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Doing Business in Nepal: Ins and Outs of the Company Registration Process in Nepal

In an attempt to increase the ease of doing business in Nepal, the Office of Company Registrar (OCR) made online company registration process mandatory in October 2013. Since then, Nepal has gone up three spots in the Doing Business Index (2014) ranking 105th among 189 global economies.

But does it mean that it is much easier to register a company now? Not Really! My research shows that although corruption and bureaucratic hassles were among the major reasons for the change to an online system, they still remain intact. People still have to go through all the old processes and additionally provide documentation online. Moreover, the decade long problem of people outside the valley, who have to come to Kathmandu to register their companies and incur expensive travel and lodging expenses still exist.

The process map reflects the long bureaucratic procedures and the paragraphs below explain some prominent problems.

©Samriddhi, The Prosperity Foundation

©Samriddhi, The Prosperity Foundation

Corruption remains unscathed

In theory: According to the OCR IT personnel, an email regarding approval of the proposed name of the company or reasons for denial is sent to the applicants within 15 days. Following the approval, producing originals of required documents, paying the registration fee and collecting a signature is enough to get a registration certificate.
In practice: Mostly, applications do not get forwarded for approval unless there is some kind of under-the-table settlement. While the registration process is stuck even after 15 days if bribes aren’t given, the whole process can be completed within 2-3 days with proper connections and handsome payoffs.
Causes

  • OCR officials attributed low government salaries as well as the willingness of the business community to bribe as factors fueling corruption in the company registrar’s office. They also mentioned that performance-based-incentive-systems have been proposed, however if and when the system will be approved is uncertain.
  •  A lawyer mentioned in an interview that even if there was a situation where under-the-table settlements wasn’t necessary to get the registration certificate in 15 days, he would still resort to bribing to remain competitive as other lawyers would be finishing the job in 2-3 days through unofficial settlements.
  • Some applicants try to avoid providing necessary documentation and use shortcuts (settle unofficially) to complete their processes.

With both parties willing, corruption has become a norm in the OCR.

Too early to change?

Some employees within OCR, lawyers, and business people (who have to go through the additional online process) have shown some resistance to the change.
Also, for people who are not acquainted with using a computer (esp. people living in remote areas), finding a service center is a problem. When they do find one, the monopoly provider charges exorbitant fees. FNCCI and CAN have opened up service centers in 11 districts and plan to expand to all 75 districts, but due to lack of awareness among people these service centers do not seem to be very popular.

Technical Problems:

Although generators are set up in the OCR for the long and frequent power outages, they do not always work thus halting the registration process during times of power cuts.
Similarly, people also miss deadlines when server crashes occur due to high volumes of online activity close to the deadline date. The system does not recognize certain Nepali characters and thus spelling the correct company names become a problem. There have also been multiple complaints of the user–friendliness aspect of the system and even tech-savvy people have found it difficult to navigate it. OCR is aware of this fact and they are working on making the system more user-friendly and approachable. The software has been evolving and feedback are welcome at support@ocr.gov.np or info@ocr.gov.np.

Going online has increased costs!

cost of company registration infographics

So does it mean going online is a bad idea?

Absolutely not! The problem is not in going online but in the inability to go fully online. With a fully automated process, people don’t have to spend time or money to travel to the offices and consider office hours to view their documents or submit their applications. Going online makes document access and company existence verification easier, which helps while applying for loans. Transparency is increased when people are able to see information about registration fee, fines and application status online.  Issuing PAN numbers directly not only make it easier for the applicants but also help increase tax nets.

The online system allows applicants to reserve a name until 35 days and this opens up opportunities for people to approach potential clients or investors with the guarantee that their business will have that name. Complete automation would also significantly help remove corruption in the OCR.

Ideal deal

The ideal situation would be complete automation of the company registration process and efficient service centers. Since that will take time, the online system could be made optional until all OCR staffs are well-trained and reliable service centers with reasonable prices are established all over the country. It is also important that people get all the post-online registration work done in one place and a real ‘one-window’ is established. Additionally, provisions should be made to make registration possible in each district for the time being.
Ensuring electricity supply during office hours and making the online system more user-friendly and error-free through a constant feedback system is important.  Also, 15 days is a very long time period just to verify the name of a company and that should be reduced. Moreover, the Government of Nepal and Nepal Rastriya Bank need to find agencies and come up with policies that will recognize digital signatures as well as make e-payment possible so that complete automation can be realized as soon as possible.

