Amended SEZ Act and Forest Act approved, West Seti in offer to investors and weak consumer demand

Amendment bill on SEZ Act gets House nod

From The Himalayan Times: The Parliament today gave its nod to the first amendment bill of the Special Economic Zone (SEZ) Act introducing a new provision under which industries located in SEZs will have to mandatorily export only 60 per cent of their produce. Earlier, the SEZ Act had a mandatory provision for industries inside SEZs to export 75 per cent of their production.

The amendment bill on the SEZ Act, which will come into effect following authentication from the president, has not only relaxed the compulsory export provision for industries within SEZ to 60 per cent of their produce, but has also allowed firms within SEZ to sell 100 per cent of their produce in the domestic market for the first one year after their production starts. This means that industries inside SEZ can supply all their produce in the Nepali market for the first year after they start production, however they will have to export 60 per cent of their production mandatorily from the second year.

The government had reduced the mandatory export provision for industries within SEZs and also turned flexible regarding other export provisions after investors within the SEZs expressed their inability to export a majority of their goods immediately after starting their production.

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Law amended to ease acquisition of forest land

From The Kathmandu Post: The government has amended the Forest Act and included a new provision which will allow the developer of certain infrastructure projects to acquire forest lands required for the construction of the project by paying a fee. According to the new clause included in the act, national priority projects, national pride projects, transmission line projects of national priority and projects that have got investment approval from Investment Board Nepal are eligible to acquire wooded areas by paying money.

The new clause paves the way for the establishment of the Forest Development Fund which will charge the project developer a fee for forest lands for the construction of its permanent structures. The fund will use the fee paid by the developer to create new forests in an equivalent area of similar ecology at similar geographic regions.The amendment has been endorsed by Parliament, and the Forest Ministry is currently drafting a work plan which will determine the fee that project developers will need to pay for the type of land they acquire.  

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West Seti among projects government will showcase at investment summit

From The Kathmandu Post: As the government gears up for the Nepal Investment Summit, senior officials told the Post that it is planning to invite foreign investors again for the development of West Seti Hydroelectric Project. The Investment Board Nepal has said that the West Seti project will be one of the four dozen projects which the government plans to showcase during the investment summit scheduled for March 29-30.

The multi-billion project was in limbo after the China Three Gorges International (CTGI) backed out in August 2018, citing financial infeasibility. After the deal with the Chinese developer collapsed, the government had formed a three-member task force comprising the energy minister, the finance minister and the chief executive of the Investment Board to work on a new modality for developing the project. The task force is yet to submit its final report.

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Slow demand for construction material leaves industrialists worried

From myRepublica: Minister for Finance Yuba Raj Khatiwada last week said 42 percent growth in import of industrial materials indicates healthy economic growth. But same imports have become a matter of worry for industrialists in Birgunj. Steel and cement producers in Birgunj and surrounding areas increased their output, expecting robust demand for construction materials with the formation of the government with two-thirds majority. But slow demand for construction materials due to weak capital spending, among other factors, have dampened their confidence. Abrupt hike in interest rates on bank loans and high cost of production have further worsened the situation for them.

As there is not much demand for steel, GI pipes, cement, corrugated sheets, water tank and paints, among others, in the market, many industries have these products in full stock in their warehouses. Many industries say that they are selling products on credit of up to six months. Earlier, they used to sell products on credit of only up to one month.

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Pitching it right ahead of Nepal Investment Summit 2019

It was published in The Kathmandu Post, 07 March 2019.

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Pitching it right

Inviting foreign investments warrants the right time and the right audience

Based on content, commitment, and coherency, Prime Minister KP Sharma Oli’s speech during the recently concluded Kantipur Conclave was probably one of the best speeches delivered by him on issues pertaining to the opportunities for and suitability of the country for foreign investment. Many viewed it as a rehearsal for the Nepal Investment Summit scheduled for March 29-30. The prime minister’s impassioned appeal to investors came at a time when foreign direct investment is decreasing, concern over the actual policy direction of the communist government is growing, attack on foreign-owned investment assets is intensifying, extortion of businesses is ratcheting up, and fiscal, financial and external sector stresses are increasing.

