Kathmandu, August 8

Nepali industries must enhance their competitiveness as the goods imported from India are going to be cheaper, according to local industrialists.

The Indian government has introduced the goods and services tax (GST) as unified taxation system since July 1 to replace the earlier multiple taxes levied at central and state levels. The new tax system is expected to bring down the production cost there.

“Domestic industries should ramp up their competitiveness to tackle the cheaper imports from India,” said Shekhar Golchha, senior vice president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI).

Speaking during an interaction programme organised by South Asia Watch on Trade, Economics and Environment (SAWTEE) titled ‘Goods and Services Tax in India: Implications for Nepal’, Golchha said that the foreign direct investment (FDI) from India could also be affected because the reform in tax regime of the southern neighbour has further lowered the cost of doing business there.

“Nepal’s plan to bring in investment in production sector from India may be affected if we are unable to keep pace with the southern neighbour in minimising cost of production,” as per Golchha.

Economist Keshab Bhattarai, from University of Hull, London also opined that the revolutionary measure in tax reform taken by the Indian government is expected to spur its economic growth by boosting productivity.

“India’s economic growth is expected to hover around seven per cent in this fiscal and it will be able to keep momentum of higher growth for next few years because of this reform,” according to Bhattarai. “While Nepal needs not worry about GST because the tax is exempted in export from India, the cheaper import from the southern neighbour may ruin the country’s production base if we are unable to improve our competitiveness.”

Though GST is not be applicable on export from India, it is applicable on import.

According to Posh Raj Pandey, executive chairman of SAWTEE, Nepali exports to India have become dearer since the implementation of GST. Presenting the study carried out by SAWTEE on top 30 Nepali export items, export tariff for 28 top items will rise. GST is applicable on export from Nepal, like five per cent on big cardamom and nearly 12 per cent on prepared food.

Likewise, transportation charge on import via road has gone up as service charge on road transportation rose to 18 per cent from around 15 per cent, according to Pandey.

He also pointed to the possibility of rise in unauthorised trade between India and Nepal. There will be huge price differences in the luxury goods in the Indian market and Nepali market.

The luxury goods, on which the government of India levies highest slab of 28 per cent, will be cheaper in the Nepali market because GST is exempted on export and Nepal levies low customs tariff on such goods manufactured

in India.

“This may encourage smuggling of goods from Nepal to India,” said Pandey.