Compliances, fines hurt innovative business practice

Through the multiplicity of compliance and vast number of fines imposed, smooth and efficient operation of an enterprise is a distant dream in Nepal. In the wake of such inadequacies and bottlenecks pertinent to innovative businesses, regulators and the regulated today discussed on ‘Facilitating Innovative Business Practices in Nepal’ to find out possible future steps that can be helpful to both the parties.
In the interaction organised by Samriddhi Foundation the participants highlighted that innovation in entrepreneurial ventures ultimately helps the economy but Nepal’s arcane laws either prohibit innovative practices like mobile businesses or ride sharing businesses or to a certain degree fail to create an environment for such businesses to prosper.
National Governing Council Member of the Nepalese Young Entrepreneur Forum (NYEF) Nivita Pradhan, on the occasion, voiced concern about finance as one of the major challenges that Nepali start-ups face.  She went on to explain how potential entrepreneurs lack assets for collateral to acquire loan at banks. Pradhan also stressed on lack of substantial research, policy irregularities, and lack of a one-stop mechanism for ecosystem players as few among the many reasons why the failure rate of startups is so high in Nepal.
“Start-up is a word that has been used, misused and abused as it is subject to one’s individual approach; hence, it is important that the government, legislature and the judiciary understand its definition and potential,” said Founder of Tootle Sixit Bhatta. He also stated how Tootle has protected the country and its people from economic shocks as everyone, ranging from professionals, students to homemakers, can become riders and use the platform as a transitional job involvement.
The session that began with a presentation by a researcher at Samriddhi Foundation Yatindra KC by giving a brief overview on the areas that require considerable scrutiny so as to propel entrepreneurial growth in Nepal, also witnessed advocate and partner at the Abhinawa Law Chambers Semanta Dahal, who used a rather philosophical and a thought-provoking approach to explain the need for innovation in the country. He stated that law can never catch up with the pace of technology, therefore, it is for us to ponder up if law should choke or cope with such changes.
“When you have paternalistic policies, the government’s role is going to be controlling,” Bhatta said, adding that we, however, need policies nudge people towards desirable outcome, rather than punish undesirable outcome. “Our policies need to be libertarian paternalistic.”
Pointing out the need to change the pattern of the existing notion of policy making and implementation and he said strongly believes that libertarian policies will better guide the society.
The participants, on the occasion, were also curious to know the imposed challenges and the support mechanisms in part of the government. In response to the queries, it was cited that that the country’s ever-changing laws and lack of awareness to make deliverables poses a recurring challenge. To tackle this gap of knowledge, an up to date research must be done and data reservoir created so that the government can keep track of the pace of the innovative industries and the entrepreneurs can keep themselves updated.
One of the panelists, chief executive officer of Health at Home Bishal Dhakal said that the laws exist in order to facilitate the young and vibrant ideas but apart from what the government is doing to facilitate the startup ecosystem, private individuals also need to be professional. “We as individuals also need to be proactive,” he said, adding that it is agreeable that changes are conceivable when everyone is liable to their duty; as policy makers or as policy drivers.