PM Oli stressed that the government has a clear vision, steadfast commitment, and result-oriented action plan to achieve its overarching goal of becoming a middle-income country by 2030. He made a case that the country has the right attributes for development: natural resources, stable system and institutions, sound and clear policies, young hardworking population, favourable external environment, and a government singularly focused on achieving prosperity within a short period. Additionally, he laid out broad sectoral priorities such as agricultural transformation, hydropower generation and transmission, infrastructure and human capital development, tourism, manufacturing, and ICT, among others. He assured foreign investors of secure opportunities and profitable investments and invited them to bring in money and technology. The content and setting of the speech were perhaps more suited for the summit in Davos—where he spent more time lecturing how the media should operate than making a pitch for investment in Nepal—instead of a conclave where experts deliberated on the ways to unleash the country’s potential.

Right message

Nevertheless, such an open-hearted commitment to welcome foreign investment in almost all sectors and to amend laws and regulations to facilitate investments by a chairman of a ruling party whose ideology is grounded on socialist distributive principles is always positively noted by investors. PM Oli even solicited advice from investors to improve the investment climate and to eventually establish a signature product that can be identified with Nepal (similar to Toyota with Japan, Ali Baba with China and Infosys with India).

Investors are always looking for concrete signals from the top leadership on improving investment regime and in the security of their investment and assets. Now, other ministers—particularly, finance and foreign affairs ministers—and officials from investment promotion agencies need to categorically explain to investors what PM Oli meant in the speech and what the government has in store to realise the commitments made. Unfortunately, instead of elaborating more on the broad areas touched upon by the prime minister in his speech, the ministers and officials are pretty much narrating the same thing repeatedly. This shows a lack of homework on their part.

For instance, if the prime minister is committing sweeping changes in investment laws and regulations, then the ministers and government officials need to explain what exactly they are, how they are different from the past and from what other countries have, and how the government is going to execute them. This specificity is missing amidst the self-gratifying banal talk on improved political stability and a new federal setup. These are means to an end, not an end in itself.

Investors will pay serious attention to the commitments made by the prime minister only if the ministers and officials representing investment promotion agencies clarify the vision and lay out a credible roadmap to achieve the vision. This should include the key pillars as well as enabling factors, and an implementation plan that departs from the past and is more credible and competitive than what other competing economies have. Importantly, the pitching needs to vary according to the audience.

Right audience

First, it is important to identify the right audience and know their interests and concerns. For instance, multilateral institutions have a mandate to not only invest but also to work on improving legal, regulatory and institutional capacity so that it ultimately facilitates greater private sector investment. Bilateral institutions such as EXIM banks and development agencies are interested in strategic projects rather than sectors and ideally want procurement tailored to their country’s interest. Meanwhile, private sector investors are interested in profitable projects without cumbersome regulatory compliance and bureaucratic hassles. An investment summit should be targeting the last category of investors, as the first two will not require much coaxing anyway. Furthermore, the summit should also target the financiers (such as the large private sector investment banks from the West and from the neighboring countries) and analysts who shape opinion about a country’s sovereign and investment risks.

Second, investment pitch should be simple and to the point. Hackneyed remarks on political stability, changes to laws, and investment security alone are not going to cut it. Specifically, investors like to know what is different now and how is it going to positively affect their return on investment and security of their assets. Ministers and officials need to categorically explain the solid legal basis to shield their investment from ad hoc bureaucratic or political or policy or licensing overhaul and guarantee unhindered access to internal and external markets. Note that the investors’ confidence is eroding due to the government’s meek response after the violent attack on a foreign-owned mobile company and a large hydropower project.

Third, they need to lay out why this is the right time to invest in Nepal. For instance, we have a rising middle class with increasing disposable income and a liberal trade regime with India that allows comparatively greater and easier access compared to regional rivals.

