This article was originally published by Prience Shrestha on December 25, 2016 in The Himalayan Times.
The Minister of Industries has been making a number of headlines lately. One of the latest ones was when he directed the Department of Industries (DoI) to complete the registration of local industries within 30 hours and those with foreign investment within seven days of having submitted the documents for registration. Similar good news is the fact that the Ministry is currently engaging in drafting the new Foreign Investment and Technology Transfer bill which has a lot of welcome developments for Nepalese economy. Furthermore, the Minister has been very vocal in his other public appearances where he has committed to improving the doing business scene.The new Industrial Enterprise Act has also recently been endorsed, and its potential contribution to enterprise development seems promising.
In short, the reform initiatives being undertaken by the ministry are commendable. There however are areas that seem to have been overlooked in the midst of all of these reforms initiatives. Here I dissect the newly-endorsed Industrial Enterprise Bill from this very lens of how some of the provisions could create nuances in the future or even yield unintended consequences, and hope that these issues will be addressed as we move towards the implementation of the bill (in the form of an Act).
Limitlessness in directives
The bill requires registered enterprises to follow the forthcoming directives of the registration office without specifying its limit. Such limitlessness of what can be ordered by the office will ultimately create uncertainty and confusion among enterprise operators/owner about how they may be influenced in future, thus demotivating them to register their business formally. Laws should be able to give a clear picture to the entrepreneurs in terms of what all they are expected to comply with – offer predictability – so that they can then plan their activities under such clear regulatory framework.
No Maximum Time Limit for Initial Environment Examination (IEE) and Environment Impact Assessment (EIA)
The bill does not stipulate the maximum time limit for the IEE/EIA committees to give clearance to the submitted IEE and EIA reports which are essential for registering certain enterprises.
There have been cases where getting an EIA (say) clearance from the committee has stretched for years for some businesses in the past. While there is a provision that stipulates that the enterprises be registered within seven days of having produced the EIA clearance, the Bill still fails to offer a mechanism on who should, how, and by when to communicate the shortcomings in the EIA should the committee find such shortcomings in the report.Setting a time limit by which the committee should communicate the limitations of the EIA reportwith the entrepreneur/industrialist citing the specific limitations could further hasten up thebusiness registration process. This would allow the applicants to address those issues at the earliestand complete the process sooner. Failure to hold the committee accountable on this front is boundto keep registration of a number of businesses in limbo, and worse even, create room for corruption.
Composition of the Industry and Investment Promotion Board (IIPB)
Though it is mentioned in the Bill that IIPB should decide on whether or not to permit the establishment of certain kind of enterprise within 30 days, the ex-officio status of the board members can likely not allow them to make decisions even within 30 days. Their ex-officio status will often hold them with primary responsibilities leaving less time to meet regularly, or timely carry out the functions that they are required to, as members of the board. This can slow down permission, and consequently, the registration process.
Secondly, the necessity to obtain permission from the IIPB in altering any policy that influences the operation of the industrial enterprise adds an additional layer of bureaucracy (which is further worsened by the former problem of composition).
Thirdly, the composition of the board creates room for conflicts of interest. Having representatives of business associations in a body that grants permission to new entrants gives undue power to the existing business operators to influence who can and who cannot enter the market. The Bill does try to exclude members from partaking in the decision-making process whose interests might come in conflict in cases like these. However, once a party has been conferred such influential powers, there can be alternative means to exercise that power.
The unintended consequence of privileges
The Bill offers a number of benefits and exemptions based on gender and special areas without specifying any time frame until which the benefits will prevail. For instance, certain businesses established in technology-park recognized in Nepal Gazette and Special Economic Zones (SEZs) are bound to receive different forms of tax exemption indefinitely. Women entrepreneurs are given greater priority in terms of granting permission to establish their business in the SEZs while retrieving exemption in different registration fees indefinitely. While such pro-enterprise and pro-gender equality initiatives of the government are praiseworthy, the unavailability of time limit can yield unintended consequences.
Once these kinds of benefits are offered indefinitely for special groups or operators stationed at specific locations, it already creates a situation where different rules apply within the same country. Also, removing these special benefits (say 10 years down the line when the initial goals have been achieved) in the future will have political ramifications. There will be a massive political price to pay for overturning the benefit system, which will perpetuate the benefits, which will further put one group at an advantage over the other. Therefore, it is very important that these benefits be tied up with some specified time frames.
Besides, indefinite tax exemption for business inside the SEZs can create environment of discrimination for businesses operating outside of SEZs. Such discrimination can hinder the idea of enabling equal platform for free competition. In not criticizing the intention of the Bill to offer such privilege for the sake of industrial development, would it not be much better if such provisions applied all over Nepal?
Prience works in the research department at Samriddhi Foundation. And, he attempts to specialize in the field of Development Economics