator’s role. However, the central bank has to ensure speedy handover of around 3,200 small depositors’ money.
Time is ripe for NRB to act tough to rein in tainted banks in an otherwise healthy banking
industry. It’s high time as well to ponder over setting up a national deposit insurer, which can insure deposits up to a certain limit.
Banking is one of the few sectors that has not only created jobs but also given a chance to the investors to operate in a transparent manner. However, the bad apples need to be weeded out to restore depositors’ faith that banks and financial institutions are the custodians of public money.

ADB aid for safe drinking water

The Asian Development Bank (ADB) today said it will help 30 urban centres in India, Nepal and Sri Lanka improve water management to enhance economic opportunities and reduce water-borne diseases.
"Intermittent water supply is the norm in South Asian urban centres. There are no strategies to make water available 24 hours a day. This is one of the most important objectives in urban water management," the bank said.
Intermittent supply has resulted in water contamination and wastage, unreliable metering and burst pipes, the multilateral lending agency said in a press release.
The project is funded through an $850,000 grant from the Investment Climate Facilitation Fund established by Japan last year under the Regional Cooperation and Integration Financing Partnership Facility which supports technical assistance projects.
"Through the technical assistance, up to 30 urban centres in these three South Asian countries will acquire technology and expertise in managing the water sector," the bank said. The technical assistance will determine geographical and population coverage of service areas in the chosen centres, assess if drinking water supply complies with acceptable quality standards and also if waste water management affects the quality of groundwater, aquifers and other water sources.
The project will also determine the levels of non-revenue water, operational efficiencies, and operations management system of the select urban centres, ADB said.
"Proper assessment, planning, and management of water-related issues require reliable data on critical factors related to urban water security," said KyeongAe Choe, principal urban development specialist of ADB's South Asia Department.