Textile industries dismiss new budget

Kathmandu, June 2

Nepal Textile Industry Association (NTIA) said on Thursday that the budget of the upcoming Fiscal Year 2022/23 largely failed to address the demands put forth by the domestic textile manufacturers.

"The budget of the next year not only failed to address our demands but also remained silent about the continuation of the incentives we have been getting," President of NTIA, Shailendra Lal Pradhan said at an interaction on the issue with the journalists.

Although we have been continuously advocating for our requirements and policies that the state should adopt to promote the textile industries, and updated Finance Minister Janardan Sharma Prabhakar, Industry Minister Dilendra Prasad Badu and other stakeholders about the status of the business and incentives and other policies required for its development, government seems indifferent to the contribution of the textile industries in employment and economy.

NTIA demanded for 70 per cent return on Value Added Tax or reduce VAT to 5 per cent as India charges 5 per cent on textile. "Likewise, cotton yarn should be included on the list of VAT. It will end the malpractices in cloth sales and increase the revenue for the state," said Pradhan.

According to him, all industries running with electricity should be registered with the VAT, this provision will reduce the inequality and create platform for healthy competition. Likewise, all businesses selling textiles should be registered at the VAT to check the sales of illegally imported clothes.

He said that there should be realistic evaluation of customs duty on textile and related goods imports, as well as provision of floor price and VAT.

Similarly, while the customs duty on cloth import is 15 per cent, it is being imported at 5-7.5 per cent as per the rules of SAFTA (South Asian Free Trade Area) which has negatively impacted the domestic industries as they couldn't compete with cheap imports.

"The government should continue with the provision of 50 per cent subsidy on electricity to the industries registered with the VAT. The 5-year ceiling of new loans with 5 per cent interest should be at least 10 years," said Pradhan.

 

It is worrying that the government only sees the already dead Hetauda Textile Industry but not the successfully running private sector industries, Vice President of the NTIA, Jitendra Lohia said. 

He maintained that the ministries also discouraged the entrepreneurs saying that the Nepali goods can't compete with the cheap foreign goods while banks and financial institutions are hesitant to mobilise their loans to the sector that is touted as 'having less potential'.

"There are chances of making 500 per cent value addition if we import yarn and manufacture cloth here. There are many industries that are in operation just because the government incentives help them to remain alive," said Lohia.

Textile contributes 5 per cent to the GDP of India, 7 per cent of China, and 20 per cent each of Bangladesh and Vietnam. Attraction to this sector is growing in Pakistan, Laos, Cambodia and other countries as well.

Currently, more than 250 textile industries are in operation in Nepal which have employed about 50,000 individuals directly. About Rs. 22 billion is invested in the sector. According to NTIA, about 85 per cent of the textile consumed in Nepal either comes through smuggling or is under-invoiced. Domestic industries produce textile worth Rs. 15 billion while the size of textile import is Rs. 50 billion.

It said that the statistics of the Department of Customs showed that textile of about Rs. 6 billion is used in Nepal in a year but legal imports and local production make up only Rs. 1 billion.

Most of the textile industries have died at the Morang-Sunsari Industrial Corridor and only Pragati Textile is in operation. Likewise, industries in other areas including the Kathmandu Valley have also been shut in the past years. 

 Published in The Rising Nepal daily on 3 June 2022.  

NRAB to suggest Rs. 1.3 trillion revenue estimates for next year

Kathmandu, Apr. 26

The Nepal Revenue Advisory Board (NRAB) has said that the government should aim at collecting about Rs. 1300 billion in revenue in the coming fiscal year 2022/23.

Chairman of the RAB Mahesh Dahal said that the revenue ceiling was considered after reviewing the current status and future prospect. "Through the scientific and pragmatic point of view, Rs. 1.3 trillion revenue should be the target," he said while speaking at a pre-budget discussion organised by the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) here on Tuesday.

However, he maintained that the amount could slightly be modified before it is submitted to the government. The final report will be prepared in a week from now. There is Rs. 1180 billion target for the current fiscal year 2021/22 of which Rs. 811.8 billion (about 69 per cent) is collected as of Monday.

Dahal said that the country is at the Value Added Tax (VAT) deficit of Rs. 250 billion, and if this gap could be bridged, the government could be at a comfortable position in terms of resource management to fund the development works.

According to him, the country should go for the second-generation reform in the revenue sector, and need to review the VAT discounts whereby discounts on some goods and institutions should be curtailed or removed.

