With the promulgation of the new Constitution of the Federal Democratic Republic of Nepal in September 2015, Nepal switched from a unitary system of governance to a federal system with three parallel forms of government – the federal, the provincial and the local. The Constitution confers both legislative and executive powers to all three forms of government. Schedule 8 of the Constitution of Nepal particularly confers exclusive power to the Local Governments on 22 matters, including matters relating to public finance (raising taxes, fees, and fines), management of local services, local infrastructures, local statistics and records, and local market. Furthermore, the Constitution also enshrines ‘prosperity’ as a national agenda. Along this end, creating employment through necessary economic policy reforms for an investment-friendly business environment has been widely accepted as Nepal’s mantra of prosperity. Having legislative and executive powers that can be exercised to achieve the goal of prosperity creates space for local governments to forge a shared vision of growth and prosperity together with local stakeholders.
Against this background, Samriddhi Foundation, in association with the Birendranagar Municipality and Hreeti Foundation organized a consultative dialogue at the Birendranagar Municipality Office on the 21st of April, 2019 to discuss pressing economic policy-related issues that entrepreneurs from the highest growth potential sectors of Birendranagar were facing in their sector, and to deliberate over what role the local government could play to resolve those policy issues—from laying down new policy infrastructures where necessary to breaking barriers where policy hurdles exist—to create a more conducive business environment at local level.
The dialogue was attended by 18 participants, including the Mayor of the city, representatives of regulatory institutions and other government agencies, representatives of umbrella business organisations/associations (Surkhet Chamber of Commerce and Industries, Chamber of Commerce- Surkhet Chapter) and entrepreneurs engaging in various business activities. The session was moderated by Mr. Dev Kumar Subedi, Mayor, Birendranagar municipality.
The major issues identified by the entrepreneurs during the consultation were on tax collection and administration, difficulty in accessing finance, lack of proper market, mismanagement of market, parking issues and lack of skilled manpower.
The problem with tax was that business tax, which is an important revenue source to the municipality had declined by approximately 83% compared to the previous year. This was mainly due to a change in the tax collection method. Previously, Municipality had outsourced tax collection to Surkhet chamber of commerce and Industries but as of this year municipality itself has started collecting the business tax which has not yielded good results.
Entrepreneurs – especially new, small and medium faced difficulties in maintaining the book of accounts as most of them were registered in the VAT. They also mentioned that instead of receiving help from the tax office they were fined for not being able to maintain the accounts. This made them fear tax authorities rather than trying to seek their services. Most of the entrepreneurs in the region are untrained and ill-educated which makes it very difficult for them to comply with the complex VAT system of Nepal. The failure to improve tax administration has resulted in the uneven imposition of taxes, widespread tax evasion, and lower-than-expected tax revenue. To this problem, the Mayor mentioned that through corporate income tax does not fall under the local government’s jurisdiction, the municipality has plans to collaborate with the tax office to start awareness campaigns and training to solve this problem. The local government plans to be a bridge between the people and the federal government to resolve this problem.
Accessing finance to start a business or to elevate it was one of the major problems that the entrepreneurs of Birendranager faced. Entrepreneurs found it difficult to get loans from the bank as it requires large collateral and the interest rates keep fluctuating. They suggested that one of the things that the municipality could do, if it has the resources to do so, is trying to invest in enterprises or provide matching grants to the startups and entrepreneurs.
Local market in Birendranagar, though small, is mismanaged. Entrepreneurs mentioned that the roads are getting congested caused by parking issues and unmanaged traffic. Local market management falls under the jurisdiction of the local government and the entrepreneurs expected the municipality to start resolving the issue before the market gets denser and overcrowded. The municipal authorities mentioned that it has plans to construct multi-complex malls and allocate proper parking spaces in Birendranagar to tackle this problem.
Agro-business is a growing sector in Birendranagar but the entrepreneurs belonging to this sector mentioned that there are no designated market areas to showcase their produce. A proper market place is required to showcase livestock and other agro goods for buying and selling.
Lack of skilled human resource is also a major problem in Birendranagar. Lack of skilled human could be one of the reasons Birendranagar is not being able to attract businesses. Therefore, the municipality should also focus on skill development programs that can actually be utilized in the market and is high in demand. The entrepreneurs mentioned that there is a demand for mechanics, plumber, and other such maintenance related occupation but the municipality is mostly spending money on women skill development programs such as tailoring and driving which are already in surplus supply. Proper training and investing in enterprises could act as incentives for people to start microenterprises on their own. Instead of doling out money to the people, this could play a great role in lifting businesses.