Nepal | July 14, 2020

Production boost should be given priority

Sujan Dhungana
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Kathmandu, May 23

As the government is busy framing the budget for the next fiscal, the private sector expects the new budget to give optimum priority to boost domestic production and exports.

Some existing policies (especially related to taxes) that promote imports over domestic production have not only affected growth of the manufacturing sector, but also made Nepali goods less competitive in the domestic market, they said. “In such a context, the fiscal budget for 2019-20 should give optimum priority to the production sector and assure special treatment to domestic production and export-oriented industries,” said industrialist Pashupati Murarka.

Primarily, industrialists have said that government policies that levy higher tax on imported raw materials compared to the tax imposed on finished imported goods is discouraging investment in the manufacturing sector. 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 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 packaging raw materials for medicine. 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.

“Such taxation policies not only discourage investment in manufacturing sector but also promote imports,” added Murarka.

If the government cannot bring down import taxes on raw materials, it should at least hike the taxes on import of finished goods, say industrialists. Moreover, they have urged the government to impose at least five percentage points higher import tax on finished goods compared to import tax on raw materials of such goods.

Satish Kumar More, president of Confederation of Nepalese Industries, said the ballooning trade deficit and ways to reduce the export-import gap of the country has to be the first priority of the government in the budget for the next fiscal.

“Promoting the manufacturing sector is not only crucial to boost Nepal’s production base and exports and narrow down trade deficit, the sector’s growth is also vital to ensure that Nepal achieves its desirable growth target,” said More. He added the government should announce special treatment in terms of taxes and incentives to domestic firms, especially export-oriented businesses.

A version of this article appears in print on May 24, 2019 of The Himalayan Times.

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