Fourth, investors love policy surprises and big announcements during such summits. For instance, moving on from the past tendency of incremental reforms to transformative measures such as generous tax regimes compared to other countries, special committees to address grievance, a strict norm to follow timelines, easier visa and work permit regime where necessary, ease in earnings repatriation, guaranteed access to enabling infrastructures such as electricity and roads, and enhanced security provision are some of the popular measures.

Finally, a proper process to follow-up on commitments made to investors is also important. We have been notoriously bad on this front.

New five year plan in Nepal and effectiveness of right to education in India

15th five-year plan targets minimum 9.4pc annual growth

From The Himalayan Times: The preliminary draft of the concept paper of the 15th five-year plan (fiscal year 2019- 20 to 2023-24) prepared by the National Planning Commission — the apex body responsible for formulating the country’s development vision — has set a target to achieve a minimum average economic growth of 9.4 per cent per annum in the next five years. However, the economy can grow up to 10.1 per cent per annum in the next five years based on different scenarios, as per the draft. The government had last introduced a five-year periodic plan in 2001, which lasted till 2006.

The preliminary draft of the concept paper of the five-year periodic plan states that the country can achieve economic growth of between 9.4 per cent and 10.1 per cent every year in between fiscal years 2019-20 and 2023-24. Similarly, the draft of the periodic plan envisions that the country’s agriculture sector can witness an average growth of 5.6 per cent per annum in the next five years while the industrial sector can witness average growth of 17.1 per cent per annum. Likewise, the services sector is expected to witness 9.9 per cent growth per annum in between fiscal years 2019-20 and 2023-24.

The draft of the 15th five-year plan also states that the contribution of the services sector in the gross domestic product (GDP) can reach 57.6 per cent by fiscal 2023-24. Similarly, the contribution of the agriculture sector and industrial sector in the national GDP can reach 22.1 per cent and 20.3 per cent, respectively. The 15th five-year periodic plan will be based on the slogan of ‘Generating Prosperity and Happiness.’

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The Right to Education Act: Trends in Enrollment, Test Scores, and School Quality

From a NBER working paper (Shah and Steinberg): The Right to Education Act in 2009 guaranteed access to free primary education for all children in India ages 6-14. This paper investigates whether national trends in educational data changed around the time of this law using household surveys and administrative data. They find four important trends:  

• School-going increases after the passage of RTE, though this increase is more pronounced in “primary activity” NSS data than in official enrollment statistics
• Test scores decline dramatically after 2010 in both math and reading
• School infrastructure, including pupil-teacher ratios, appears to be improving both before and after RTE 
• The number of students who have to repeat a grade falls precipitously after RTE is enacted, in line with the official provisions of the law

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Nepal’s credit worthiness

It was published in The Kathmandu Post, 18 February 2019.

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Nepal’s credit worthiness

A good sovereign credit rating is needed to borrow in the international bond markets

The government is exploring options to have the country’s sovereign credit rating determined with the objective of borrowing funds from the international bond markets and creating a benchmark for foreign investors to evaluate investment risk. The government had wanted to obtain the sovereign credit rating ahead of next month’s investment summit, but it has given up on the idea for now as it takes months for rating agencies to initiate the analysis for the first time.

A good and stable sovereign credit rating indicates that Nepal’s macro economy is on a sound footing, the policies are credible and competitive, and that its institutional, political and governance regimes are trustworthy and predictable. This will eventually allow Nepal to access funding in the international capital markets, where it can borrow at reasonable rates to finance development spending. However, since Nepal is not yet rated and does not issue bonds in the international market, investors depend on alternative general country risk ratings done by specialised agencies that rely on analysis and the opinions of a network of economists and policy experts. Currently, Nepal’s external borrowing consists of loans from multilateral institutions and bilateral governments.

