Kathmandu. The government is in the final stages of preparing the budget for the upcoming fiscal year 2083/84.
According to the constitutional provision, the budget must be presented by Jestha 15. Accordingly, the Ministry of Finance has brought the budget drafting to its final stage. The principles and priorities of the policy and program and the budget for the upcoming fiscal year have already been passed by the parliament.
In the principles and priorities of the budget, the government has mentioned creating a private sector-friendly investment environment, removing land acquisition and tax hassles, and making the one-door service system effective.
The government is preparing to adopt a policy of increasing investment in industrial infrastructure to reduce costs in the upcoming budget.
The government has already committed to many policy reforms, including concessions, to boost the morale of the private sector. It has also announced the end of unhealthy competition, syndicates, cartels, and monopolies.
The government has also stated that it will focus on restructuring the economy. The Finance Minister has declared the upcoming budget as the starting point for a new phase of economic reform and a transformative one.
The private sector is hopeful that its demands will be addressed in the upcoming budget and its declining morale will be boosted by the policies introduced by the government.
The government has adopted a policy of mobilizing private and alternative finance in public infrastructure in the recently introduced policy and program. For that purpose, the government has already passed the bill related to mobilizing alternative development finance from the parliament.
Regardless of how transformative the government envisions the budget to be, it is not possible without the support of the private sector. The private sector, through its umbrella organizations, has suggested to the Finance Minister that the upcoming fiscal year’s budget should be practical and result-oriented, not just a formality.
The government has concluded that building large infrastructure solely on traditional revenue and small aid from donor agencies is not impossible. Accordingly, the government aims to mobilize trillions of rupees, including from the private sector, beyond the limited scope of public finance.
Presenting the principles and priorities of the Appropriation Bill 2083, Finance Minister Dr. Swarnim Wagle stated that the focus will be on achieving high, broad, and rapid economic growth and creating employment.
However, regardless of how transformative the government envisions the budget to be, it is not possible without the support of the private sector. The private sector, through its umbrella organizations, has suggested to the Finance Minister that the upcoming fiscal year’s budget should be practical and result-oriented, not just a formality.
Boosting Morale and Ensuring Security
After the formation of the new government, the private sector did not experience the level of enthusiasm and investment-friendly environment it had expected. Instead, the private sector is relatively fearful and under the threat of crackdown. Although the government claims to have adopted private sector-friendly policies, businessmen are fearful due to the arrest and crackdown on industrialists and businessmen, and they are unable to openly protest.
They are also unable to invest with confidence. The suggestions submitted to the Finance Minister by representative organizations of the private sector, such as the Federation of Nepalese Chambers of Commerce and Industry, the Confederation of Nepalese Industries, and the Nepal Chamber of Commerce, prioritize boosting declining morale.
Meanwhile, Finance Minister Dr. Wagle has been offering solace to the private sector through meetings, public programs, and in parliament.
Stability in Tax Policy and Hassle-Free Administration
The biggest problem in Nepal’s economic policy is instability. The trend of changing tax rates every year through the Economic Act has eroded investor confidence, according to the Federation.
Relief is also expected in personal income tax. The private sector has suggested setting the minimum threshold for personal income tax at 1 million rupees and reducing other income tax rates. The Confederation of Industries has emphasized simplifying and integrating Value Added Tax, Income Tax, and Excise Duty, and implementing a risk-based audit system.
To end this, the private sector has demanded the abolition of the annual Economic Act practice and the implementation of a single revenue code with interpretations. They have also demanded the formation of an empowered revenue board.
The budget must provide a clear legal guarantee that tax laws will not be applied retroactively.
Relief is also expected in personal income tax. The private sector has suggested setting the minimum threshold for personal income tax at 1 million rupees and reducing other income tax rates. The Confederation of Industries has emphasized simplifying and integrating Value Added Tax, Income Tax, and Excise Duty, and implementing a risk-based audit system.
Deepak Malhotra, Vice President of the Nepal Chamber of Commerce, emphasizes the need to bring the informal economy into the formal sector by reducing tax rates (customs, land revenue, excise duty, and income tax).
He stated that when taxes are expensive, businessmen are forced to resort to informal channels, and the private sector guarantees that the total revenue received by the state will increase further if the rates are reduced. ‘If the state broadens its approach by reducing tax rates, businessmen will not evade taxes, and more revenue will be collected in the state treasury than before,’ he said.
The government has been committing to charting a new course in tax policy, rather than sticking to the old one.
Finance Minister Wagle has committed to reducing the overall tax burden while guaranteeing that revenue will not decrease. This can also be assessed as a potential adjustment in tax rates according to the demands of the private sector.
End of Policy Intervention and Production-Oriented Economy
The Confederation has termed some policies adopted by the government and the central bank in the past as state intervention.
The Confederation believes that the implementation of the working capital loan guideline and asset classification guideline in the name of controlling inflation has led to a decline in overall market demand, closure of industries, and increased youth migration. The Confederation stated that despite having more than 1 trillion rupees of investable capital in the banking system, the lack of investment indicates a problem in the economy. High tax rates have fostered informal and illegal transactions.