He said that the RAB was for the creation of business and investment friendly revenue policy. "It is an independent agency that bridges the government with the economic stakeholders," he said. Likewise, Dahal stressed on the application of technology in the revenue sector so that the efficiency of both the tax administration and entrepreneurs increased.

Cut down tax compliance cost

Speaking on the occasion, tax expert Dr. Roop Khadka said that tax compliance cost should be nominal. He also suggested the private sector to cease demanding the implementation of multiple rates of VAT since it will increase the tax compliance rate. "Why are you including the institutions like the FNCCI demanding the multiple rates of VAT? If your demands are met, you have to maintain robust account system to address the multiple rates," he said.

Similarly, he said that the VAT discounts on the essential goods that largely used by the poor are also used by the people of higher class.

"So, it is difficult to create justice in VAT implementation. Hence, the government should charge equal tax on the goods and develop social security policy to support the poor," said Dr. Khadka.

He also pointed out to the tax loopholes such as exporters don't need to pay tax, they enjoy zero VAT facility but they pay VAT while procuring their inputs such as vehicle, machines and furniture, and raw materials.

It has made Nepali products less competitive in the international markets. Entrepreneurs will be benefitted if they were charged with the VAT because they would get the refund of the tax they paid. But the VAT paid in inputs and raw materials is not refunded.

Likewise, hydroelectricity generators are paying about Rs. 20 million in VAT while procuring their equipment. Same is happening with the carpet export, according to Dr. Khadka.

Sandip Agrawal, Chairman of Tax and Revenue Committee at the FNCCI, demanded that the government should provide tax discount to a company if it reinvests 40 per cent of its profits in business expansion.

He also urged to clear the cases at the revenue tribunal. Cases equivalent to about Rs. 100 billion are pending at the tribunal. Businesspersons also expressed anger over the government delay in paying their dues as the former doesn't pay any interest to the due money even if it paid it years later.

Manoj Adhikari, President of Nepal Freight Forwarders' Association, asked the government not to charge TDS on the payment made to the transporters in India and airlines flying to Nepal while they are not subjected to comply Nepal's tax rules. 

Published in The Rising Nepal daily on 27 April 2022. 

Loan to food industries is not 'agricultural investment'

Kathmandu, Nov. 30

Association of Nepal Rice, Pulses and Oil Industries (ANROPI) has said that the banks and financial institutions (BFIs) have calculated the loans mobilized to the rice, oil and pulses enterprises at a rate of 15 per cent as agricultural investments.

"The BFIs should either consider these industries as 'agro base' enterprises and provide loan facility or they should remove credit given to them from the 'agricultural investment' category," a delegation led by ANROPI's president Dr. Subodh Kumar Gupta put forth the demand to Secretary of Finance Madhu Kumar Marasini at a meeting at the latter's office in Singha Durbar on Tuesday.

He urged the government to increase the duty on rice imports to 15 per cent from existing 8 per cent.

"The duty on rice imports should be raised to 15 per cent or customs duty on paddy imports should be decreased to 1 per cent from current 5 per cent," said ANROPI.

It also asked to open the export of high value Basmati rice from Nepal. "We will work together with the farmers if the government takes steps to discourage the import of rice," read a statement issued by the association.

The association has conveyed the same message to Director General of the Department of Industry, Jibalal Bhusal and Director General of Department of Commerce, Supply and Consumer Protection, Prem Kumar Shrestha, on the same day.

The delegation included former President of ANROPI, Kumud Kumar Dugar, Vice President, Naresh Rathi, General Secretary, Dipak Kumar Poudel, and Office Chief Ajaya Parajuli.

"The government should protect the rice, oil and pulses industries since they produce the food which are basic to the survival. The government should devise a strategy to save the country from dependency on foreign countries for food items and promote domestic industries," said Gupta.

According to the ANROPI, there should be two levels of customs duty of agricultural raw materials and final products.

Likewise, it suggested the government that the food products imported to Nepal must include information like the maximum retail price, name and address of the importers, its contact details, batch number, date of packaging and label.

It said that the domestic cooking oil industry by imposing 5 per cent Value Added Tax (VAT) and reducing import duty on mustard seed to 1 per cent from current 5 per cent.

As per the current practice, importers have to pay 5 per cent duty on mustard seed imports and 13 per cent VAT on refined cooking oil.

Similarly, the association suggested to apply different duty on refined pulses and raw materials like legumes. Currently importers are paying equal 10 per cent duty on the import of both items while the ANROPI has demanded to bring down the duty on legumes import to 5 per cent. 

Published in The Rising Nepal daily on 1 December 2021. 