Current rating

Nepal will have to request one of the three large rating agencies—Standard & Poor’s, Moody’s and Fitch, which together command 95 percent of the rating business—to evaluate its economic and political situation to secure a sovereign credit rating. This is a measure of the country’s credit worthiness. A better rating means easier and cheaper participation in the international bond market, particularly when it wants to sell its medium and long-term bonds to raise capital. It assures the markets that the country will be able to make timely principal and interest payments without the likelihood of a debt default. Furthermore, a better rating gives confidence to foreign investors that the country’s political and economic situation is in good standing, which helps lower perceived investment risk.

According to a World Bank 2013 working paper on sovereign shadow rating of unrated countries, Nepal would have a rating of CCC with a positive outlook (Moody’s equivalent would be Caa1). In terms of the quality of rating, Nepal would fall under the high default risk category. This predicated shadow rating is based on estimates that control macroeconomic, structural and governance indicators, and is reflective of the period immediately following the global financial crisis. The main factors that contributed to the estimated rating were poor governance (as shown by the score in the rule of law indicator) and low public debt.

Things have changed since then; public debt, in particular, is rising as the government is borrowing more to finance post-earthquake reconstruction and other infrastructure projects. Furthermore, the latest governance indicators indicate that perceived corruption has also increased. Other indicators that are taken into consideration are per capita income (since a large tax base increases the government’s ability to repay debt), robust economic growth (debt servicing is easier as revenue also increases), low inflation, and import cover by foreign exchange reserves, among others. Considering the latest state of these macroeconomic as well as governance indicators, a downward revision from the estimated shadow rating in 2013 cannot be ruled out if the same exercise is carried out now.

Unfortunately, such estimates of shadow rating of unrated countries is not done frequently. For recent updates on a country’s investment risk, investors closely follow alternative ratings done by various risk rating and monitoring agencies, which rely on experts to evaluate a country’s economic, political, institutional, structural, and social development and outlook. For instance, Euromoney Country Risk (ECR) is one measure of rating based on the opinions of a global network of economists and policy analysts spanning over 186 countries. It is generally used as a live indicator of sovereign risk. Currently, Nepal ranks 135 (15 points up in ranking in the recent quarter) with a score of 31.89, which falls under the ECR Tier 5 category and corresponds to credit rating of D to B- (in other words, between high default risk and highly speculative). Countries in this category are highly reliant on external transfers (remittances and foreign aid), the economic and political situations are volatile, the state of infrastructure or structural characteristics is weak, access to capital and sovereign credit rating is pretty much nonexistent, and debt indicators are poor.

Convincing investors

Lowering the country risk premium is one of the ways to convince foreign investors about higher return on investment. For this, organising an investment summit and drumbeating the state of improved political regime and never-ending commitment to facilitate foreign investment alone are not going to be sufficient. It requires convincing experts and investors engaged in rating the economy about tangible changes in reducing political, exchange rate, economic and capital risks. This also means walking the talk by proactively highlighting tangible results, not only assurances or half-baked policy reform. For instance, the government is rushing to update or enact new investment related legislation ahead of the investment summit. This is a good start, but this should have been done months ago so that there is adequate homework in implementing the laws and in identifying operational bottlenecks. A case in point is the proposed fundamental amendment to the Special Economic Zone Act—dubbed as a milestone in spurring investment and exports—barely two years after it was approved. Changing consensus on assessment and outlook on the economic, political and social aspects of the country is very important for an upgrade in country risk ratings, which could result in a lower investment risk premium.

As for the sovereign credit rating, Nepal could approach one of the rating agencies for a shadow rating—an unofficial rating that can be used by the country to gauge how it is going to be perceived by the international bond market and potential investors. Nepal will informally know how its debt instruments will be priced, that is how much interest buyers will charge for debt issued by the country. If the shadow rating is not to our expectation, then we can put off a formal rating and issuing sovereign bonds. Importantly, it will give a good overview of the political, economic and institutional aspects that need to be improved to secure a good rating. Since downgrade periods are shorter and deeper than upgrade periods, it is good to initiate the rating exercise when economic, political and institutional fundamentals are strong.

