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Ashesh Shrestha

About Ashesh Shrestha

Ashesh Shrestha is an independent researcher. He has an Economics background and is interested in Monetary economics and Public finance.

Major challenges faced by carpet industry- High labour cost and labour related issues

One of the major challenges faced by enterprises in Nepal is caused due to labour related issues. Due to the sectorial bargaining of the trade unions, the wage rate of labour has increased manifolds in the past. This sectorial bargaining which increased the wage rate is binding to all the firms in the industries including cottage and small. So, the wage rate of the labourers has been increasing in a regular time interval but labour productivity has remained the same. This trend has specifically inhibited the growth of carpet industry. Many cottage and small firms in the carpet industry have been forced to employ the labourers informally as they are unable to pay this increased wage to the formal labourers. Labour costs in Nepal are the highest in all of South Asia, with a total annual cost per worker of U.S Dollar (USD) 1,889, compared to a cost in Sri Lanka of USD 1,619, Pakistan of USD 1,052, India of USD 943, and Bangladesh of USD 789. Between October of 2010 and October 2011, labour costs have increased by 35% for carpet manufacturers in Nepal.

Ashesh Shrestha

About Ashesh Shrestha

Ashesh Shrestha is an independent researcher. He has an Economics background and is interested in Monetary economics and Public finance.

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Reducing the Cost of Doing Business to Boost Private Investment and Economic Growth

Many economists of the 20th century spent their life working on theories of economic growth. They have explained their growth models in varying ways and from different angles. The technicalities in these theories might vary but if we carefully examine, we can find a common aspect in all of them. They agree to each other on the fact that higher level of economic growth cannot be attained without high level of investment. The growth in the level of investment increases the level of income and employment, directing the country towards the path of economic prosperity. Continue reading

Ashesh Shrestha

About Ashesh Shrestha

Ashesh Shrestha is an independent researcher. He has an Economics background and is interested in Monetary economics and Public finance.

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Obtaining Tax Clearance Certificate in Nepal

The infographic depicts the process of obtaining tax clearance certificate from Inland Revenue Office.  A taxpayer has to go through a number of steps before he finally obtains tax clearance certificate. Out of all the steps, some of the steps seems redundant and they can be clubbed into a single step without affecting the efficiency of the entire system. For example the Dues section checks if any previous dues are left or not. If previous dues are left, the tax payer has to go the bank and pay the due amount, and present a photocopy of the payment slip at tax office. Again, the Tax payment Unit, verifies if the self- assessed tax amount payable by the tax payer is correct or not. If the self- assessed amount is lesser that the amount to be actually paid, the tax payer again has to go to the bank and pay the remaining amount and bring a photocopy of the payment slip.

Here, we can see that if a taxpayer has his previous dues left and if his/her self- assessed tax amount falls short of what is actually to be paid, he/she has to go to the bank twice. If checking previous dues and correcting the self- assessed tax amount can be done in a single step, the taxpayer would be spared from having to visit bank twice for similar purpose. This will reduce total time required to pay taxes and will also make tax payment process more easy and convenient.

Currently, a taxpayer has to allocate an entire day for obtaining tax clearance certificate (given no previous dues are left and self- assessed tax amount is correct). But, if previous dues or left and/or self- assessed tax amount is incorrect, it can take up to 2- 3 days to obtain tax clearance certificate. The large amount of time required for just paying taxes and obtaining tax clearance certificate has increased the cost of doing business. Therefore, it is essential to reduce the number of processes and time involved in obtaining tax clearance certificate so that entrepreneurship would not be discouraged.

Ashesh Shrestha

About Ashesh Shrestha

Ashesh Shrestha is an independent researcher. He has an Economics background and is interested in Monetary economics and Public finance.