Tax Day marked, Govt pledges to reform tax regime

Kathmandu, Nov. 17

Government has felicitated highest tax-paying businesses and individuals on the occasion of the National Tax Day on Wednesday.

Minister for Finance Janardan Sharma conferred the felicitations to them. Nepal Telecom is recognised as the highest income-tax paying company while Shashi Ranjan Dabar has paid the highest tax from export industries category. Likewise, Asian Paints’ Gopal Shrestha received felicitation from special industry sector.

Siddartha Rana, Chairman of Sipradi Trading, is the largest individual taxpayer. He has investments in Sipradi Energy, Sipradi Earthmover, Sipradi Autoparts, Sipradi Assured, Himalayan International Energy, Bhotekoshi Power Company, Tara Management, Surya Fund, Soaltee Group, Amaravati Travel, Am Trade and Surya Nepal.

Surya Nepal is the largest payer of the Value Added Tax and income tax from industry sector.

Purvanchal Agrotech has paid the highest tax from agriculture sector.

Similarly, Nabil Bank, Nepal Reinsurance Company and Chhimek Laghubitta Bittiya Sanstha are recognised as the highest tax payers from commercial bank, insurance and microfinance companies.

Other largest taxpayers are Nobel Hospital from service sector, Taragaun Regency (Hyatt Hotel) from tourism sector, Himal Power Company from hydropower sector and Bhatbhateni Superstore from trading.

Finance Minister Janardan Sharma said on the occasion that the government would form a mechanism to immediately address the taxpayers’ problems and constraints in the tax system.

“After listening to the complaints of the taxpayers, I have realized that the country needs a special unit to listen to their grievances and the government will immediately address the problems,” he said.

Stating that he had received grievances that the informers of tax leakage were not properly awarded, he directed to immediately provide incentives to the informers. He also expressed his commitment to make the tax administration fully contactless and paperless.

Revenue Secretary Krishna Hari Pushkar said that the revenue raised from the taxpayers during the COVID-19 pandemic had supported in the economic recovery.

Meanwhile, the IRD has achieved 95.32 per cent result in its tax collection target in the last Fiscal Year 2020/21.

It had collected Rs. 429.27 billon tax revenue last year of which Rs. 277 billon was income tax and Rs. 134.9 billion excise duty.

 Published in The Rising Nepal daily on 18 November 2021.   

Govt calls for tax payment by July 9

Kathmandu, June 16

The government has urged one and all to clear the due taxes by July 9.

The Inland Revenue Department (IRD) has issued a notice urging to submit the taxes and Value Added Tax (VAT) of Nepali month Chaitra of 2077 BS (mid-March to mid-April) and Baisakh of 2078 BS (mid-April to mid-May).

The IRD issued the notice a day after the court verdict that opened the way to collect taxes even during the lockdown period. A court decision last year had barred the government to collect taxes before 30 days after the lifting of lockdown or restrictions.

On Tuesday, the court had given its verdict in favour of the government and opened the way to raise taxes as per the provisions of the Financial Act.

According to the notice, the details of the tax deducted in advance, as per the VAT regulations, for the month of Baisakh should be submitted within the given date.

Likewise, the details of income tax and excise duty of the two months should be submitted before July 9 along with the details of tax deducted in advance and business details.

Charges for education service, telephone ownership and telecommunication service should also be submitted within the same deadline.

Earlier, private sector organisations like the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) had urged the businesses to pay the taxes if they had the capacity to do so.

 Published in The Rising Nepal daily on 17 June 2021. 

Govt in homework to tax real estate, transport sectors

Kathmandu, Apr. 1

The National Revenue Advisory Board has started a study to bring all economic activities in the real estate and transportation sector within the tax net.

"The real estate sector should be developed in agency model so that all the activities and transactions are transparent. Currently, the middlemen's income is unknown and it is out of tax net," said Mahesh Kumar Dahal, Chairman of the Board.

The Ministry of Finance had formed the board in 2020 to offer policy level recommendations to the government and resolve the tax-related disputes.

Likewise, another study is launched to find solutions to make transportation business well managed and keep track of the business activities in the sector.

The transportation sector has many entrepreneurs who own one or two trucks, buses or other vehicles. They are out of the taxation system as their business is not registered. Such businesses must be converted into company model and even a single vehicle should be registered if it is used in business, said Dahal.

According to him, if the base of tax could be widened, there wouldn't be a need to raise the tax rates as many businesses and economic sectors are running without the knowledge of the tax administration.