Brief overview of the evolving tourism sector in Nepal

The government has declared 2020 as visit Nepal year with an aim to increase the number of international visitors to two million. The number of visitors has been increasing steadily following a dip after the 2015 earthquakes. Tourist arrivals (including Indian tourists) for the first time grew by over 24% for three consecutive years. Arrivals from India grew by above 25% for three consecutive years. Arrivals from China grew by over 46% after drop in 2017. 

In 2017, 940,218 tourists visited Nepal. It was 1,117,072 in 2018, of which 17.1% were Indians and 13.1% Chinese. Increasing this number to two million within two years will be quite a challenge. Inbound tourists increased in almost all months, breaking the over-dependence on two peak seasons. Of the total visitors in 2017, 70% came for holiday and recreation, 8% for trekking and mountaineering, and 15% for pilgrimage. 

The number of domestic travelers grew by over 20% for three consecutive years. Similarly, the number of international travelers grew by over 10% for three consecutive years.  However, the number of domestic and international flights decreased in 2018. Higher growth of the number of passengers but slower growth of the number of flights indicates that passenger per flight increased and that airlines were flying with more capacity than before. 

Increasing the number of tourists alone is not sufficient. Spending by tourists also need to increase to create larger multiplier effects and to have positive effects on both forward and backward linkages in this sector. Convertible foreign exchange earnings from tourism sector grew by over 50% in the last two years, reaching US$630.9 million in FY2018. As a share of GDP, forex earning has been increasing, reaching 2.2% of GDP in FY2018. It was 3.6% of GDP in FY2015 (from mid-July 2014 to mid-July 2015 forex earnings but then the GDP slumped). As a share of total foreign exchange earnings, tourism sector’s contribution was 6.1% in 2018. The highest was in 1999 (20%). If you are wondering about the largest contributor to forex earnings, then its remittances (about 60% of total forex receipts).  

The average length of stay is around 13 days and hasn’t changed much from previous years. The average tourist spending was $537.8 in 2018. The average daily tourist spending was around $40. These need to increase along with the number of visitors. However, it will depend on the kind of services our travel and tourism industry provide. For instance, international visitors spend barely a day in Lumbini, the birthplace of Gautam Buddha. Hopefully, this will change with the increase in the number of hotels and completion of GBIA next year. 

If we look at the balance of payments table, then it won’t be hard to notice that in recent years tourism receipts (under travel heading) are actually slightly lower than tourism expenditure (under travel expenditure). For instance, in FY2018, travel receipts were 2.2% of GDP, but travel expenditures were 2.6% of GDP (including 1.3% for education). If we deduct education expenditure from tourism expenditure outside the country, then the net travel receipts is about 0.9% of GDP. On the other hand, if we compute net travel receipts after accounting for the expenditure on international transportation by Nepalis, then the net receipts is a negative 1.3% of GDP. 

Now, think why the government restricts migrant workers and those traveling outside of Nepal for education or tourism or conference from carrying too much foreign currency with them. Every time there is an external sector stress (that is, adequacy of foreign exchange reserves to finance months of imports declines due to less forex earnings—declining remittances or tourism/export earnings), then government decreases foreign currency that can be taken out of the country. Recently, the central bank restricted it to $500 for migrant workers and $1500 for nonmigrants. 

These are based on formal accounting, i.e. informal transactions or outflows might mean that there is net travel earning outflows. The increasing net tourism outflows might indicate (apart from the educational expenses) that the Nepali tourism sector hasn’t been paying much attention to the potential of intra-country tourism activities by its own citizens. If there are better facilities, and attractive as well as competitive tourism products, then some Nepalis might actually substitute their international travel plans for domestic travel plans. The benefits of this will be immense in terms of economic activities, employment generation, revenue for subnational governments, investment opportunities, and increase in net tourism earnings, among others. 

