Reimagining Industry Registration in Nepal

In order to start a business in Nepal, there are generally four key steps, which include: registration for the vehicle of operation of business i.e. sole trader/partnership/limited liability company, industry registration (where applicable), PAN/VAT registration, and Local level registration. Additionally, some sectoral licensing and permits might also be required depending on the nature of the business. Industry registration in Nepal is perhaps a procedure that warrants some form of discussion as to its intentions and possibly requires a different approach.

The rationale for industry registration stems from a fundamental need for a higher degree of standard for safeguarding public health. Consider the following example, a business that manufactures ferocious metals must have in place some mechanism that ensures (i) protection of the workers from potential hazards during the manufacturing phase (ii) protection of the environment from possible emissions, and (iii) protection from any hazards that a consumer of such product may face. In such a circumstance, some form of a standard would indeed be required which a) needs to be adhered to by the business and b) imposes a duty on part of the regulatory agency to ensure that such standards are followed. Not all businesses, however, would require a much higher degree of standards, for instance, a beauty parlor would not require the same standards. What follows thus is quite simple, only those businesses that manufacture products that demand a higher degree of standard for public safety should require registration as an industry. Other businesses should not require industry registration.

The prevailing provision on industry registration is dictated by the Industrial Enterprise Act, 2076. Simply put industries that would require registration have been set-out in the annexes of the act. Businesses are classified on the basis of the sector in which they operate viz tourism, service, manufacturing, agriculture, etc. Strangely enough, there are a number of businesses that require industry registration despite them not requiring any higher degree of public safety standard. In the aforementioned example, I mentioned that beauty parlors as opposed to any ferocious metal producing business do-not require safeguards (higher degree) to ensure public safety and thus following the same logic should in-fact not require industry registration. However prevailing laws, more specifically lawmakers fail to understand why registration requirements exist, especially industry registration.  To be clearer, beauty parlors in Nepal are classified as an industry and so do a number of other businesses that ordinarily do-not pose any risk to the public safety that cannot be governed by the Consumer Protection Act, 2075.

Indeed industry registration procedure is not unique to Nepal. We can find instances of many countries having similar provisions, but such provisions are only applicable to those businesses that are involved in the production of such goods and services which have implications with regards to public health and safety. Intermediaries that simply sell such goods should not require industry registration based on the rationale for industry registration, case in point being e-commerce businesses.

An argument for the redundancy of the provision for industry registration can also be made based on the fact that sectoral licensing requirements distinct from the industry registration process are also present. If the reason behind, industry registration is ensuring safeguards, the goal is better achieved through licensing requirements that already exist. If the goal is to provide incentives to businesses based on their perceived industrial activity, it can be achieved by addressing a need for coordination between government agencies. For instance, incentives as to tax exemptions mentioned in the Industrial enterprise act, 2076 in practice do not get enforced, until an amendment for the same is made to the Income-tax act either through the finance act or through an act of parliament amending the Tax laws.

Industry registration procedures in Nepal simply increase the transaction costs involved in establishing a business and running a business, a cost that influences the decision of the entrepreneur to operate formally or informally.

Yatindra KC

Yatindra KC

Yatindra KC is a researcher at Samriddhi Foundation. His background in law gives him a sophisticated grasp of the many legal aspects associated with the political and economic development of the nation. He engages himself in writing blogs and articles on contemporary economic and political issues.