Nepal today signed Bilateral Investment Protection and Promotion Agreement (BIPPA) with India to boost Indian investors’ confidence on Nepal.
The agreement will also help reduce doing business cost of the two countries as the investment of one will get equal treatment in the other country.
Minister for Industry Anil Kumar Jha and Indian Finance Minister Pranab Mukherjee signed the agreement on behalf of their respective countries in the presence of the Prime Minister of both the countries.
However, the agreement will be implemented only after exchange of diplomatic notes confirming that the legal requirements have been fulfilled for the entry into force of the agreement.
According to the agreement, "if an investor of a country suffers losses owing to war or other armed conflict, a state of national emergency or insurrection or riots in the territory of the other country will be given equal treatment, as regards restitution, indemnification, compensation or other settlement, no less favourable than that it accords to its own investors. Resulting payments shall be freely transferable."
India is not only the largest trading partner of Nepal but also the biggest investor in Nepal. Indian firms are the biggest investors in Nepal accounting for about 47.5 per cent of total approved foreign direct investments (FDIs).
There are about 150 operating Indian ventures in Nepal engaged in manufacturing, services — banking, insurance, dry port, education and telecom — power sector and tourism industries.
India is the seventh country to enter into BIPPA with Nepal as the country has already signed BIPPA with France, Germany, Britain, Mauritius, Qatar and Finland, though they do not have significant investments in Nepal.Due to insufficient internal homework Nepal however could not sign Double Taxation Avoidance Agreement (DTAA) and Power Trading Agreement (PTA).
DTAA will make the Indian investors feel more confident to invest in Nepal as they do not have to pay tax in both the countries. Currently, an Indian investor has to pay tax in its profit in Nepal and after taking it to India, it has to paty tax to the Indian government too. The Double Taxation Avoidance Agreement will exempt the tax payment on profits of Nepal in India.
Similarly, PTA will help Nepal, at present, and India, in the long run, to import and export more power cross border. According to current rule, Nepal can import only 50 MW of power from India. But the new agreement will pave way for more power trading.
The agreement will simplify Indian investors in Nepal like GMR (Upper Karnali) and Sutlaj (Arun III) to sell power to India after they complete their hydel projects in Nepal.