One-stop service centre for investors to open next week

The Ministry of Industry, Commerce and Supplies is establishing a one-stop service centre on May 15 to facilitate investments. Publishing a directive in the Nepal Gazette on April 29, the ministry has announced that the centre will be established on the premises of the Department of Industry at Tripureshwor.
The policy and programmes presented by the president on Friday also reads that the centre would start work in mid-May. "The construction of necessary infrastructure is at the final stage," the ministry said, adding that it has asked the concerned government agencies to appoint officials to the centre. "The centre will house the offices of various government agencies to streamline the legal processes that investors have to follow to transfer capital to the country."
It will provide services ranging from registration and operation to exit of an industry from a single window, also simplifying the repatriation process for foreign companies. The centre – that will serve enterprises with a capital of more than Rs 100 million to Rs 6 billion – is not only expected to help foreign investors but also domestic financiers by giving them one stop service. Foreign investments of more than Rs 6 billion will be handled by Investment Board Nepal (IBN).
The companies will receive almost all the services from approval of investment to labour permit, and visa facility, environmental impact assessment and approval of foreign exchange from under a roof.
"The centre will contain dedicated offices of 14 government agencies – Nepal Rastra Bank, Office of the Company Registrar, tax office, Energy, Water Resources and Irrigation Ministry, Forests and Environment Ministry, Land Management, Cooperatives and Poverty Alleviation Ministry, Labour, Employment and Social Security Ministry, Physical Infrastructure and Transport Ministry, Department of Customs, Department of Immigration, Department of Supply Management and Protection of Consumer Interest, Nepal Electricity Authority and Nepal Telecommunications Authority – under a roof."
The ministry has already prepared a draft working guideline to operationalise the centre and has sent it to the concerned government authorities for their consent.
The Industrial Enterprises Act 2016 has also provisioned establishing a one-stop service centre but the government moved to set it up only after the Investment Summit 2019 held in March. 

World Bank’s ICT-driven initiative in Nepal for faster and seamless government-to-business services

A recent initiative led by the World Bank Group’s Trade and Competitiveness (T&C) Global Practice leveraged information and communications technology (ICT) to make government-to-business services faster and seamless, reducing the time and cost of starting a business and obtaining construction permits.
In addition, critical information was moved to the cloud to improve disaster-resilience, ensuring that key data would be safe, facilitating post-disaster reconstruction and the restoration of business activities.
The project was initiated in 2010, in partnership with the International Finance Cooperation (IFC) arm of T&C and the Industry Ministry. The government continued its support for the project, notwithstanding the devastating earthquake in 2015.
A new online business-registration system was established at the Office of Company Registration (OCR), which works in close cooperation with the Finance Ministry. It resulted in a 45 per cent reduction in the amount of time it takes to register a company in Nepal, the bank's report reads.
According to the World Bank post, the streamlined process has led to estimated private-sector savings of more than $5 million, and helped stimulate a 24.8 per cent increase in the number of new companies being registered.
Processes at six government agencies were also simplified for faster approval of construction permits. Consequently, the time for issuing permits was reduced from 240 days to an average of 41 days.
This improvement helped inspire the United Nations Development Programme (UNDP) to support the development of an automated 'eBuilding Permit System'. Subsequently, the Kathmandu Metropolitan City (KMC) made the online submission of construction permits mandatory.
The reform project supported the development of a government information infrastructure in which data is stored, not on hard drives or networks, but in the cloud, providing an easier, lower-cost method of storing, retrieving and sharing data, to promote interoperability and data-sharing within the government, as well as in  business-to-government (B2G) and business-to-business (B2B) information-sharing. This is expected to reduce the average cost and amount of time needed for businesses to comply with government regulation by 25 per cent.
The cloud platform is also expected to have a positive impact on the government’s efficiency in delivering services to the private sector, such as processes for paying taxes; registering a business; and gaining a wide array of government-issued approvals, licenses and permits.
Going past the original scope of the project, about a dozen additional government agencies have chosen to use this cloud-based platform and more agencies intend to do so.
Online processes were further automated by deploying a system incorporating digital signatures and digital certificates. The ability to digitally affix signatures and authorisations onto electronic documents is vital for the online delivery of G2B, G2G and B2G services and it is critical to ensuring the security of transactions in the banking sector.
Operationalising this capability is expected to result in an estimated savings of $6 million in compliance costs in Nepal. Moreover, it will help build much-needed public trust in G2B service delivery, as well as public confidence in the government’s ability to provide services with efficiency and security.
Director general of Department of Information Technology Birendra Kumar Mishra has expressed hope that government agencies can now focus more on business aspects of their service delivery rather than be bogged down by having to worry about managing technology.