According the Travel and Tourism Economic Impact 2018 report, the direct contribution of travel and tourism sector (economy activity generated by hotels, travel agents, airlines, and passenger transportation services) is about 4% to 5% of GDP. If we include the wider effects from investment, supply chain and induced income effects, then the total contribution of travel and tourism sector will be about 8% of GDP. This is larger than the share of manufacturing sector in GDP. Travel and tourism generated about five million direct jobs (about a million jobs if we consider the wider effects).

Increasing the number of international tourists as well as the overall competitiveness travel and tourism sector requires more than advertisement of Nepal as a good tourist destination and Lumbini as the birth place of Lord Buddha. Nepal ranked 103 out of 136 economies in the Travel and Tourism Competitiveness Report 2017.  

Travel and tourism infrastructure needs to be adequate and of enough quality so that visitors get a sense of value for money. Subnational governments need to gear up to promote unique tourism products (religious, cultural, seasonal, adventure, etc) to entice more domestic as well as international tourists. 

The enabling environment for tourism sector should be good. For instance,

• Nepal ranked 108 out of 136 economies in the quality of business environment. Specifically, FDI rules on tourism sector is considered to be restrictive (ranked 115) and legal framework is considered to be burdensome. On taxation, Nepal is slightly below average but that’s not too bad. 
• Safety and security are also of paramount importance. The costs associated with safety and security of travel and tourism activities should not be too high. Furthermore, cases of bad treatment of tourists at the airport or outside will create a bad image and is an instant reputation buster. 
• The quality of human resources and labor market is also important. Trained and service-oriented human resources add value. Hotel and restaurant sector is particularly infamous for labor union activism.

The policy environment for tourism sector should also be competitive and convincing. For instance, 

• The extent of prioritization of this sector by the government gives a good signal to potential investors and visitors. In recent years, the government has indeed prioritized this sector as an integral pillar for rapid economic transformation. 
• Visa requirement is very liberal, which is a good thing.
• Bilateral Air Service Agreements need to be updated and direct flights to countries from where Nepal gets lot of tourists is important. With the expansion of international fleet of the domestic carrier, Nepal will soon have direct flights to Osaka (Japan) and South Korea. Direct flights could also be initiated in East Asian countries that have substantial population that practice Buddhism. 
• Services need to be competitive including flight and accommodation unless the focus is on high-spending tourists and niche markets (this is unlikely for now apart from mountaineering). Ticket taxes and airport charges, hotel prices, and fuel prices should not be prohibitively high. 

The state of infrastructure should be good too. Nepal ranked 127 out of 136 economies on the state of travel and tourism infrastructure in 2017. 

• The quality of air transport infrastructure is considered to be utterly noncompetitive (ranked 129 out of 136 economies). The only international airport is beset by traffic congestion, leading to longer flight duration and higher costs. Expansion of TIA as well as speedy completion of GBIA and PIA will help to increase both the number of flights and passengers. Securing additional air routes for landing from India will be crucial to the success of GBIA and PIA. Else, the flights will be longer and expensive. 
• Ground transport is unreliable (ranked 135 out of 136 economies). The quality of roads is bad and prone to accident and traffic congestion.
• The tourist service infrastructure is also not adequate. Hotel rooms are not sufficient and the quality is not competitive. Nepal ranked 126 out of 136 economies in the number of hotel rooms per 100 people. There were 1,101 hotels (125 star and 977 tourist standard) with 39,833 beds in 2017. There are a number of new hotels (including international chains) in operation phase and homestay is gaining popularity too. There were 2,860 tourist standard hotels and lodges with 75,792 beds capacity. 
• In 2017, there were 283 affiliated houses for homestay with 554 rooms and 948 beds.
• Car rental facilities and ATMs are not enough. 
• The air pollution, unfinished construction work, bad garbage management, syndicates in transportation, and high tourism fees for low quality services among others are not encouraging.

