lack of policy harmonisation, single-window service discourages investment at SEZ

 Kathmandu, July 27

A recent study has concluded that the lack of policy harmonisation and 'single-window service' for the investors has taken toll on the successful operation of the Special Economic Zone (SEZ) in Nepal.

"The policy harmonization between the country’s overall economic policies and the sectorial policies that should promote and facilitate the SEZ and the industries operating in the Zone is very weak," concluded the study report on 'Special Economic Zones in Nepal: Current status, problems and measures for effective operation' published by the Policy Research Institute (PRI). The study was conducted by Chandra Kumar Ghimire, Dr. Hari Sharma Neupane and Laxman Prasad Bhattarai.

It said that in due to the failure in striking harmony between the economic and sectorial policies, a characteristic differential treatment as seen around the world between the industries operating within the SEZ and outside is not evident in Nepal so far.

"Therefore, although the Bhairahawa SEZ is established at an accessible location, its operation has not been that effective also because there is no significant difference in the facilities enjoyed by industries in other places of the countries and the industries operating within the SEZ," read the report.

Likewise, the 'single-window service' is another special feature of the SEZ seen all over the world which is also not available here.

The Special Economic Zones Act that came into operation seven years ago has provisioned that the business transactions carried out by the industries established in the SEZ and the goods or services produced in that zone will be subjected to a 'differential treatment' and treated as an area outside the jurisdiction of the tax.

However, the study found that the revenue-related laws have not adopted this principle. The Income Tax Act, 2002, Value Added Tax Act, 1996, Internal Tariff Act, 2002, and Customs Act, 2007, as well as the economic acts and bills which have been amended from time to time, are yet to address this matter. 

Further, the Commercial Policy 2015 seems to be silent regarding the provision of differential treatment for industries operating in SEZ.

Similarly, the industries in SEZ don't have better facilitation in electricity supply as well.

In such a situation, investors are not willing to invest in the SEZs of Nepal.

The study report suggested that the federal government must adopt policies to establish one SEZ in each province by collaborating with the provincial governments. It is suggested that the development of SEZ should target public-private partnerships and the establishment of the manufacturing units of renowned multinational companies in Nepal.

It also said that the government should facilitate the problems created due to the less-facilitating policies as well as other laws and strategies related to the special economic zone and ensure its coordination.

Nepal has two SEZs - Bhairahawa SEZ which is operational and Simara SEZ which will soon come into operation.  Both very close to the border of India but are yet to be connected to the railway network. Likewise, a SEZ is under construction in Panchkhal of Kavre district while one each in Jumla, Gorkha and Nuwakot districts are in the process.

The 15^th five-year plan of Nepal aims to establish five SEZs by the end of the plan period within the country but there has not been much progress even though only a year is remaining to complete the job.

The Bhairahawa SEZ was inaugurated in 2014 but it could sell the plot after more than seven years due to the allegedly exorbitant rental rates of the land.

Then, the process of the Simara SEZ began. The SEZ Development Committee was formed under the Ministry of Industry, Supply, and Commerce in 2004 for institutional arrangements while the government formed the SEZ Development Authority as a separate entity in 2013.

The Special Economic Zones Act, of 2073 was issued in 2016 and the SEZ Authority became a legally institutionalized body. By the end of 2022, a total of 14 locations across the country are identified for SEZ and the feasibility studies have been completed, the report stated. 

Published in The Rising Nepal daily on 28 July 2023.