Policy harmonisation needed to curb flow of dirty money

Greater policy harmonisation among government agencies has been urged to curb the flow of dirty money.
As some world leaders have resigned and others are under pressure to resign over the Panama Papers leak concerning international illicit money flows, government agencies in Nepal have also started debating policy harmonisation. "Nepal Investment Board approves mega foreign investments but it now has to be extra careful to investigate backgrounds before approving foreign investments," according to a high source at the Department of Money Laundering Investigation (DMLI).
Likewise, apart from cross checking foreign investments, banks and financial institutions also have to check the backgrounds before handling any transactions or opening accounts for foreign or domestic investors, the source said, adding that Article 6 of the Anti-Money Laundering Act has restricted the opening of accounts for shell companies – offshore bogus companies – and carrying out any transactions with them. "If found out, the banks and financial institutions will be punished under the Act."
Though banks and financial institutions already have to report transactions of over Rs 1 million or suspicious transactions to the Financial Information Unit (FIU) under the central bank, the Panama Papers leak has again raised a serious question over the possibility of such institutions becoming involved 'unknowingly'.
Banks and financial institutions have to be extra careful now, the source said.
Likewise, the government has also to seriously take stock of registered companies to curb the flow of dirty money, the official suggested. "Though Nepal has committed itself to curb the flow of dirty money – earnings through corruption, tax evasion and black marketing – the government itself is promoting black marketing and institutional corruption, and this could damage the economy in the long run."
Meanwhile, the DMLI today called on stakeholders including the revenue administration, the central bank's Financial Information Unit (FIU) and the police, to discuss the possibility of dirty money flowing into the country from offshore shell firms, and also the possible Nepali names in the Panama Papers leak.
Along with the DMLI, the FIU and the Department of Revenue Investigation (DRI) are the key government agencies that deal with issues of money laundering, terrorism financing and foreign exchange misappropriation.
According to DMLI chief Damodar Regmi, the meeting discussed the seven Nepalis fingered by the Panama Papers leak. "We are seriously discussing financial connections, transactions and the possibility of tax evasions," he said, adding that the department has also restarted the profiling of suspicious names that could be in the Panama Papers although the leak has not identified any of the names. "It has, however, claimed that the names will be published in May," Regmi added.
Last year also, the central bank, the DRI and DMLI had tried to investigate names that had figured in rumours following revelations of illegal outflow of money to a Swiss Bank.
Such investigations are very tricky, Regmi said, adding that without any authentic information it's impossible to track the flow of dirty money and the activities of bogus companies. "However, we have restarted the process of profiling names and restarting investigations," he added.
As Nepal has been seeing a steady rise in FDI commitments from the countries identified by the ICIJ as tax havens, the DMLI has said that it will now step up surveillance for FDI coming from these tax havens. There is a need of in-depth investigation, given the huge foreign direct investment (FDI) entering Nepal from tax havens in recent years, Regmi said, adding that statistics from the Department of Industry (DoI) reveals that of the total FDI commitments till last fiscal, about 20 per cent were from tax havens.
The rise in money entering Nepal from tax havens has raised question that it could be illegal money stashed abroad by Nepalis, though the government departments have no proper records of such money.
Apart from enhancing the supervisory capacity to monitor FDI commitments, the government agencies like the DoI and the Office of Company Registrar (OCR) should work together to fight the flow of dirty money.
Regmi said that now onwards the DMLI will adopt 'risk-based supervision system', instead of launching investigating after the incident of money laundering surfaces. But, the DMLI has any success success so far in investigating money laundering cases. The department has not filed any any case against money launderers at the Special Court in the current fiscal year, neither had it filed any case in the last fiscal year too.
Since its establishment some five years ago, the department had filed only 30 money laundering cases at the Special Court. The DMLI was established in 2011 after a huge international pressure on the government. The government had committed the Financial Action Task Force (FATF) – a global anti-money laundering body – that it would approve the anti money laundering act in line with global fight against the fight to dirty money flow.
The department has to be strengthened to get result against the cases of money laundering.
Currently, the department has been probing 700 cases and 200 of them are in 'advanced stage', according to Regmi.