Government vows to review Social Security Fund guidelines

After repeated complaints from employers, employees and other stakeholders on some provisions in the Social Security Fund (SSF), the government has finally agreed to review the guidelines within three months.
Addressing the ‘Econ-ity’ discussion on ‘Understanding the Social Security fund: Opportunities and Challenges,’ organised by Samridhhi Foundation, here today, executive director of the Social Security Fund Kapilmani Gyawali said that the government is going to make amendments of the provisions that the employers, employees and stakeholders have been seeking.
There have also been complaints that the guidelines discriminate between public and private sector employees and that participants in the fund will have to actually pay double taxes. Likewise, stakeholders have also criticised the policy as both workers and employers seem to be reluctant to participate in the social security programme.
Gyawali, however, said that the government is going to make amendments as the fund has been receiving widespread criticism due to the lower benefits it offers and unprofitable provisions. “We are going to hire a group of ‘actuaries’ from abroad, who will look into the issues being raised by different stakeholders and will make adjustments to the facilities that will be provided by the fund,” he said, adding that the provision related to insurance and taxation will also be revised. “We will come up with arrangements that can be easily integrated into the fund.”
An actuary is a business professional, who deals with the measurement and management of risk and uncertainty. Saying that Social Security Fund is working on solving the issue of taxation also, Gyawali said that the government is ready to amend the law after objections were raised regarding the age limit of retirement and insurance arrangements being unrealistic and the fund being discriminatory between public and private sector employees.
Speaking on behalf of Nepal Bankers Association (NBA) chief executive officer of Agriculture Development Bank Anil Sharma said that they have observed some contradictory provisions in the Act. As a representative of the private sector, he believes that there is a need to discuss on the Act itself. “The scheme should be sector-specific based on the varying needs and capacity of different sectors or the same for all sectors,” he said, agreeing on the fact that a lot of shortcomings need to be handled addressing all the issues in order to achieve positive outcomes.
Likewise, vice president of Confederation of Nepalese Industries (CNI) Rajesh Agrawal, on the occasion, stressed on the need to balance the schemes in regards to varying sectors. He also ensured that CNI has also raised voices for the small and medium enterprises (SMEs) and not just the large corporations. He further ensured that they will address the needs of the SMEs in the social security scheme in the days to come.
Discussing on various frameworks in regards to the contribution based social security scheme, the participants delved into the emerging trend with the implications of the recent developments and benefits that will accrue the people from different sector. Likewise, the programme attempted to inform on the possible directions that Nepal is heading towards to ensure stability and security.
Participants, on the occasion, however asked why the government has treated private-sector employees as second class citizens. “This is obvious when we compare the benefits contributors receive from the Fund with benefits the government employees receive from Pension Fund,” a participant said, adding that the most of the government and private sector associations are currently associated with the Citizen Investment Trust (CIT) and the Employees’ Provident Fund (EPF) and since these two organisations provide better facilities there was no point in joining the scheme.
Though, the government has launched the programme with much fanfare last year, Social Security Fund has turned to be only a ‘pension scheme’ that offers benefits far below the existing EPF and CIT.
A researcher at Samriddhi Foudnation Ankshita Chaudhary began the session by giving a brief introduction of the emergence of the contribution-based social security scheme. The presentation highlighted – the inability of the SMEs to cope with rising costs, differences between the government and private sector employees, issues of taxation, among many – some of the difficulties associated with the fund.
Under the Social Security Fund, enrolled employees will be entitled to assistance for medical treatment, health and maternity protection, accident and disability protection, dependent family protection, and elderly protection (pension). The employers, who have signed up in the Social Security Fund system have listed over 50,140 employees for their contribution in the scheme.
Last week also, a team from the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) had requested the government to revise and include more realistic provisions that could help attract more contributors.