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PAN Registration Process in Nepal

We can observe from the infographic that an entrepreneur who wishes to obtain PAN registration certificate for his/her business has to go through three desks and six steps before he/she finally gets a PAN certificate. Out of the entire procedure, it seems that we can remove at least two steps without hampering effectiveness of the registration process but making it more efficient, instead. Firstly, after entering information provided by applicant into the computer system and issuance of the submission number, it seems unnecessary to take it back to the Tax Officer for corroborating information provided by the applicant with the information entered into the computer. This process could be reduced if entry is done carefully enough at PAN registration desk. If this could be achieved, PAN certificates could be printed at second step itself. Thus, the applicant would not have to go to Tax Officer (third step) and again come to PAN registration desk (Fifth step), reducing the process to four steps from six. This makes the registration process faster and more efficient.

In order to make PAN registration process easier, the number of documents that need to be submitted by the applicant could also be reduced. PAN registration is a secondary registration. A business initially has to get registered at Office of Cottage and Small Industry, Department of Industry, Office of the Company Registrar or Commerce Office before applying for PAN registration. Hence, documents such as Citizenship certificate, Estate ownership document/ rental contract and Location map of the proposed industry/trading business have to be presented during the primary registration as well. If there was a proper co-ordination between the primary registration agencies and Inland Revenue Offices, applicants would not have to go through the redundant process of submitting the same documents again.

It is really disappointing that in the world where technological advancement has reached great heights, our government agencies still does not have any mechanism by which information could be shared digitally. Now, the task of submitting same document again might not be a laborious one but it would at least liberate entrepreneurs from submitting same documents at multiple places. This could also be a small step towards digitization of all the government works which would make government’s service delivery more efficient.

Ashesh Shrestha

About Ashesh Shrestha

Ashesh Shrestha is an independent researcher. He has an Economics background and is interested in Monetary economics and Public finance.

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On Funding Public Education Locally

The constitution of Nepal has listed basic education as a prerogative of the local government which will also include the financing of the education. As local government will require funds in order to finance the basic education, an important thing to look into will be the various sources through which the local government can generate funds.

Article 60 of the Constitution of Nepal grants local governments to generate revenue though taxes, fines and fees on matters relating to their jurisdictions.  The same article also lays down the basis by which local government can receive funds from federal and provincial governments. Inter-Government Financial Management Act, 2017 furthers this provision and specifies four different categories of grants that local governments qualify for.

On the recommendation of Natural Resource and Fiscal Commission (NRFC), the federal government can distribute fiscal equalisation grant on the basis of expenditure need and revenue generation capacity of provincial and local governments; the provincial government will further distribute fiscal equalisation grant to the local governments on the basis of the same principle.

Federal government, according to criteria set by the NRFC, can distribute conditional grant to provincial and local governments to implement their programs. Likewise, provincial government can grant conditional loans to local governments on the basic of provincial law and criteria set by NRFC.

Additionally, there is a provision for the federal government to provide complementary grant to provincial and local governments to implement infrastructure development projects. Also, provincial government as per their law can distribute complementary grant for infrastructure development to local governments.

Finally, there is a provision for federal government to provide special grant to provincial and local governments and likewise for provincial government to provide special grant to local governments for implementation of the special plans and programs as mentioned in Section 4 of Inter-Government Financial Management Act, 2017.

Apart from these, local government can also generate funds through borrowings. Local government can apply for the loans with the federal government specifying the use of fund, methods of repayment and the time within which the amount will be repaid and, receive loan from the federal government.

Also, local governments, following the limit recommended by NRFC and by taking permission from the federal government, can acquire funds through internal borrowing.

 

Ashesh Shrestha

About Ashesh Shrestha

Ashesh Shrestha is an independent researcher. He has an Economics background and is interested in Monetary economics and Public finance.

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Impediments to hydropower development in Nepal

This article was originally published in The Himalayan Times on 8 January, 2017

Hydropower development has been a matter of huge discourse and discussion for years in Nepal – a country distressed by hours and hours of load shedding – now. Earlier last year (in February), the Ministry of Energy came up with an action plan on National Energy Crisis Prevention and Electricity Development Decade, 2016 (NECPEDD 2016). This 92-step strategy provides steps to increase electricity production to 10,000 MW in the next decade. However, in retrospect, the government’s plans and strategy have seldom proven to work. The 10,000 MW production had already been envisioned in 2008, almost a decade ago, and still no progress can be seen, let alone achieving the target. Seeing the dismal state of various other plans and strategies of the government in terms of achieving the desired results makes one doubt the efficacy of “this” strategy as well. A number of policy and practical aspects of hydropower sector will have addressed if we are serious about hydropower development.

