Nepal | July 04, 2020

Foreign investment to be allowed in secondary market

Sujan Dhungana
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foreign direct investment data

FDI commitment in Rs million; Source: DoI

Kathmandu, October 5

The draft bill of the Foreign Investment Act has a provision that, for the first time, allows foreign investment in the country’s only secondary market.

The draft bill enables foreign institutional investors and non-resident Nepali citizens to invest through the secondary market, which is also called portfolio investment, by purchasing shares of companies that are listed in the stock market.

However, total foreign investment should not exceed certain percentage (yet to be fixed) of the paid-up capital of the company listed in the stock exchange.

Similarly, investors can sell such shares only through the stock market.

Likewise, the draft bill has stated that the minimum number of shares that foreign investors can purchase, investment boundaries and foreign currency reserve to be kept before purchasing shares will be as per the standard set by the secondary market regulatory body of the Nepal government.

The Foreign Investment Promotion Board has been given the responsibility of implementing the existing policies, acts and rules regarding foreign investment and facilitating the establishment of industries based on foreign investment.

The bill has authorised FIPB to approve foreign investment worth Rs 2 billion to Rs 10 billion. Foreign direct investment below Rs 2 billion is currently approved by the Department of Industry and Investment Board Nepal approves FDI above Rs 10 billion.

The draft bill of Foreign Investment Act, prepared by Ministry of Industry, has not fixed any limit for foreign investment in Nepal.

However, the government can fix the upper limit of equity investment for service-oriented industries as per commitments made by Nepal after being a member of the World Trade Organisation.

The bill has identified hydroelectricity, transportation infrastructure, agriculture, tourism and aviation as priority sectors for foreign investors.

The draft bill has given all facilities that are provided to domestic industries to industries established under FDI too. In addition, the bill has also given income tax waiver facility to industries under FDI for a certain period after they begin production.

Similarly, all forms of taxes have been waived off for the amount that such industries use to reinvest from their annual profit, either to enhance the industry’s own capacity or in any other industry.

However, stakeholders said during a discussion on the draft today that both domestic and foreign investors should get the same number and type of incentives and other facilities.

“The Foreign Investment Act should not discourage local investors while luring foreign investment and investors,” Shankar Sharma, former vice-chairman of National Planning Commission, said, adding that provisions in the draft are quite restrictive and therefore should be made flexible.

Pashupati Murarka, president of Federation of Nepalese Chambers of Commerce and Industry, said the draft bill was ‘bold’ and friendly to attract FDI. “We do not want the facilities highlighted for foreign investors in the draft to be cut, however, domestic investors should also enjoy facilities at the same level,” he said.

Meanwhile, the draft bill has restricted FDI in 13 types of industries, including traditional cottage, arms and ammunition, real estate, network and media.

A version of this article appears in print on October 06, 2016 of The Himalayan Times.

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