The crisis in West Asia poses a risk of a negative impact of about 1.8 percent on remittances and foreign exchange reserves.
Anjan Shrestha, President of the Federation, states that the economy, which is currently sustained by remittances, must be transformed into a production-oriented economy immediately. He suggests that the upcoming fiscal year’s budget should prioritize the concept of ‘own heart, own voice, and own country’.
Similarly, Birendra Raj Pandey, President of the Confederation, demands that policies prioritizing industry and investment be brought with a minimum of 10 years of stability.
He stated that there should be a difference of at least 2 levels in the customs duty between raw materials and finished goods. He demanded tax exemption on imports for industries that use 40 percent local raw materials.
The private sector has also suggested repealing the 2029 Act that prohibits domestic investors from investing abroad and introducing a policy that allows industries to mortgage or sell land exceeding the ceiling.
Similarly, Chamber Vice President Malhotra stated that the government must bring special policies in the upcoming fiscal year’s budget to improve the damaged economy. Pointing out that the main reason for the current economic slowdown is the collapse of the real estate business, he expressed the view that a concrete package should be included in the budget to revitalize this sector.
Vice President Malhotra demanded the practical implementation of the provision allowing foreign citizens to purchase apartments in Nepal or lease them for a long period.
‘Although the issue of selling or leasing apartments to foreigners has been raised in the last three budgets, it could not be implemented due to the lack of a working procedure,’ he said. ‘Even if apartments cannot be sold to foreigners, if a provision is made for long-term leasing, foreign currency will flow into Nepal, tourism will flourish, and employment will be created.’
Similarly, he demanded that the land ceiling (75 ropanis) imposed on real estate companies be abolished or relaxed.
He stated that due to the land ceiling, businessmen are unable to undertake large projects, houses built remain unsold, and this puts bank investments at risk.
The entire private sector demands protection for domestic goods through tariff and non-tariff measures. Similarly, the private sector demands that public services be made faceless, paperless, and contactless.
The private sector has also suggested repealing the 2029 Act that prohibits domestic investors from investing abroad and introducing a policy that allows industries to mortgage or sell land exceeding the ceiling.
Similarly, the private sector demands that the government play a parental role in price adjustment, as construction entrepreneurs are currently facing severe difficulties.
Likewise, the private sector demands an increase in the subsidy provided for exports to make domestic industries competitive and to provide electricity at a cheap or free rate to industries.
The government, through its policy and program, has committed to removing the compulsion for energy projects to approach more than 23 different agencies, as per the demands of the private sector.
The private sector expects the budget to further clarify the government’s announced one-door system and the entry of the private sector into electricity trading.
Government’s Commitment: From Private Sector-Friendly Policies to Infrastructure Partnership
The government has stated that it is taking the legitimate concerns and suggestions of the private sector seriously.
Finance Secretary Ghanashyam Upadhyay says that the first priority of the upcoming budget is good governance, economic reform, and infrastructure development. Stating that investment is the pillar of the economy, he said that the private sector is the first priority.
Finance Secretary Upadhyay said, ‘The security that the private sector seeks is the security of property and individuals, which the government guarantees. The government has a clear policy of taking the private sector along in profitable public infrastructure development.’
Finance Minister Wagle states that the state understands the importance of the private sector in a broad sense. He said that the government envisions making Nepal a 100 billion dollar economy in the next 7 years. He tells the private sector, ‘Achieving the goal of a 100 billion dollar economy is impossible without the support of the private sector.’
While the current size of the economy is around 66 trillion, the government aims to increase it to 74 trillion in the fiscal year 2083/84. Although the budget allocation is between 19 to 20 trillion, capital expenditure has been very low.
Finance Minister Wagle has committed to returning the taxes paid by the public back into the economy through public spending.
The government has committed to bringing about a change in the state’s perspective towards the private sector.
The government’s preparation is to give legal and practical form to the framework of alternative finance mobilization and private sector promotion that the government has outlined through its policy and program.
Finance Minister Wagle has said, ‘The private sector should be allowed to fly, to spread its wings. However, there must be a strong state and a clean regulatory body. In the past, regulatory bodies were captured, leading to distortions; this will not happen now.’ Not only that, he has also promised to reduce the overall tax burden while guaranteeing that revenue will not decrease.
The Finance Minister is under pressure from limited resources in the budget for the upcoming fiscal year 2083/84. However, there is also pressure to bring the economy out of recession and boost the morale of the private sector.
The government’s preparation is to give legal and practical form to the framework of alternative finance mobilization and private sector promotion that the government has outlined through its policy and program.
The commitments made by the Finance Minister in parliament and public programs have certainly generated some hope in the private sector. However, due to past bitter experiences, they are not yet fully convinced.
Therefore, the upcoming transformative budget must be able to boost the declining morale of the private sector and ensure the security of their assets and investments.