Speaking about the tax relations among the three levels of the governments, Dahal said that there is a need to review the current policies and practices of various levels of the government. "We have recently formed a consultation team to look into the issue of tax duplication. Some local units have imposed double taxation in some sectors while many of them have not implemented rightful taxes of their rights as mentioned in the constitution," he said.

Lack of skills, institutions, teams, laws and understanding regarding the taxes are the causes behind double taxation.

Currently, 7 sub-committees are reviewing the tax provisions in respective economic and business sectors.

An integrated report would be compiled following the submission of the reports by these committees. Then the report would be submitted to the government by mid-May this year so that the recommendations made in the report could be included in the budget of the coming fiscal year 2021/22.

Published in The Rising Nepal daily on 2 April 2021. 

Lack of definition impedes textile industries getting loans

Kathmandu, Dec. 15

Textile industries in the country complained that the new modality to obtain the concessional loans was complex due to lack of definition of 'new loan' and provision to get approval from the Inland Revenue Department (IRD) to obtain the facility.


The government has announced a concessional loan facility of Rs. 50 million at 5 per cent interest rate for the textile industries but the entrepreneurs are facing difficulty in defining what is 'new loan' as the previous loan is renewed every year which has created confusion in the part of banks and financial institutions (BFIs).


Nepal Textile Association (NTA) said that the complex procedure, including the approval from the tax administration, made the industries feel that if the government really wanted to provide the facility.


"I don't know why the government set the ceiling of concessional loan to Rs. 50 million? Sometimes a single machines cost that much money," Vice-President of NTA Jitendra Lohia said.


The government last year had scrapped the tax rebate facility to the garment industries and Finance Minister Dr. Yuba Raj Khatiwada had announced that programmes would be announced to help them to reduce the production cost. In the budget speech for the current fiscal year, he reduced the customs duty on dying chemicals and spare parts to 1 per cent from existing 5 per cent which has reduced 4-5 per cent production cost of synthetic cloth and 2 per cent of cotton cloth.


Textile industries had also asked the government to buy Nepali cloth for public offices and subsidy on electricity as well.


The industries were getting 9 per cent tax rebate.

According to Lohia, the industries are facing about 7 per cent high cost of production as their social security expenses have gone up to 20 per cent from previous 13 per cent.


"The social security cost before the policy announcement was about 13 per cent which has gone up to 20 per cent now. It seems that the government has not realised that labour intensive industries like us can significantly contribute to the society and economy," he said.


Another major concern of the Nepali producers is unabated smuggling of cloth to Nepal.

If one had to believe the statistics of the NTA, there is about Rs. 350 billion to Rs. 400 billion grey garment and textile markets in Nepal.


Nepali producers produce cloth of about Rs. 8 billion in a year and the country imported cloth worth Rs. 51 billion from the formal channel but the actual size of market is about Rs. 450 billion. A significant portion of cloth is also brought in by Nepalis while returning from foreign country as well.

But Ministry of Finance (MoF) said that the loan facility was just a concession not compensation.


"Business community must not understand the concession as the compensation. The government has to give the facility to many other sectors as well," said Uttar Kumar Khatri, Spokesperson of the ministry.


He said that the smuggling of goods including cloth is in decreasing trend as the police and customs both had been applying various measures to check that.


"This is a continuous process which will deliver results gradually. The government is committed to support the business community," said Khatri.



Published in The Rising Nepal daily on 16 December 2019. 

NTA piles pressure on govt to resolve VAT issue immediately

Kathmandu, Oct. 24: Nepal Textile Association (NTA) has warned the government that they would shut all the textile industries across the country from November 1 if their demand for the adjustment of the Value Added Tax (VAT) was not addressed immediately.

A meeting of the textile producers on Wednesday decided to shut about 200 industries in case their demands were not met by the end of October. The NTA has sent its decision to the Ministry of Industry, Commerce and Supply (MoICS), Ministry of Finance (MoF), Ministry of Labour, Employment and Social Security (MoLESS), and business associations such as Federation of Nepalese Chambers of Commerce and Industry and Confederation of Nepalese Industries.

If the industries are shut, more than Rs. 20 billion investment in the spinning mills and Rs. 7 billion in the textile sector, and 250,000 employees will be affected.

"We have urged the government to reconsider its decision to annul the VAT refund facility, which was made through the budget of this fiscal year," Shailendra Lal Pradhan, President of NTA, said.

Textile entrepreneurs had been expressing their discontent with the government regarding the removal of VAT refund since the announcement of the budget of this fiscal on May 29.

“But the government has turned deaf ears to our genuine demands. Due to the bad decision of the government the textile mills are forced to cut their production by almost 50 per cent since the production cost went up suddenly,” said Pradhan.

