Kathmandu, January 3

As the government is preparing to better regulate the country’s importing companies, private sector players worry the move would choke the life out of small and medium enterprises.

Following the recent approval of Export Import Code Implementation Guidelines, the Department of Customs (DoC) is set to introduce the ExIm (export, import) code on January 26, during the celebration of International Customs Day. This would raise the paid-up capital requirement of the importing firms to Rs two million and introduce mandatory bank guarantee of Rs one million for imports of over Rs 25,000 per consignment from India and third countries.

“We are going to introduce this policy to regulate the importing firms as there are already over 30,000 such firms,” said Sishir Kumar Dhungana, director general of DoC, adding the number of such registered companies was ‘extremely high’.

However, Pashupati Murarka, president of Federation of Nepalese Chambers of Commerce and Industry (FNCCI), argued that such a move would only ‘increase the pie of large scale importers and deprive the small and medium traders’. He clarified that FNCCI does not support this rule and urged the government to adopt alternative ways to regulate importers.

Currently, registration fee for an importing firm ranges from Rs 5,100 to Rs 10,100 based on the nature of goods that the company plans to import, as per the provision of Private Firm Registration Regulation. Apart from this, there is no other requirement of paid-up capital and bank guarantee to import goods.

After the DoC announces the ExIm code on January 26, traders would have to obtain the code by fulfilling the paid-up capital requirement by the end of this fiscal year, according to Kul Raj Gyawali, spokesperson for DoC.

“Owing to rampant rise of bogus firms (which are opened in the name of other people instead of the real owner), the government decided on this move to curb the illegal practices.”

According to Gyawali, such bogus firms import goods for a few years before vanishing without submitting the income tax or value added tax (VAT). The new rule is expected to be instrumental for the effective implementation of VAT because the bogus firms collect VAT from consumers but do not submit it to the tax offices. According to officials, it is hard to take action against such firms as they are registered under other people’s name.

“After enforcement of the rule, it will be tough to register importing firms in the name of other persons because banks do not issue guarantee without credibility of the firms,” Gyawali told The Himalayan Times.

Inland Revenue Department (IRD), the authorised government agency to implement VAT, has also supported DoC’s move to better manage and regulate importers. IRD has experienced a large number of non-filers (those who do not file tax) in the tax system.

As per Chudamani Sharma, director general of IRD, around 30 per cent of firms in VAT are non-filers, with bogus firms having a higher share. “They just disappear after a few years and easily escape tax compliance,” said Sharma, “The government is losing VAT and income tax due to lack of proper regulation of importing firms.”

According to Murarka, though, it is the small traders residing along the Nepal-India border that will bear the brunt of this provision. “There will be negative impact on the thriving small and medium enterprises that are based on imports.”

The ExIm code has, nonetheless, slightly flexible provisions for exporters. Only exporters whose export amount crosses Rs 100,000 per consignment would need to fulfil the paid-up capital requirement similar to that for importing firms. However, the exporting firms would not have to have bank guarantee to conduct trade.