Thursday, November 10, 2011

 

Links for November 10, 2011

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Banks slash short-term lending rates
Commercial banks have announced a cut in short-term lending rates by half to 2 percentage points in a bid to stimulate borrowing, which has slumped over the last three months due to slowdown seen in manufacturing and real estate sectors. Overall, interest rates on short-term loans - which include demand loans, overdrafts and export bills, among others - have now come down to an average of 12 percent from around 14 percent earlier.
Price of vegetables continue to rise
Price of seasonal vegetables has increased by Rs 2 to Rs 15 per kg due to lower supply from neighboring districts.
Korean firm seeks go-ahead for 2nd international airport
Landmark Worldwide (LMW), a South Korean company that carried out detailed feasibility study (DFS) for the second international airport in Nepal at Nijgadh in Bara district, has filed an application with the government to allow it to construct the much-talked airport.
Guidelines for Farmer Card ready for Cabinet to endorse
The Ministry of Agriculture and Cooperatives (MoAC) has prepared a set of guidelines for the proposed Farmer Concession Card to provide agriculture inputs at subsidized prices to poor farmers having less than four hectares in Tarai and thirty ropanies in Himalayan and Hilly districts. The guidelines envisage providing subsidy to the farmers on fertilizer, seeds and other agriculture inputs.
SC issues interim order to ban sale of tobacco products without cancer warning signs
The Supreme Court on Wednesday issued an interim order to ban the production, import and sale of tobacco products that do not bear signs warning the harms of tobacco consumption. As per the law, the signs must come with message written in Nepali and the provision will be applicable also for imported tobacco products like cigarette and chewing tobacco. This particular provision is expected to discourage the import of foreign brands.
Duty exemption limit raised to Rs 1,000
The government has raised the customs duty exemption for goods imported from bordering markets for household purposes to Rs 1,000 from Rs 100. A cabinet meeting on Monday took the decision to this effect. This means that those who buy goods worth up to Rs 1,000 by crossing the border will not be required to pay import duty. Although the Finance Ministry had proposed increasing the limit to Rs 500, the ceiling was increased further after immense pressure from Madhesi parties.
Nepal’s trading partners changing, says WTO report
Nepal is witnessing a “gradual diversification” when it comes to its trading partners as well as products in the last few years, according to the World Trade Organisation’s (WTO) International Trade Statistics-2011. The European Union (EU) is now the country’s second largest export destination with a share of 11.1 percent of the total exports. However, the US that was the second largest destination in 2008 has slipped to the third position. Likewise, Bhutan has entered the list of Nepal’s top five export destinations. Not only in exports, there have been changes in the country’s import destination list also. India and China are still top two import destinations for Nepal, but the United Arab Emirates (UAE) has entered the top-five list in 2010 as the third largest destination. The UAE accounted for 8.9 percent of the total imports in 2010, mainly due to the huge import of gold. Nepal’s bullion traders that used to import gold from Australia, are now importing gold from the UAE.
Why Monsanto?
Two years after the introduction of Monsanto seeds in Canada and the United States, for example, yields started to go down between 10-15 per cent. There has been a substantial increase in the use of chemicals resulting in the creation of "super weeds" requiring more highly toxic "super" chemicals, some containing agent orange. USAID and Monsanto are not implementing this program for the 'development' of Nepal and the betterment of the people. It will profit both, and cement the relationship between the US government and Monsanto already revealed in Wikileaks. A small number of thulo manchhe haru in the Nepal government will profit, but Nepali farmers will get poorer, Nepali soil will be damaged. The export potential will very likely be damaged with many countries refusing to import food products from Monsanto's hybrid and GMO seeds. If the pilot program goes ahead, the United States will leave a legacy of environmental degradation, human health issues, social disintegration and hardship. The USAID-Monsanto partnership is blatant exploitation of a corrupt and unstable government in Nepal. There is no 'point of no return' when it comes to this issue. Monsanto's presence in Nepal will be irreversible and will result in the introduction of genetically-modified crops, further alienating farmers from their land and food production, with disastrous consequences.
Exporters fail to verify value addition
Exporter’s failure to verify exact value addition to Department of Industry has kept them away from the cash incentive facility. According to the exporters, the Cash Incentive Policy should be hassle free. According to the government criteria for cash incentive, if a product has a value addition of 30 per cent to 50 per cent, the exporter will get cash incentive of two per cent, whereas if the value addition is 50 per cent to 80 per cent, the exporter will get three per cent cash incentive, and value addition of more than 80 per cent will get a total cash incentive of four per cent. But, cash incentive will only be granted to exports made in convertible currency and the exporters will get cash incentive from the same bank with which they are doing the transaction.
Private banks increase asset size
From the assets size, the banks can be divided into four groups; largest (with above Rs 60 billion worth assets), large (Rs 40 billion-Rs 60 billion), middle (Rs 20 billion-Rs 40 billion), and small (with below Rs 20 billion worth assets). Only one commercial bank features in the largest bank category, whereas eight banks feature in the large banks category. The middle banks category has seven banks and the small banks category has 15 banks among the 31 commercial banks. The huge gap in the size of the banks calls for the necessity of merger immediately. The size of the banks can give some indications on which banks should be merged and how can a strong bank be formed.
Only 17 per cent projects meet government target: NPC
At the 24th meeting of National Development Problem Solution Committee, vice chairman of the NPC Deependra Bahadur Kshetri said that only 38 projects met the target out of the total 224 projects. “The data shows that the project completion trend is also not satisfactory,” he said, adding that some 18 per cent development projects have completed 50 to 80 per cent of its works. Due to delay in their execution they have been hit by the time overrun cost. “The expenses of some of the big projects have increased in unpredictable manner because of delay in their execution,” he added.
IMF projects 3.25 per cent growth for Nepal
IMF forecast for the current fiscal year is below the national growth projection of 5 per cent. Last fiscal year, IMF had projected GDP growth 3.5 per cent which was close to 3.7 per cent actual rate of growth achieved by Nepal. “Real GDP growth is expected at 3.25 per cent in 2011-12, with good agriculture output compensating for subdued non-agriculture activity,” according to IMF’s report on Nepal. The report also cautions that the forecast is subject to high degree of uncertainty, with risks on the downside chiefly owing to banking sector fragility. Inflation projection by IMF is at eight per cent while the financial authority had estimated inflation to moderate at seven per cent in the current fiscal year. An expected moderation in India’s inflation and a stabilisation of commodity prices is anticipated to ease the domestic prices of Nepal, according to the report.