Stakeholders seek integrated policy to regulate businesses

Complaining that the duplication of number of provisions in the laws has still been discouraging the investors, experts stressed on the need to merge concerned government institutions to effectively implement the government policy to facilitate investment via one stop service center. Likewise, they also stressed on the need for the government to formulate integrated laws governing the business sector to attract investment in the country.
Outlining that contradictions in multiple business-related laws and policies that have been discouraging potential growth of business sector, they asked the government to bring a unified policy. “Even today, Nepal has some unnecessary laws and policies that are affecting investment,” former finance secretary Ramehwor Khanal said, while addressing an interaction 'A Discourse on Integration of Economic Legislations' organised jointly by Samriddhi Foundation and Society of Economic Journalists Nepal here today. “It is high time for the government to scrap such obsolete and unnecessary policies and introduce an integrated policy to regulate the business sector,” he said, adding that multiple business- and investment-related policies formulated by different ministries are contradictory and ambiguous, thereby discouraging businesses. “For instance, tax waiver and subsidy on any good and service can be given only through the Financial Act.”
However, other policies have also been giving tax subsidy under different headings,” Khanal added. “The registration and exit process for companies are yet to be simplified as procedural hurdles are the primary factors that investors look at before injecting investment in any country.”
He also opined that there should not be any minimum threshold and capital requirement for foreign investors to invest in Nepal. The government has increased the minimum threshold for foreign investors to Rs 50 million, which has discouraged most of the foreigners to invest in Nepal. Khanal also blamed the government authorities for duplication of laws. “Nepal achieved significant improvement in the Doing Business Index this year just because of the reforms in number of laws,” he said, adding that procedural hassles are, however, still there.
The private sector participants, on the occasion, also complained that contradictory policies have been deteriorating business and investment environment in the country. They criticised the government for failing to address new types of business, including start ups, in the new laws. “The government needs to come out of the conventional mindset of implementing policies only for trading of goods and services,” director of Laxmi Group Niranjan Shrestha said, adding that it also has to consider mobility based business like venture capital in its regulatory framework.
Acknowledging the importance of bringing integrated policy to regulate businesses and investment, president of Nepal Law Commission Madhav Poudel said that the concept has to be brought to light and discussed widely among stakeholders.
“The government is facing difficulty in addressing various practical hurdles in existing policies and laws,” he said, adding that it is, however, aware of all policy hurdles and contradictions in the existing laws that are discouraging businesses. “While the government is working to gradually address such issues, various agencies are facing structural problems and difficulties in coordination.”
Paudel also accepted that there is duplication of laws as there are many laws to regulate the private sector. “The disintegrated laws have been creating problems to possible investors,” he said, giving an example of the lengthy procedures that the entrepreneurs need to fulfil for tax compliance.
The participants, on the occasion, deliberated on the possibility of integrating Foreign Investment and Technology Transfer Act with other acts related to foreign exchange and banking, insurance and securities. The laws related to forest, environment and land acquisition can also be implemented through a single legal provision as the integration of laws can also help remove inconsistency and ambiguity in several government rules. “In many cases, government officials are found to be demarcating area in their jurisdiction and delaying service delivery even after merger of two or more government offices,” the participants complained, urging the government to revisit the Foreign Investment and Technology Transfer Act (FITTA).
Ahead of the Investment Summit in March, the government had hastly revised number of laws including FITTA and Public Private Partnership and Investment Act. The laws were, though expected to simplify the procedures related to the Department of Immigration, Inland Revenue Department, Department of Land Management, Department of Customs and central bank to facilitate foreign investors, the foreign investors are still complaining that the laws are more regressive than before.
“Despite implementation of these new laws, investors still do not have access to online system and it is difficult to validate their digital signature,” Paudel said, adding that the investors still need to visit various government agencies to submit hard copies of their signed documents.
However, joint secretary at Finance Ministry Uday Raj Sapkota, on the other hand, defended the government and claimed that it is serious about addressing the issues of policy ambiguity and contradictions. “The private sector should, nevertheless, clearly communicate about the problems they are facing due to existing policies and come up with feasible recommendations,” he said.
The government is in the process of implementing a single-code system for the income tax, value added tax, and excise duty, as an effort to simplify the procedures for taxpayers, Sapkota informed, adding that the tax administration had stepped up preparations for enforcing single-code for the three tax systems. “The ministry is about to make amendment to Financial Act for enforcing the new system.”
According to him, the government has adopted the policy of reducing the number of government institutions and integrating the related laws to reduce hassles for potential investors. “The government has established one-stop service center and enacted several laws to attract foreign investment,” he added.
On the occasion, researcher at the Samriddhi Foundation Kul Prasad Pandey gave a brief introduction about the context of the discussion citing international examples, areas in which Nepal is lacking and reasons thereof with regards to its ranking in the Doing Business report, the idea of consolidation of act, harmonisation of legislations and minimising duplication of government entities and subsequent regulations.