Political and Policy Problem

For the generation of high volume of electricity, a huge level of investment is required in hydro power sector. As the government cannot finance all hydro power projects, a large part of the investment has to come from private sector and foreigners. Greater degrees of foreign and domestic private investment requires stable political and sound policy environment. These factors reduces risk and enhance profitability of the investment. However, unstable political environment, frequent changes in government, inefficient and extremely politicized bureaucracy and unclear regulations in Nepal have increased the risk and uncertainty of the return on investment and thus made the investment climate in Nepal unfavorable. Once the government changes, the strategies and policies brought by the preceding government is not followed by the successor. This has hindered the development of hydropower sector in Nepal.

Furthermore, multiple government agencies involved in the whole process of hydro power development is a major problem. Under the current policy framework, seven ministries and 23 government departments are involved in the development phase; a total of 36 Acts and Regulations guide hydropower development. The involvement of various government agencies and lack of coordination among them delays the development of the project and further increases the uncertainty.

Benefit Sharing

One of the biggest problems faced by independent power producers is the problem of benefit sharing. The idea of benefit sharing is to make sure that part of the benefits that power producers derive out of their hydropower projects also accrue to the locals in some way for what they have to give up; for example, land, access to water, access to forest, environmental safety and sources of livelihood like farming and fishing.

Electricity Act (1992) requires projects larger than 1 MW to obtain license and pay royalty to the government. The Local Self Governance Act and Local Self Governance Regulations in 1999 required central government to allocate 10 percent of the royalty received to be used in districts where projects are located. This was increased to 12 percent by the amendment in 2004. However, these provisions have not worked as planned.

On the other hand, locals expect the hydropower projects to provide basic infrastructure and service like schools, hospitals, roads etc. They also seek shares in the project and have at times been accused to have floated other unreasonable demands. But, as hydropower developer seeks profit and always tries to reduce cost, they cannot fulfill all the demands of the locals. In this scenario, locals group together to halt and obstruct the hydropower project and force the developer to fulfill their demands. The obstruction of the locals delays the projects and increases the cost. There are also chances that the project would be stopped.

There is no clear answer to what the locals can demand from the developers, what the developers are supposed to give back to the locals, and what role the government is supposed to play in terms of mitigating conflicts of interests between the two former groups, should they arise (and many a times, they do). Hence, the lack of proper regulatory framework regarding benefit sharing mechanism has increased uncertainty and risk. This discourages and demotivates the investors to invest in the hydropower sector.

Availability of finance

The cost of generating 1 MW of electricity has been estimated to be about Rs. 180 million. Taking this into consideration, if we calculate the cost for 10,000 MW, it would be Rs. 1.8 trillion, which is pretty much close to our GDP of Rs. 2.3 trillion. Apart from this, hydropower projects have long gestation periods, so they need long-term financing. For commercial banks on the other hand, short-term investments with greater returns would appear to be more lucrative.  Hence, financial deficit is a major problem. In order to cover the deficit, investment from the foreign investors can have a good deal of contribution. Greater degrees of foreign investment would mean that Nepal can harness more and more of its hydropower potential in the future, if not 10,000 MW in 10 years.

These are three out of many problems faced by hydropower sector of Nepal. Several studies have figured out many other problems. Underdeveloped capital market, lack of adequate transmission lines and insufficient capacity of existing and planned cross-border transmission lines for evacuation of electricity are some other major problems. As there are lot of problems to be addressed, we might not be able to solve all these problems at once. However, if we are committed to development of Hydropower sector, we could resolve one issue at a time. Breaking these bottlenecks is the need of the hour for Nepal, in terms of Hydropower development.

 

Ashesh Shrestha

About Ashesh Shrestha

Ashesh Shrestha is an independent researcher. He has an Economics background and is interested in Monetary economics and Public finance.

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