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# posted by Mukesh Khanal @ 12:03 PM 0 Comments

Tuesday, August 23, 2011

 

Links for August 23, 2011

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1. Government to expand micro-enterprise programs
Cottage Industry Development Committee (CIDC) will implement the programs in Tanahun, Baglung, Syangja, Solukhumbu, Illam, Taplejung, Rukum, Dhankuta, Darchula and Bajhang.
Federation of Nepal Cottage and Small Industries (FNCSI) will execute it in Morang, Siraha, Saptari, Dhanusha, Bara, Makawanpur, Palpa, Kailali, Nawalparasi and Kanchanpur.

2. Department of Revenue Investigation (DRI)moves court against three firms for evading income tax, VAT and excise duty.
Bishal Chemical Industries, Samyam Enterprises and Bishal Jarda Factory...together evaded Rs 290 million in VAT, excise duty and income tax.
...as existing laws imposes 200 percent penalty for such evasion, the department has slapped penalty of Rs 580 million for the three firms.

3. Government to ban use of plastics bags from next week
Minister for Environment, Sunil Kumar Manandhar said the government was going to ban the use of plastic bags of less than 20 micron in the country to be effective from the next week.
The offenders will be fined between Rs. 500 to Rs. 50,000

4. Over 45,000 Nepalis left for foreign jobs within a month
...number of Nepalis leaving the country for overseas jobs increased by 52.15 percent, to 45,165 from mid-July to mid-August compared to the figure of the same period last year...A total of 29,685 Nepalis had gone abroad for jobs during that period last year.
Among last month's migrant workers, the number of male and female migrants was 43,163 and 2,002 respectively.
Qatar remained top host for Nepali job seekers, accepting 15,702 workers compared to other countries Malaysia (9671), Saudi Arabia (8538), United Arab Emirate (6873) and Kuwait (2088)

5. Inter-bank lending on the rise

6. Deposits in co-ops more than doubled last fiscal year
Cooperatives are holding deposits of Rs 150 billion as of the last fiscal year, up from Rs 70 billion a year ago, according to the Department of Cooperatives.
Their lending grew to Rs 105 billion last year from Rs 43.46 billion in the previous year.
Saving and credit cooperatives are the biggest receivers of public deposits. As of mid-March, such cooperatives held Rs 97.49 billion, while total deposits in all types of cooperatives stood at Rs 130 billion.
There are a total of 22,646 cooperatives in the country, of which 10,558 are saving and credit, 4,096 multipurpose, 3,144 agriculture, 1,748 dairy and 1,379 consumer. Likewise, there are 371 cooperatives in electricity production, 161 in vegetable and fruits production, 104 in tea production, 67 in coffee production, 61 in health sector, 51 in honey production, 73 in herbal production and 833 in other categories.
DoC statistics show that 2,922 new cooperatives were registered last year.