Much more needs to be done to augment the quantity and quality of cultural resources and business travel. For instance,

• The world heritage sites are not well maintained and promoted. Product branding is not up to the expected level. So far it is limited to participating in travel fares/exhibitions.
• Sports stadiums and sports related tourism is nonexistent.

We also need to think carefully if targeting two million foreign tourists with the current state of our travel and tourism infrastructure is actually realistic. This means doubling the number of visitors from 2018 level. For comparison, India had eight million visitors (ranked 40 out of 136 economies in TTCR) and China had 56.9 million visitors (ranked 15 out of 136 economies in TTCR) in 2015. 

• The logjam over the opening of new air routes will place short-term constraints on the growth of Nepal's aviation sector and undermine the tourism authorities' aim of increasing arrivals to two million by 2020.

Nepal can attract even larger number of tourists from China and India, but for this we need to offer attractive packages catered to their population and go for effective, targeted branding. 

• For instance, outbound Chinese tourists numbered 162 million in 2017, of which about 48% went to Greater China (Hong Kong, Macau and Taiwan). So, about 84 million Chinese tourists went the rest of the world— most popular were Thailand, Japan, Vietnam and South Korea.  
• There were about 22 million outbound Indian tourists in 2017. Top destinations for Indian tourists are UAE, Saudi Arabia, Bahrain, USA, Kuwait and Thailand. Dubai, Thailand, France, Singapore and Malaysia account for over 50% of Indian leisure arrivals overseas.

Guaranteed 100 days of employment in Nepal, and Nepal-India trade talks

Scheme to ensure at least 100 days of jobs for unemployed on cards

From The Kathmandu Post: The government is rolling out a scheme that will guarantee minimum days of employment for citizens in a move that aims to deal with unemployment and discourage labour migration from the country. The country is battling a massive outflow of productive-age population, especially to the Gulf countries and Malaysia, as nearly 1,500 men and women fly abroad every day in search of jobs. According to a 2018 report of the World Bank, 32 percent of Nepal’s working-age population--people aged 15 to 64--was either unemployed or voluntarily inactive. The report said the country needed to create at least 286,900 jobs per year to keep this employment rate intact.

The Prime Minister Employment Programme, which is set to be unveiled this week, will ensure a minimum of 100 days of job opportunity for people from the working age at their own local level. The Ministry of Labour, Employment and Social Security, which will implement the scheme, has identified 13 sectors, including national pride projects, where unemployed youths will be working as part of the scheme.

In order to secure minimum days of work, a candidate will have to first register at the Employment Service Centre (ESC), which will be established in all the 753 local units. The Employment Coordinators to be deployed at all the centres will keep records of the unemployed population at their units. Such records of unemployed population and available jobs at the local level will be maintained at the Employment Management Information System, said Dahal. The system will soon work as the database for providing real time information on the number of unemployed population. “Once the person is registered at the centre, s/he will be provided a minimum of 100 days of income opportunities in one fiscal year. They will be working at government projects at their local level,” Dahal added.

Under the programme, which aims to generate a minimum of 100,000 jobs in the country annually, will also provide sustenance allowance if it fails to provide minimum promised days of work to registered candidates, said officials. While more than one members of the working age from a family can sign up to the scheme, only one member of a family would be receiving sustenance allowance equivalent to 50 percent remuneration of 100 working days as per the basic wage.

Possible areas of employment 

• Agriculture, cooperatives and animal husbandry
• Energy, irrigation and river training
• Drinking water and sanitation
• Forest and environment
• Tourism promotion
• Road transport
• Education, youth and sports
• Reconstruction
• Community infrastructure construction
• Large and national pride projects
• Information and communication technology
• Industry
• Health

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India rejects request to remove import quotas

From The Kathmandu Post: India has turned down Nepal’s longstanding request to remove import quotas on four Nepali products which have been in place since 2002. The southern neighbour has been applying quantitative restrictions on acrylic yarn, copper utensils, vegetable ghee and zinc oxide. Nepali traders are allowed to export 5,000 tonnes each of copper utensils and zinc oxide to India annually. The yearly quota for vegetable ghee is 100,000 tonnes.