Due to the reduced production, the industries missed the marketing opportunity during the largest festive season. According to the entrepreneurs, they have lost almost 40 per cent business opportunity.

They accused the government of being indifferent towards the entrepreneurs’ demand pushing the industries towards their death.

“The industries were getting 70 per cent VAT refund, and removal of this facility has increased the textile production cost by almost 9 per cent,” Pradhan said.

According to him, the government was getting 30 per cent of the VAT anyway. Apart from that, raw materials producers and forward industries like garments in the value chain have also been contributing to the revenue.

India has imposed only 5 per cent VAT on textile.

Textile maladies in Nepal do not end up there. About 80 per cent, about 800 million metres of cloth is imported to Nepal illegally from China and India.

A recent study of the NTA showed that Nepal needs 1 billion metres of cloth for body wear and other commercial products like curtains, bags and cushions.

Of the total cloth requirement, about 70 million metres are produced in the country and about 130 million metres are imported legally.

“If the government didn’t adjust the tax rates, there is no chance for us to compete with the illegally imported clothes. If there are difficulties to address the tax adjustment demand, equal amount of grant should be provided to the industries through other channels,” demanded the NTA.

Pradhan said that the government should establish a dedicated textile department to promote this labour intensive sector and generate reliable database required to create development strategy.

Published in The Rising Nepal daily on 25 October 2018. 

Call to stop textile smuggling to boost domestic industry

Biratnagar, July 9:

Knitting, textile and spinning mills have urged the government to check the smuggling of cloth from India, China and other countries if it wants to see a thriving domestic textile industry.

The 100 per cent value addition textile and knitting industry has been severely hit by the illegal import of cloth as the smuggled goods come without paying customs duty and other taxes. They have strong competitive advantage over the internally produced cloth.

“About 75 per cent of the cloth used by Nepali consumers is illegally imported. The government should conduct regular market monitoring, and there should be a provision of mandatory business registration for all the cloth and garment suppliers and retailers,” said Jitendra Lohia, vice-president of Nepal Textile Association (NTA), who runs Pragati Textile Industries, one of the largest textile producers in the country, in Khanar, Sunsari.

The producers unanimously say that the bureaucracy should be proactive to curb the smuggling of cloth. According to one of the producers, a high level government official once said that illegal import was good since people could get clothes at a cheaper price.

But the country has long been paying a very high price for the illegal imports in terms of investment, employment, revenue and market share.

According to the NTA, complete control of cloth import is not possible due to the open border between Nepal and India and religious and cultural relations across the border, but better monitoring could improve the situation.

“If illegal imports were to be discouraged, I am ready to expand my factory. Currently, we are producing 350 million kilogrammes of cloth per year while running the plant at around 50-60 per cent capacity,” said  Rabindra Sharma, director of Jayakamal Hosiery Industries in Jatuwa, at the Morang-Sunsari Industrial Corridor in Biratnagar Metropolis.

He is ready to expand the capacity to 3,000 million kilos of cloth per annum if there is a favourable environment.

According to Sharma, majority of his products are of cotton, and the raw material is not available in Nepal. He buys synthetic yarn from Nepali producers. There is 100 per cent value addition with Indian yarn, which could reach as much as 300 per cent if the cotton is available in Nepal, he added.

Industrialists said that the recently announced government policy to do away with the Value Added Tax (VAT) refund system could be another setback for the manufacturing sector industry which has been trying to reemerge after a couple of decades.

“Indian textile producers are paying only 5 per cent VAT, and they have 40-45 per cent subsidy in technology transfer while we don’t have any incentives, and the recent government’s move could ruin the industry,” said Lohia.

The government’s announcement to annul the VAT refund system, which has been in place for the last two decades, will increase the price of Nepali cloth by 13 per cent for cotton and 9.1 per cent for synthetic.

“Internal consumption is the key to promoting domestic textile production,” says DP Mishra, chief executive of the Reliance Spinning Mills Limited, the largest industry in the sector and the largest employers in the country.

He pointed to the need for promoting local textile industries and products.

“Export is not our priority. We are exporting yarn to Turkey just because it has imposed anti-dumping duties on Indian textile and yarn. The Indian market is not competitive for us as we import raw materials from India, which means we need to spend an extra IC Rs.18s just to transport the raw material and finished goods,” said Mishra.

He said that the spinning and textile industry is a labour-intensive industry, thus contributes to employment generation.

Reliance employs about 4,000 people, of which 1,500 are women and 1000 are trainees.

Published in The Rising Nepal daily on 10 July 2018.