7. Banks see sharp fall in PE ratios
Price to earning ratio (PE ratio)...one of the major investment indicators of the stock market...is calculated by dividing share price by per share earning.
Stock analysts say an average PE ratio of 15 is justifiable for commercial banks.
...the PE ratio came down sharply over the last year along with the freefall in the stock market.
Currently, Nepal Investment Bank, Agriculture Development Bank, Nepal Bangladesh Bank and Lumbini Bank have PE ratios less than 10.
A majority of the 17 banks that published financial results of the last fiscal year saw their PE ratio standing between 10 and 20. This is a sharp fall compared to the previous year when the ratio was above 20. Last year, Machhapuchhre Bank’s PE ratio was as high as 56.90 followed by Global Bank with 52.48. Now, Global’s ratio has come down to 13.85. The Standard Chartered’s ratio came down to 25.92 from 42.23. Other banks witnessing PE ratio above 20 are DCBL Bank and Citizens Bank International.

8. Reform process in Rastriya Banijya Bank(RBB)and Agriculture Development Bank Limited(ADBL)take back seat
Daily operations of these banks have been affected for the last few weeks due to strikes called by the trade union affiliated to the Nepali Congress (NC)
In both banks, reforms measures have been carried out with foreign aid. RBB is under the reform process as per the World Bank-sponsored Financial Sector Reform Programme, while Asian Development Bank has aided the reforms in ADBL.
Although the financial sector reform programme will end in December, RBB will still remain as a sick bank with negative net worth of billions of rupees.
The central bank has also failed to appoint a CEO in Nepal Bank Limited for the last four years even after five attempts. Currently, NRB’s own management team is running the oldest bank of the country.

9. A bizarre project in Nepal, At Buddha’s birthplace: A Chinese development proposal causes disbelief

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# posted by Mukesh Khanal @ 2:57 PM 0 Comments

Sunday, August 7, 2011

 

Links for August 7, 2011

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1. Nepal will be playing in the Under-19 World Cup Cricket Tournament to be held in Australia next year.

2. More taxpayers brought under tax net last year.

*The target for 2010/11 was to add 150,000 additional taxpayers under the tax net.
*The Inland Revenue Department (IRD)actually added 177,579 taxpayers under the tax net.

*The target for 2010/11 was to add 50,000 institutions and 100,000 individuals under the tax net.
*The IRD actually added 55,478 firms/institutions and 122,201 individuals under the tax net.
*14,785 taxpayers were upgraded to the VAT payers' list.
*216 firms were fined Rs 2.7 billion for tax evasion using fake VAT receipts.

3. Budget for far-west up by Rs 4 billion.

*Total budget for all districts is Rs 87.33 billion in 2011/12
*In 2010/11, far-west received Rs 6 billion which was 8.23 percent of total districts' budget
*In 2011/12, it has been allocated Rs 10.53 billion which is 12.06 percent of total districts' budget

*The budget distribution among the far-western districts is uneven
*Kailali is given Rs 2.54 billion, which is over 20 percent of total far-west budget
*Kanchanpur is given Rs 1.24 billion

*The districts receiving the largest share are:
Kathmandu Rs 2.38 billion
Morang Rs 2.29 billion
Banke Rs 2.19 billion
Rupandehi Rs 1.83 billion

4. Goats in upcoming Dashain is going to get expensive because the Nepal Food Corporation (NFC) has decided to stop selling subsidized goats this year.

*NFC imported 3853 goats last Dashain, of which 250 died at Thapathali office of NFC.
*CIAA, the corruption investigation authority, investigated that case because it suspected the goats did not actually die but were given for free to political leaders and officers.

*In four days--between Saptami and Dashami--Kathmandu consumes 1.2 million kilograms of mutton (goat meat).

5. Nepal bans smoking in public, starting today. Will it succeed? I'm not very sure.

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# posted by Mukesh Khanal @ 3:56 PM 0 Comments

Thursday, June 30, 2011

 

Get Rid of the VAT

Currently, in Nepal, there is a growing speculation that the government is going to increase the Value Added Tax (VAT) from the 13 percent that it is today to a higher percentage. Nobody knows for certain what it will be after the increase, but the general consensus is that it is rumored to increase. In this context, it seems reasonable to ponder if the increase is good or bad. Also, a more specific question that could be asked would be: is the VAT doing any good to Nepal?

The concept of VAT started in France in 1956, and, later, spread to other countries. It taxes the transfer of goods and services, and, thus, is entirely taxed on the consumer. In its initial implementations around the world, the VAT was imposed on top of the existing sales tax. But, in Nepal, as in other developing economies, the VAT has replaced the sales tax. The Inland Revenue Department of Nepal clearly mentions that VAT includes the value added to a commodity during each stage of its production, and that it is not an addition, but a replacement to the sales tax.

For years, nations have used the VAT to raise an incredible amount of money to finance the federal deficits. However, the VAT in Nepal has not, really, been for deficit reduction purposes. The government seems to have favored it simply because of its huge revenue generating capability. And, that is the major problem with VAT in Nepal. It has been implemented not for deficit reduction and economic growth but as a cash-cow for the government.

