Himalayan News Service

Kathmandu, July 21:

The Federation of Chambers of Commerce and Industry (FNCCI) while analyzing the ordinance budget for fiscal year 2005-06 has hoped that if the government could restore peace and maintain law and order, it would help boost the economy, maintain financial discipline, develop Nepal as a transit point for India and advance public-private partnership.

The budget 2005-06 has tried to give a lead role to the private sector, recognising its importance to the national economy which is a good step but in reality it should work, businessmen said in the statement. Steps like establishing an export promotion zone, special economic zones, one-village one-product concept, make excise collection effective, avoid increasing tax rates and revenue collection in commercial banks are some positive steps.

However, what is worrisome is that the budget has not spelt out any rescue measures for arresting decreasing carpet and exports and removing them from the list of small-scale industries category, said the statement. This move will negatively affect the export sector as these items are main exportable items.

The ordinance budget’s step to keep the cottage industries away from the tax net will ultimately help to advance entrepreneurship. The budget has reduced income taxes on export earnings; IT related technologies and industries, that will be established in the special economic zones. That move will encourage exporters and boost export industry, said the statement. The budget has failed to work out an effective strategy to achieve economic growth which stands at about two per cent currently at a time when seven to nine per cent economic growth is being achieved by India and China. Budget should have come out with effective investment strategy packages to boost economic activities but it did not, FNCCI lamented.

Similarly, the budget has failed to incorporate the concept of ‘backward and forward’ linkages in the industry

along with absence of value addition procedures, said FNCCI. The budget is not clear on rehabilitating sick industries that have been the victims of ‘financial sector reform’ scheme initiated by the government. The unilateral definition of the sick industries is unjustifiable.

Foreign trade to third country has gone down by over 20 per cent and tourist arrivals have decreased by over 50 per cent compared to 1999, but the budget did not touch upon this aspect and no packages for reviving hydropower, tourism, exports and market diversification have been made. The government has not also clarified the privatisation strategy through the budget. However, the budget says that some public enterprises will be privatised. Budget has ignored the problems faced by Nepali agriculture sector when it comes to ‘customs duties’. FNCCI has objected to the provisions of incorporating some businesses under the VAT net saying that it will displace such businesspersons forever.

Non-life insurance has been brought into the tax net. FNCCI thinks that it will hurt the insurance business by increasing the cost of business operations. “The government has to make provisions allowing insurance business operations abroad as well,” demands FNCCI.

FNCCI thinks that if foreign investment is allowed in trekking, and other tourism related areas, it will affect local entrepreneurs. Similarly, the discretionary power bestowed upon tax officers will create further anomalies in the tax administration, regretted FNCCI through its statement. Budget has not spelt out anything for the troubled film industry, investment for effective operation of industrial security force and rescuing conflict-hit industries that generate

huge employment opportunities, said FNCCI. Under the current environment, raising revenues will be a tough task, it added.