According to officials of the Ministry of Industry, Commerce and Supplies, India refused to end the quantitative restrictions during a review meeting of the Nepal-India Trade Treaty held in Pokhara from February 7-8. “Indian officials said that Nepal had not been able to export even the approved quantities of the products,” said a ministry source. India has been charging 4 percent additional customs duty on Nepali metallic items apart from imposing quotas on the four items. Due to countervailing duty, Nepali traders face barriers when exporting readymade garments, copper and brass utensils and catechu to India.

During the joint secretary-level review meeting, the Nepali side mainly asked their Indian counterparts to remove non-tariff barriers that India has been imposing time and again on a number of Nepali products. In addition, Nepal asked India to allow exports of domestic products on non-reciprocity basis. Nepal charges a 5 percent service fee on imports of agricultural products from India. “Based on this, India is reluctant to allow duty-free access for primary products such as farm items, flowers and fruits from Nepal,” the source said.

India has also turned down Nepal’s request to revise the rules of origin. Nepal has been pressing the southern neighbour to reduce the value addition ratio to 25 percent or less from the existing 30 percent. “India said it would simplify the procedure, but it seems to be unwilling to revise the rate,” the source said.

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Ncell ordered to pay capital gains tax

On September 6, the Supreme Court ordered Ncell and Axiata to pay capital gains tax. This long pending order puts to rest one of the most contentious and protracted capital gains tax issues in Nepal. Taxes were avoided when ownership of Ncell was transferred from one company to another. Companies need to pay 25% in CGT per Income Tax Act. However, TeliaSonera did not pay taxes even though it made profits from the sale and repatriated “income”. 

Here is a brief outline and key points from a news story in myRepublica:

• With this decision, the apex court has set a precedent that any firm buying into another company may have to pay such tax if the seller hadn't cleared its tax liabilities on the bought portion. Malaysian company Axiata had bought Reynolds Holdings, which held a majority share in Ncell, from TeliaSonera for $1.03 billion. It was a wholly-owned subsidiary of TeliaSonera and believed to be registered in the tax haven of Saint Kitts and Nevis.
• Ncell has already deposited Rs 23.57 billion in two installments as applicable tax on the profit generated through the sale of the telecom company. It paid Rs 9.97 billion in May, 2016 on the basis of its own calculations. It again paid Rs 13.60 billion on June 4, 2017, bowing to intense pressure and criticism from a cross-section of society.
• TeliaSonera, a Swedish-Finnish company, has not paid any capital gains tax on the sale of its 80 percent share in Ncell to Malaysian company Axiata in April 2015.
• The Large Taxpayers Office determined that Ncell needed to pay Rs 60.71 billion in capital gains tax and fines and interest calculated as of June 17, 2017. A capital gains tax of Rs 35.91 billion was determined and fines and interest made for the total figure of Rs 60.71 billion. 

The LTO wanted TeliaSonera to pay CGT and filed a case in the court, which halted transfer of income outside of the country. However, Justices Om Prakash Mishra and Kedar Prasad Chalise of the Supreme Court, on December 18, 2017, took a decision in favor of TeliaSonera and allowed it to repatriate "income" (which included taxes it should have paid to the government). There are reports that investment in Ncell was used as a conduit to launder undeclared income. 

The order has come just one month before the Nepal Investment Summit 2019, where investors will be asking questions about repatriation of income by foreign investors and clarity on tax regime. The finance minister said that the government will determine how much Ncell owes in capital gains taxes and accumulated interest and fines after it formally receives the order from the Supreme Court. 

In other news, a recent Cabinet meeting approved hedging regulations to lower foreign exchange risks in projects with foreign investment. This is expected to be especially helpful in the energy sector. Additionally, the central bank approved the application for license to establish Infrastructure Development Bank, which has Rs20 billion paid-up capital.