There is a popular misconception that VAT is a simple method to generate huge revenue for the government. Leading economists and policymakers in Nepal are not immune to this misconception. If anything, VAT is an immensely complicated system requiring different taxation policies for different types of goods and services. Given its complicated nature and a requirement of heavy personnel to monitor its implementation, we need to ask ourselves if the VAT is an appropriate taxation system for a poor country like Nepal. We do not have the necessary capital and manpower to monitor the VAT to avoid exploitation and evasion. It is not the right taxation policy for this country.

Yes, there are other alternatives of raising revenue, but they are mostly bad alternatives. According to Gregory Mankiw, the Economic advisor to President Bush during his term in office, VAT is the best among the bad alternatives. However, the label ‘bad’ still applies to it. Should the Nepalese, really, be choosing the best out of the bad? Is this what we have come to? Can’t we do better? Why can’t the policymakers come up with something that is not bad? It doesn’t even have to be excellent; a ‘fair’ taxation system will still be better than a bad taxation system.

Nepal got the idea to implement the VAT by observing its success in many European nations. The main reason why developed economies in Europe favored the VAT was because of improved compliance and lesser evasion when compared to a sales tax. Our Inland Revenue Department claims the low evasion to be the prime reasoning behind implementation of VAT in Nepal. And, their reasoning is quite sound given the general consensus among VAT implementing nations that VAT is not as easy to evade as the sales tax.

However, you don’t have to be a rocket scientist to know that non-compliance and evasion are still a major problem in Nepal. Anyone who has ever bought anything in the store or eaten lunch in a restaurant knows that VAT compliance in Nepal is severely lacking. Unlike the European economies, Nepal has a chronic shortage of resources—capital and human resource—to monitor the VAT compliance. Then, the question arises: should we really be using a taxation system that we are not capable to monitor and enforce?

Compliance and evasion issues are very significant when it comes to VAT in Nepal. In the UK, VAT related fraud like Carousel fraud and Missing-trader fraud resulted in a loss of 13 billion Euros in 2006. The UK has since then tried to improve their VAT system through various changes, but has only succeeded minimally. Europe loses around 180 billion Euros every year due to VAT related fraud. In case the magnanimity of that loss is not readily comprehensible, note that 180 billion Euros is the budget of the European Union for two years.

Therefore, to say that Europe loses a huge amount of money through VAT related fraud and non-compliance would be an understatement. If advanced economies in Europe with massive resources at their disposal are struggling to control VAT related fraud, we have no basis to be assured that such fraud has not occurred in Nepal.

Not only does VAT have a major non-compliance and evasion issue, it also hurts the economy. Yes, it fills the government coffers, but it hurts employment situation in the economy. Economists in the US have done research and discovered that even a small 3 percent VAT (which policymakers were proposing in the US) would destroy 2.1 million jobs by the fifth year of its implementation. If a VAT could have such an enormous impact in a big economy like the US, we can only imagine how much it has been hurting a growing and developing economy like Nepal. Also, some economists blame the current problems in the Greek economy to the 19 percent VAT in Greece. Do the Nepalese policymakers know if the VAT is helping or impeding our economic growth?

The VAT in Nepal, at 13 percent today, is already one of the highest VAT rates among the developing countries. In the thirst for quick revenue, government policymakers in Nepal seem to be forgetting the evidence from previous research that an implementation of VAT always results in higher prices in the market for consumers. This result has been shown to hold by numerous researches. Studies have shown that VAT seems good in the short-run, but it tends to slow the long-term economic growth.

Can a poor country like Nepal really afford to have higher consumer prices as a result of the VAT? We are a growing economy. The VAT is not helping our economy if consumers end up paying higher prices for all products. Anyone with the most basic knowledge of economics can tell you that higher consumer prices always slow down the economic activities. VAT in Nepal is really a bad policy if it has in any way hampered the long-term growth of our economy. Being a developing nation that we are, we do not really want anything to slow our economy. Therefore, in today’s context, VAT seems to be more of a problem than a solution in Nepal.

Another major problem with the VAT is the stage-wise levying of the tax. In simple terms, VAT is a multi-layered tax, and it is levied in each stage of manufacturing. This multi-layered levying of VAT provides increased opportunities of evasion and fraud in each stage. In addition, the multi-layered tax does result in higher cost of the final product, although policymakers claim that it doesn’t.

In today’s Nepal, the manufacturing industry is struggling to survive. Therefore, it seems to be the wrong time to implement the VAT in Nepal. Maybe it can be implemented later, in the future, when we have solid economic growth and our manufacturing industry is booming. But, given today’s economic scenario, VAT is not the best tax alternative for us to pursue.

This opinion piece was published in The Republica on 12 March 2011.

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# posted by Mukesh Khanal @ 6:42 PM 0 Comments

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