The Business of Going Out of Business in Nepal

Closing an enterprise is tougher than opening a business in Nepal, despite the government devising legal provisions necessary for an exit.

Nepal has improved the opening process by going online last year, but deregistration and liquidation of businesses is still the same tedious task it always has been. Stakeholders blame a lack of awareness among entrepreneurs, the consolidated Act for bankruptcy and the lengthy nature of the ordeal investors are compelled to go through.

“The Company Act has provisions for a company to deregister and liquidate,” says deputy registrar of the Office of Company Registrar, Toya Nath Adhikary. Records from the Office of the Company Registrar (OCR) revealed that in recent years, the number of company deregistrations has increased.

Some 42 industries have already been deregistered or liquidated in the first four months of the current fiscal year, according to data provided by the OCR. In the last fiscal year, the number stood at 139, from 114.

Once a company is registered with the OCR, the company must submit its annual reports every year. Otherwise it will have to pay a fine, according to the legal provision. “Low compliance of law due to lack of corporate culture has also made it difficult for both the OCR and enterprises,” adds Adhikary.

The company creates unlimited liability to the state, various institutions and shareholders, and while closing the company; the government must be proactive in protecting the rights of the state, institutions or individuals, if the company has any liability. Legal experts say that a company has to go through court procedures for insolvency, and also to identify the liability-asset status of the company.

If a company has more loans than liabilities, it will be sent for liquidation, whereas if a company has more liabilities than loans, it is declared insolvent and sent to court, says corporate advocate Gandhi Pandit, who is also one of the architects of the Insolvency Act.

“The concept of deregistration, liquidation and insolvency has not been clear. Rather, it has sent the wrong message to enterprises that it’s difficult to close the business,” he says.

The government has established a commercial bench – at the Appellate Courts across the country – that looks into insolvency cases. When the Nepal Development Bank went bankrupt due to lack of good governance, the central bank moved to the Patan Appellate Court on July 9, 2009 asking permission for its liquidation. However, the bank’s lawyers, including Pandit, asked the court to send it for insolvency.

But the Patan Appellate court sent Nepal Development Bank to liquidation – the first such case in the banking history of Nepal – on December 18, 2009 as its liabilities were valued higher than its assets.

Likewise, the Nepal Rastra Bank sought the permission of the court to send United and Samjhana Development Banks for liquidation. The court concurred with the central bank and also appointed liquidators for these institutions.

However, the Doing Business Report 2014 of the International Finance Corporation (IFC), an arm of the World Bank Group, has reported that it takes five years to resolve insolvency in Nepal compared to the South Asian average of three years and the OECD average of 1.7 years.

The time and costs required to resolve bankruptcies show weaknesses in existing bankruptcy law and the main procedural and administrative bottlenecks in the bankruptcy process. The recovery rate, expressed in terms of how many cents on the US dollar claimants – creditors, tax authorities, and employees – recover from the insolvent firm, the time taken for insolvency is more in Nepal compared to the South Asian average.

But for the last couple of years, there have been no changes in the resolving insolvency indicator score that has been continuously at 25.95 – including time taken, cost and recovery rate – except the ranking of the indicator that varies compared to other economies. It also means that despite the act, domestic and foreign investors do not feel comfortable with the insolvency act and are seeking an easier exit policy, according to Pandit.

The Insolvency Act directs a company to settle the issue only through court, which takes some time. “As a business has to go through court, it might take some time but not much,” Adhikary agrees. The business fraternity, however, says that it’s a tedious process to deregister a company due to labours issue and tax administration.

Though there is a provision to deregister VAT and PAN, it’s a very tedious process, says Federation of Nepalese Chambers of Commerce and Industry vice president Pashupati Muraraka. “Likewise, compensation packages for labour is another hurdle for closing the business,” he adds. Adhikary also accepts that a consolidated Act could shorten the time frame for insolvency, despite the current provisions.

“A comprehensive dialogue among the private sector, legal experts and business people is a must for a consolidated act that is applicable to the domestic context,” he adds. Nepal improved in the Doing Business report due to reduced paperwork and time frames to register a business, but there is a stark need to look again at the closing business environment, to instill confidence in investors.

(Published in Business 360 magazine December 2013 issue)