The government is not going to increase income tax ceiling in the budget for the fiscal year 2010-11 as that will result in a higher gross disposable income further fuelling consumerism and ing the balance of trade.
"The government -- as suggested by entrepreneurs -- is rather encouraging exports," said finance secretary Rameshwor Khanal at a pre-budget interaction organised by the Confederation of Nepalese Industry (CNI) here in the Finance Ministry today.
According to CNI, the country is witnessing a ballooning trade deficit of Rs 238 billion. "If the domestic production could substitute the imports, the growing consumerism could also be beneficial. Increasing the income tax ceiling could harm the national economy by increasing the gross desposable income," he said.
Similarly, the government is also curbing investment abroad. "If the private sector is allowed to invest abroad, it could have an adverse impact on the economy as the country is facing liquidity crunch," he opined. Earlier, the government has relaxed the policy paving way for the the private sector to invest abroad. The government is now planning to persuade these investments back to the country.
CNI while making suggestions for the budget 2010-11 asked the government to introduce multi Value Added Tax (VAT). The finance ministry however made it clear that the government is sticking to the current VAT system for the moment.
"Investment-shy policies have hurt the economy," said CNI president and CA member Binod Chaudhary. "High interest rates, insecurity, electricity problem, labour unrest and lack of infrastructure development have increased business operating costs, creating difficulty in business development," he said. The budget should be effective in implementing the Industrial Policy 2067 that has recently passed, he demanded.
CNI has also insisted on removing demand charge in diesel as the alternative for electricity supply. "If need be, we have to look for an alternative like Infrastructure Development Bank for big infrastructure projects taken up jointly by the private sector and the government," said CNI vice-president Hari Sharma. "Large infrastructure projects that can become the base for economic development is the need of the hour," he added.
CNI has also urged the government for cooperation in making Nepal Tourism Year 2011 a success.
"The government for the success of NTY 2011 should make NTY 2011 period strike-free and grant financial assistance for the development of the tourism sector as a whole," Sharma said. Development of regional airports and renovation of ancient monuments as heritage hotels in participation with the private sector can boost the tourism sector, he said.
CNI has urged the government to make value addition in herbal products, refund duties and VAT to trading companies during re-export, remove export duty on Nepali exportable products, and to minimise fine of 25 per cent to 10 per cent in case exported goods returned among others. Technology transfer and ancillary industries should be encouraged for large, small and micro industries for their forward and backward linkages, CNI said.
The government has been advised to form Industrial Sickness Review Board (ISRB) and develop business corridor like Itahari-Biratnagar, Hetauda-Birgunj, and Butwal-Bhairahawa into Industrial Clusters.
Currently, food deficit has more than doubled to 3,12,000 tonnes from last year's deficit of 1,25,000 tonnes. Similarly, bank's lending to productive sector has also decreased to seven per cent from last year's 14 per cent. "The only sector that seems to achieve the target is revenue but the import-based revenue is also hurting competitiveness of the domestic production," the CNI said.