Gopal Tiwari

Kathmandu, June 20:

The government has clarified last week that export earnings from cottage industry are exempt

from income tax, that was being levied at the rate of about one per cent for the past four years, due to confusion over certain provisions in the Income Tax Act 2058 and 2049. Prior to 2001, the government did not charge any tax on the export earnings of cottage industries. The

export market for pashmina, handicrafts, carpets, jewellery and handmade papers that come under cottage industry is likely to get a boost following this decision, exporters hoped. The ministry of finance has taken the decision ‘not to levy’ any income tax on such exports last week in an attempt to boost the sector, says a source at the ministry. The ministry itself has stated in a document that there was confusion in some of the provisions of Income Tax Act 2058 and 2049. The confusion in the Acts had compelled cottage industry exporters to pay income tax on their export earnings. Exporters right now seem to be in a happy mood and not very interested to put pressure on the government for refund taxes that have already paid by them.

Kabindra Nath Thakur, president of Nepal Carpet Exporters Association (NCEA), substantiating the government decision, commented that revoking income tax on exports has been a relief for carpet exporters and it will boost the industry that has been suffering from various anomalies, including unnecessary taxes. Reacting to the confusion over the provisions of the Acts and having been forced to pay undue taxes, Thakur replied, “We would hold a meeting and discuss on the issue in a few days.” Surendra Dhakal, chief executive officer of NCEA and advisor to Nepal Carpet Exporters’ Association (NCEA) commented that despite income tax on carpet exports having been exempted as per the sub clause 15 (a) of Industrial Enterprise Act 2049, the government had been been imposing income tax on export earnings. As per the provision, to get this exemption facility, businesspersons had to register their companies with cottage industry department and complete all procedures related to thereto, says Dhakal talking to The Himalayan Times. According to NCEA, during 1992-93, 3.3 million square metres of carpet was exported which has now declined to 1.6 million square metres, due to various hurdles like taxes.

India and China do not impose income tax on exportable items and their products are cheaper

in the international market. Nepali carpets can not compete with Indian and Chinese carpets due primarily to the price factor, say carpet exporters. With this government decision, cost of carpet production would go down and Nepali carpets would be more competitive, opined exporters. As per statistics compiles by the Central Bureau of Statistics (CBS), a government undertaking, imports have recorded a negative growth by 5.7 per cent during the first 10 months of the current fiscal year, while the export growth has been limited to 3.6 per cent. Dhakal said that in the context of World Trade Organisation (WTO), Nepali exporters would have to form a federation of their own to make the export sector more competitive. The Delhi declaration by the World Carpet Forum (WCF) made a mandatory provision to keep carpet industry under cottage industry and, accordingly, neighbouring countries have revoked taxes and given incentives to boost the sector.