What do you recommend to make the company registration process better? Please leave a comment below.

Sneha Pradhan

About Sneha Pradhan

Sneha Pradhan is a Researcher at Samriddhi Foundation with an interest in good governance. She is a graduate student at Heinz College, Carnegie Mellon University in Pittsburgh, Pennsylvania, pursuing a Master of Science degree in Public Policy and Management. She also has a Bachelor of Arts Degree in Economics and Statistics with a minor in Complex Organizations from Mount Holyoke College, South Hadley, Massachusetts.

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Doing Business in Nepal: A Case Study in Tourism

China and India are set to be among the three largest economies of the world by 2020, accounting for 27% of world GDP in PPP terms. And what’s more? They are travelling. All we have to do is become the coffee-shop between two huge corporate houses, whose staff likes to venture out of the routine jobs every once in a while. But is doing business in Nepal so easy, including the tourism industry? The World Bank’s Doing Business report positions Nepal at 105th in terms of ease of doing business.

Here we will look at a case – the ground realities of the process of acquisition of green number plate licenses that travel and tour operators require.

Ground realities

The number plates are issued after a two-tiered process. First of all the applicant tour operator applies at Tourism Industry Division (TID) under Ministry of Culture, Tourism and Civil Aviation for a permission to apply at Transport Management Office (TMO). Excessive corruption, red-tapism, redundancy, lack of accountability in part of the concerned agencies are commonalities in practice.

Process of acquiring green number plate

Process of acquiring green number plate. CLICK on the image to get a better view.

Lack of Accountability

To begin with, all government agencies are required to host Citizen’s Charters (Nagarik Badapatra) at their premises as a measure of accountability towards the citizens. The charters posted at the TMO premises are a decade old and do not reflect the true processes that are followed at present. Besides, economic ordinances can make annual changes in details like vehicle tax. These issues are not addressed in the citizen’s charters posted at TMO premises. Therefore, if an entrepreneur were to follow the guidelines as mentioned in those charters, he/she would be misled and would be rendered unable to acquire the desired services from TMO.

Redundancy
Most procedures required at TID are repeated again at TMO, only increasing the scope of discretionary powers held by bureaucrats at different sections of TID and TMO. This, complimented by lack of information sharing between these agencies can cause the files to be stuck at one section or the other. For example, while the Travel Section at TID verifies all clauses as included in its 26-point check-list before writing an application to the TMO requesting that a green number-plate license be issued to the applicant tour operator, the road-test procedure conducted by the Technical section at TMO requires the applicant to undergo the similar set of processes to produce the same information all over again.

Too much information (to gather and comprehend)
Interaction with personnel posted at different sections of TMO (who are paid to have that information and share it with the applicant) revealed that they were unsure about the complete procedure for the acquisition of green number plate licenses. A number of personnel shared that they have been transferred to TMO only three or four months back (as of May, 2014) and admit how they themselves do not fully understand the steps that need to be followed yet.

The aforementioned problems lead to one, corruption and two, lawyers taking unfair advantage of the entrepreneurs’ lack of access to information. Some tour operators also expressed how they have been asked to pay a sum exceeding Rs. 100,000 at TMO being told that their vehicles do not meet the technical specifications even after being cleared by the Travel Section at TID.

Possible reform measures
Now we see, the faster the tourism entrepreneurs can acquire licenses – to operate their businesses – the better for the economy. Easy access to information for entrepreneurs and accountability on government agencies’ side is the combo that is the need of the hour. Certain steps can be taken to deal with the aforementioned issues.

A client (tourism entrepreneur) focused manual that includes a list of required documents and processes involved in the process of acquisition of a green number plate license can be developed as a short-term measure. This manual needs to be available online and should be updated as per the change in economic ordinances, for example, the tax codes. This needs to be seconded by an updated citizen’s charter at TMO premises. The concerned agencies (TID and TMO in this case) need to develop a mechanism whereby they share relevant information among themselves such that redundancy and excessive red-tapism can be avoided. Training of personnel at TMO is required at the moment, as evinced by the interaction with the personnel themselves. A medium term focus can be coming up with a one window policy to hasten the process. This will require some homework to be done on the government’s side and will thus take some time. If implemented, however, this will also help cut off the complexities, redundancies and room for corruption.

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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