Bizarre tax rules peg back growth

Propelled by easy finance schemes on offer by almost all financial institutions and easy availability of latest models, Nepali automobile sector has been growing at a geometric proportion.
Over the last decade, the ever-changing lifestyle has also helped the sector grow. However, an orthodox and exorbitant tax regime and duty provisions have made the road difficult for the automobile sector.
According to the Department of Transport Management (DoTM), the auto sector has seen an impressive increment of more than 12 per cent in new vehicles registrations last year.
Change in existing, rather vague and complicated tax structures, can push this figure to a greater height, bringing the government more revenue.
Automobile sector contributes 14-15 per cent to the total state revenue. Despite this, the government gives it a step-motherly treatment, blame industry insiders. The government continues to levy high import duty, forcing consumers to pay a very high price for vehicles.
"Nepal has relatively high customs duty on the import of vehicles in the whole South Asian region," says Sunil Khetan, president of Nepal Automobile Dealers' Association (NADA).
"Not only that all other accessories related to automobile like engine oil, spare parts, tyre and tube and battery attract high import duties," Khetan says.
"Has there been a more scientific tax system, the pace of growth could have gone up at a better rate," Akash Golchha, executive director of Golchha Organisation says, adding that less taxes mean cheaper vehicles and cheaper vehicles mean more sales, which will ultimately bring the government more revenue.
Agrees Khetan, "If there were pragmatic tax provisions on the import of vehicles, the growth in automobile sector could have been skyrocketing."
According to him, the government on an average levies 40 per cent duty on two-wheelers, 25 per cent on tyres, 35 per cent on lubricants, 15 per cent on spare parts and 15 per cent on batteries.
"The government should not be conservative on revenue matters,” he says adding that policies that are guided by old principals of raising more money through higher rate of tax encourage illegal trade.
The government has increased excise duty to 53 per cent from last year's 32 per cent and decreased customs to 55 per cent from 80 per cent on vehicles to comply with the WTO regime. "The change has done no good," says Khetan, adding that the best policy would be to decrease customs duty so legal trade could be encouraged and the government gets more revenue.
"According to WTO also, government should bring the customs duty down," he says.
On the pretext of complying to WTO, an orgnanisation which is failing in many aspects, the Nepal government should not lower customs duty but take a long-term view, suggest some traders.
However, others think that the government must comply with the WTO commitments as it is a WTO member country and lower the customs duty.
Apart from customs and excise duty, there are myriads of other issues dampening the automobile sector.
Road tax is one of them.
"The government should spend the road tax on infrastructure development and road network upgradation, so that vehicle's life is lengthened and fuel consumption lessened," Golchha adds.
Reducing the use of fossil fuel, which is totally imported costing large amounts of foreign currency to Nepal, should be yet another strategy of the government.
The government should encourage electric vehicles not only for saving foreign currency but also for the sake of environment.
One of the major players in the automobile sector is the two wheelers segment, which is main driving force behind the sector’s growth.
A wide array of models, easy availability of vehicle loans and an increasing living standard of Nepalis have bolstered the sales graph of two-wheelers.
The two wheelers market has witnessed an average growth of 15 to 20 per cent over the last couple of years. However, the two-wheeler segment has also been victimised by the government's exorbitant and bizarre tax system.
Apart from the vehicles itself, accessories like tyres and tubes is also a major segment in the automobile sector. The total value of the tyre market, as estimated by NADA, is around Rs 10 billion.
"However, over 50 per cent of this trade is illegal," says Manoj Sethai of Bridgestone tyre, adding that the government is losing a huge chunk of revenue due to this illegal trade.
"The huge price difference on the Indo-Nepal border market encourages illegal trade," says Sethai. The difference in price of a truck tyre between Birgunj and Raxwal is Rs 3,000 to Rs 4,000. Due to the porous Indo-Nepal border, almost 50 to 60 per cent of Indian tyres enter Nepal as smuggled.
"If the government lowers the import duty, the illegal trade could be checked and revenue could be increased," Khetan suggests.
Similar is the story of Engine oil and spare parts.
"A 35 per cent duty on lubricants and up to 15 per cent on essential spare parts has encouraged smuggling of these products from across the porous Indo-Nepal border," says Khetan.
According NADA's estimation, Nepal is losing more than Rs 300 million annually on the import of lubricants mainly due to high import duty. Nepal consumes about 12,000 metric tonnes (MT) of lubricants but the official figures show that only 6,000 MT is imported. This means around 6000 MT of lubricants are being smuggled through illegal channels.
"Readjustment in the tax structure can encourage official trade," says Amar Jyoti Ranjit, marketing manager at Nepal Overseas Trading Concern, the sole distributor of Castrol lubricants that occupies 50 per cent of the Nepali market.
Similarly, the total value of domestic spare parts market, according to NADA, is more than Rs 300 billion. "Unfortunately, more than half of the spare parts available in the market arrive through illegal channels," said an industry insider, who did not want to be quoted.
The challenge facing the government at present is how to generate more revenue while keeping customs duties low, so that more people have access to vehicles and transport. But the government policy is to milk the existing consumers to the limit.
Most governments think that increasing custom rates and custom evaluation could result in more revenue being generated. But importing goods by paying a high custom rate results only in high prices of goods, making a hole in customer's pocket.

