Kathmandu, May 24

The government is preparing to maintain a certain gap in import taxes levied on finished goods and raw materials, thereby addressing the long-standing concerns of private sector.

Private sector players have long been complaining that higher import duty on raw materials than on finished goods has been discouraging the country’s manufacturing sector.

Though the exact minimum gap in the import tax on finished goods and raw materials is yet to be fixed, discussion is underway at the Ministry of Finance (MoF) to maintain at least 10 per cent gap in between the import of such goods through the upcoming budget for 2019-20 fiscal year, as per an MoF official requesting not to be named.

“As highlighted by the private sector, higher import tax on raw materials compared to finished products is discouraging domestic businesses. By maintaining a certain gap in such taxes in between raw materials and finished goods, the government aims to promote domestic businesses and production,” informed the official.

In fact, some tax policies of the government have been promoting imports over domestic production. This, as per industrialists, has not only affected growth of the manufacturing sector, but also made Nepali goods less competitive in the local market.

For example, the government levies 10 per cent import tax on cement putty, while 30 per cent tax is imposed on white cement, one of the ingredients to prepare cement putty.

Similarly, resins used in the paint industry can be imported at a lower cost compared to its raw materials. Similar is the case with raw materials for medicine packaging. While pharmaceutical companies can import raw materials for packaging medicines at one per cent tax, Nepali packaging companies are levied 13 per cent VAT and 15 per cent excise duty on domestically produced packaging materials.

Likewise, imported machinery for industrial purpose is levied four per cent import tax, whereas almost 20 per cent import tax is levied on imported industrial spare parts.

Pashupati Murarka, former president of the Federation of Nepalese Chambers of Commerce and Industry, welcomed the government’s plan to maintain at least 10 per cent gap in the import tax for raw materials and finished goods.

“Higher import tax on raw materials than on finished goods is not just discouraging investors towards production sector, it is also forcing them to choose trading over setting up factories and manufacturing goods in the country,” he said.