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Supply Side Restrictions: A source of rent for the sellers

The Ministry of Home Affairs has come up with the new executive order, which if comes into action will have stricter control over the production, distribution and consumption of alcohol. One of the proposed regulations of the government is to limit the number of liquor store to two in each ward of a municipality/sub- metropolitan city/ metropolitan city and one in each ward of a rural municipality. Apart from health damages, the government asserts that alcohol consumption is one of the major reasons behind rising domestic violence, rapes and sexual abuses. In that sense, government’s intention to regulate alcohol is fairly justified. But, the consequences of such action could be completely different from what is initially intended. 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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Unintended Consequences of Unthoughtful Orders

The executive order that prohibits selling, distributing and drinking alcohol outdoors in hotels, resorts, restaurants, and bars is done with the intention to reduce the consumption of alcohol in Nepal but instead, this will have unintended consequences. There will be a decline in the amusement, entertainment and hospitality industries as most of them profit from selling legal alcohol. Continue reading

Roopali Bista

About Roopali Bista

Roopali is working as an assistant researcher at Samriddhi Foundation.

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Clocking Alcohol Availability?

Nepal, like many other nations, has recently planned to adapt regulations which intend to reduce the alcohol consumption of the whole country through supply side interventions. As per the proposed directive, the hotels, bar and restaurants are likely to be restricted from selling alcoholic beverages prior to 5:00 P.M and after 10:00 P.M, while the liquor stores are allowed to perform transactions related to bottled alcohol between 4:00 P.M to 9:00 P.M. Continue reading

Ayushma Maharjan

About Ayushma Maharjan

Ayushma is working as an assistant researcher at Samriddhi Foundation.

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Cost of Paying Taxes in Nepal

 

The current tax system of Nepal, being overly complicated and lengthy, amounts to an annual loss of more than 24,300,000* hours of the taxpayers.  This has resulted in an increase in the relative cost of paying taxes, as the time lost by the individuals could be invested into generating additional income. While the monetary payment that an individual or an organization has to make periodically is already burdensome for many, the requirement to comply with the administrative activities, imposes an additional burden. In such a scenario, it makes sense for firms and individuals to do away with this system, accounting for fewer taxpayers in the economy.

Introducing efficiency into the tax system would not only incentivize individuals to pay tax religiously, but also would allow NRs. 1,142,100,000* to be added to the economy, generating additional NRs. 57,105,000* tax revenue for the government. This makes the simplification of complex provisions that persists, beneficial to both the government and the taxpayers. Continue reading

Ayushma Maharjan

About Ayushma Maharjan

Ayushma is working as an assistant researcher at Samriddhi Foundation.

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Leveraging Intellectuals to promote liberal values

(This article was originally published in the Himalayan Times on the 4th August, 2018)

The constitution of Nepal in its preamble defines the country being committed to the socialism based on democratic norms. Socialism is the political and economic theory of social organization which advocates that the means of production, distribution and exchange should be owned or regulated by the community as a whole.

Socialism has never been a movement of the working class, it has always been a cliché. For long time the tendencies of these abstract thought have been derived from certain drifts with which only the intellectuals are familiar. Socialist idea is the long effort of the intellectuals before the working classes could be persuaded to adopt it as their program. Intellectuals of todays and of the past have played a crucial role to fantasize the idea of socialism, though the idea doesn’t seem to have worked well in the globe. Continue reading

Sujan Regmi

About Sujan Regmi

Sujan Regmi is a researcher at Samriddhi Foundation.

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The Economics of Minimum Wage

(This article was first published in the HImalayan Times on the 22nd of July, 2018.)

Sometimes, the most noble of intentions might yet produce severe unintended and negative consequences. Nepal’s minimum wage law comes ominouslyclose to achieving this feat.

We, as a country, are setting out on a mission to achieve unprecedented levels of growth and create new economic opportunities. We need all the international and domestic investments we can secure in order to trigger that growth. Our policies, institutions and hard infrastructures will greatly determine how successful we become towards that end. But the minimum wage law seems to be incompatible with investment targets; it also appears to have overlooked domestic labour scene.

Scaring away investors

From foreign investment perspective, the new minimum wage (Rs. 13,450) which is a 38% growth from previous minimum wage makes Nepalese labour the most expensive in the region. Merge that with Nepal’s dismal performance in other global competitiveness indices like the Doing Business Index or Corruption Perception Index or Economic Freedom Index (just some among many), any prospective investor could quickly put off thoughts of bringing investments here. It already takes months to acquire a business visa to Nepal. According to the Doing Business Report, it takes 339 hours just to pay federal taxes and three years to enforce contracts.

No investor will research all small initiatives regarding foreign investment promotion in a new host country before making investment decision. They will look at these indicators and work out what country offers them the highest prospect of return. Towards that end, such dismal performance plus minimum wages that have grown 400% in the last decade while labour productivity has failed to keep pace will not help.

An ignorance of domestic reality

Cost of labour is an important factor from a domestic investment perspective as well. Formalisation of labour and organic wage growths are other couple of important aspects of labour.

If we look back at the last couple of years of Nepal’s economy, construction industry has grown at one of the fastest rates. Demand of construction workers is therefore high. Consequently, the wages of construction workers have skyrocketed. Today, one can hardly find a mason who will work for below Rs. 1500 a day. This is way above the government-set daily minimum wage. This simple example goes to show that if we create opportunities for investments to flourish and industries to grow, the government does not have to intervene and set workers’ wages in order to guarantee a decent income to them.

But then again, there is a great number of workers in the service and agro industry who have not seen their wages grow at similar rates. This might beg a question as to what we do about them. But even here, we have to be weary of the fact that a great many of these workers (who make the least income) in these sectors are informal workers in the first place. Therefore, a raise in minimum wage does not really enhance their economic positions. In fact, that brings us to another greater risk – the risk of lay-offs.

Risk of lay-off is real

Once again, for an investor (domestic or foreign) labour poroductivity matters. If the labour productivity increases in a similar rate as wages, then s/he can churn out greater profits from her/his business and everybody is happy. But when labour productivity does not increase at the same rate (which is what is happening in Nepal), then it is only a matter of time before the investor starts thinking of laying off workers and getting the same job done through fewer workers. Of course, s/he could offer some raise to those workers who are more productive and can take in some extra load. Such a raise will have come at the cost of the worker that is laid off. In the end, the law that was supposed to help the worker got her/him out of the job.

Minimum wage should not disincentivise

When we argue that minimum wage should cover at least the basic needs of an individual, we should be careful that a minimum wage does not put an individual in a position that s/he no longer needs to worry about being more productive or enhancing her/his economic position further. At best, it should be a support position while s/he starts out as an economic actor. It should be a position that everyone wants to grow out of. In that sense, it should incentivize an individual to be more productive, and not the stagnate.

Looking back at our minimum wage policy and the growth of minimum wages over the years, this will be another very important factor to look into two years from now when we sit to revise it again; if we continue to live with this policy until then, that is.

Akash Shrestha

About Akash Shrestha

Akash Shrestha is Coordinator of the Research Department at Samriddhi, The Prosperity Foundation where his focus areas are petroleum trade and public enterprises. He also writes newspaper articles, blogs and radio capsules, based on the findings of the studies conducted by The Foundation.

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