Sociology of Nepal explained

Essays on the Sociology of Nepal, a collection of 15 thought-provoking essays and four book reviews, has raised several questions on our feudal and centralised state system. The essays, though some of them written over a period of 25 years, have still not lost their relevance as the core issues of Nepali society, in the last three decades, have not changed radically.
The book, authored by eminent social scientist Dr Chaitanya Mishra and published by Fine Print, peeps into the social dynamics of development, foreign aid, growth, Maoist movement and last year's April movement. Nepal has, for long, resisted the inevitable socio-political change giving ground to an armed Maoist movement and the author has put in his hard labour to dig these very issues that led to the transition of power.
The book presents an array of analytical essays like Locating the Causes of the Maoists Struggle, Nepal: Five years following the Social Summit, The New Push for Privatisation that revolve around the social, political and economical changes of Nepali society.
Essays on the Sociology of Nepal start with an essay on political transition in Nepal. Over the period of the last decade, Nepal has witnessed the resistance to socio-economic injustice in many forms; from passive resistance to armed retaliation, fuelling the deep-rooted class-hatred in the rural Nepali psyche further. The essay, based on the April movement and the changes it brought and challenges it has to face, tries to analyse the contradictions of ideas among the key players, their faith and correlation.
Foreign Aid and Social Structure: Note on intrastate relationship, an essay co-written with Pitambar Sharma during the sixth Five-Year plan presents the deeply disturbing fact of the benefits of foreign aid and its impact in the widening the gap between the upper class and under class.
The author gently questions the benefits Nepal has been getting from foreign aid. The upper social classes of such countries derive the major benefits from foreign aided development, the essay sums up highlighting the relationship between foreign aid and class structure; production and distribution system, the power structure and the ideological framework.
It has helped towards the creation of a parasite primate city and centralisation of power, claims the essay.
The essay concludes that the national interest and priority could be overlooked. The author does not mention any special case but Melamchi could be a case study not only to scrutinise foreign aid politics but also to seriously review the government's policy.
The book also clarifies the misconception that resource and development are related. At least in the case of Nepal, resource could not help develop the country. On one hand the countries in the world have lagged because of the resource-crunch and on the other, Nepal could not manipulate its vast resources.
Though the essays are lengthy, readers can benefit form the insight of the author on socio-cultural-economical dynamics of Nepali society and the contemporary issues.
While urban Nepal is walking hand-in-hand with modern times, rural Nepal has been left far behind a century or more to be precise.
Development pundits may not agree with this fact, but once they go through the book, they will not have any choice but to accept it.

BOOK REVIEWBook: Essays on the Sociology of Nepal
Publisher: Fine Print
Price: Rs 450
Pages: 366

Susan Goldmark new WB country director for Nepal

The World Bank (WB) has appointed Susan Goldmark as the new country director for Nepal. She will succeed Kenichi Ohashi, who served in the position since 2000. Goldmark will assume office from July 1.
Goldmark had joined the World Bank in 1988 as a Private Sector Development specialist.
Kenichi Ohashi is transferred to Ethiopia.

Nepse index hits historic high

The Nepal Stock Exchange (Nepse) index has been, since last week, hitting a new high every day. Today, it has recoreded 583.55 points, a growth by 10.83 points from yesterday.
Stock watchers could not believe the trend and term it as a danger.
What is the secondary market upto?

Nepse index hits record

Nepal Stock Exchange (Nepse) index, hit a new record today as it posted 552.06 points, a rise of 2.10 points from yesterday’s trading, the highest since the Nepal Stock Exchange started the secondary transactions of shares some 13 years ago, in 1994.
Nepse index has in recent days reflected the growing confidence of investors in the secondary market. Though the credit goes to the commercial banks group, the major players, all other groups have also registered a sound growth in recent weeks.
Where will this trend lead the secondary market to and could it keep the heat is yet another question, but, the bullish trend has brought a ray of hope.
The market leaders are Standard Chartered Bank, Nepal (Rs 4750), Nabil Bank (Rs 3720) and Nepal Investment Bank (Rs 1300).

More commitments and lip services

While addressing the 41st annual general meeting of FNCCI, today Maoists suprimo Pranchanda and his deputy Dr Baburam Bhattarai assured the business community that Maoists are not against Foreign Direct Investment (FDI) and the industrialization, rather they want to promote the national capitalist. But who are the national capitalist in their list?
Their cadres are in one way or the other disturbing in the smooth running of the industries and forcing them to close down. They are in doing so supporting the foreign industries to promote their market in Nepal, and at the same time giving rise to unemployment. They should have promoted, as Dr Baburam Bhattarai said in the programme protected the national industries, instead. The difference in their preaching and doing has given the foreigners and others reasons to criticize them. On the other hand, the industrialists from the districts were very much concerned about their security and law and order situation. The home ministry has been totally unable to restore the confidence in the people and the entrepreneurs, alike. Finance Minister Dr Ram Sharan Mahat, though an intellectual on his own capacity, has again assured the business community and accepted the weakness on the part of government, but he failed in boosting their confidence. The basic thing is to boost the confidence of business community and prepare condusive environment for foreign investment but the government is accused of ted-tapism and corruption. The government in the transition period seems more interested in collecting more commission. Government has been a totally failure in fulfilling in the commitments. And Maoists also are, it seems, confused in what is national interest. Can they encourage the national capitalists to invest more in the infrastructure and hydropower. Similarly, as the political instability continues, the business community itself is also guided by the short term profits rather than the national interest and long-term vision.
Can the Moists reinject confidence in what they call national capitalists or they also became foreigners puppet, the time will show. There is no question that the government has totally failed.

FNCCI holds annual general meeting

Federation of Nepalese Chambers and Commerce and Industries (FNCCI), the apex body of Nepali private sector is holding its 41st annual general meeting (AGM) at Birendra International Convention Centre (BICC), in Kathmandu from today. The meeting will last till tomorrow.
The private sector has a major role in the economic development of any country,
but Nepali private sector has been a easy pray to anyone. While inaugurating the AGM speaker Subas Chandra Nembang assured the business community of solution to their woes. But the problems of Nepali private sector seem endless from security to transportation to regular supply of electricity to labour unions and many more.
They, first and foremost, want the law and order situation to be improved and security at the earliest for the industries to run smoothly. If the industries are closed the job opportunity they are offering will also end giving rise to unemployment. Though the government's key agenda is Constituent Assembly election, it can not but stay silent on
the economic issues also. The business community wants a common minimum agenda of all the political parties, which is justifiable. Business and Economy only can creat a just society, otherwise the rising unemployment will result in yet another bloody revolt. The need of the day is to address business community's concern and provide them security and the environment to operate their business smoothly, encourage the people to use the national products (though it may sound against the free market economy, the government must do something to protect them.) FNCCI on its part should also act more professionally and lobby for the industrial growth. They must build competitiveness as they have to compete domestically and internationally in the open global market regime.