• Saturday 24th August 2019

Export incentives in Nepal: Lessons from Australia

  • Published on: February 13, 2019



  • BY DR. SUMAN KUMAR REGMI
    The export incentive is a vast subject covering as it has virtually limitless possibilities in the realms of financial and other assistance given to exporters. One way of gaining insight into some of the consequences of export incentives is to study some of the schemes already implemented which would illustrate some of the differences possible and often accounted for by different levels of development of the countries concerned. There are many export incentives schemes operated by different governments which embody that could be termed as ‘intangible incentives’ and at the same time, some of these will be forwarded later if time demands, our main concentration will be on incentive of a tangible nature.
    In Australia export incentive programmes are administered. One is related to export market development grants scheme in an endeavour to encourage firms to seek out and develop overseas markets and to participate in governed sponsored trade promotion programmes. Grants are provided at certain fixed percentage rate of eligible market development expenditures. Added value services performed in the context of repair of foreign ships are eligible for grants. Another scheme provides cash grants for firms that increase exports in the grant year over their average annual exports in the three years immediately preceding as stated. The grants are taxable and available for export of manufactured goods, some bulk agricultural products, services provided abroad, imported industrial goods subsequently exported and sales of Australian technology. in earlier decades, more emphasis was likely to be stressed on export incentives rather than on tariff protection.
    Looking at the export promotion measures followed by Australia, Nepalese stakeholders have to follow above those export promotion measures which are suitable to Nepal.
    In Nepal, Exporters’ Exchange Entitlement Scheme, Dual Exchange Rate system, Seven Points Export Promotion Programs, Cash Subsidy were implemented after 1960 till 1992. In 1992, economy liberalization including trade liberalization was started. As a result, Economic growth was possible during 1992 to 1997. Even though Nepal’s export sector has not been corrected. After mid-2000 decade, trade deficit has been mounted up unbearable for the country. After 2067/68 B.S., export incentive up-to 2 percent has been granted to those who have promoted export successfully. Such other export incentives should be brought quickly to correct the trade deficit of the country. New Trade policy of 2072 B.S. and NTIS 2073 B.S. will correct the direction of foreign trade.
    Export Cash Incentive Proposal
    The government has started the cash incentive scheme for exports through the budget announcement from fiscal year 2010/11 in a bid to increase export of exportable products with a higher comparative advantage. This scheme was implemented since 2012. This incentive of 2 percent presently is continued with a value added percentage of at least 30 percent. The FNCCI and Nepal Chamber of Commerce issue certificates of origin verifying the value addition.
    The exporters has been complaining that they have a hard time receiving the government’s cash incentive due to the lengthy paper work. It is stressed that there is the need to simplify the procedure besides raising the rate.
    The government has planned to increase the export cash incentive to 5 percent from 2 percent in a propose to promote exports of exportable products depending upon the nature of the goods and value addition. Procedure for obtaining the cash incentives will be simplified.
    Because of low incentive prevailing in the country, exporters were lobbying since earlier, hence, the government has increased cash incentive. Cash incentive of less than three percent didn’t attract exporters enormously. In the first year 2011/12, 28 firms had received cash subsidies worth $ 1.6 million. In 2016/17, the government has allocated $ 3 million for incentive.
    Exportable products need to be protected by giving more percent cash incentive in order to make our product more competitive in the international market. Incentive given by the government was very poor compared to what both India and China have been providing to their traders.
    As almost all exporters receive payment by letter of credit, it would be better if they are paid cash incentive directly through the concerned bank. This would help to reduce the paperwork that traders need to fulfill to receive money.
    Suggestion for Effectiveness
    A cash incentive of at least 10 percent will enable 5 years’ export experienced Nepali exporters to be competitive in the overseas and neighboring markets. Such incentive should be more than 15 percent to cottage and small industries that supply their products to large exporters. Ii is suggested to provide such incentive to those who are producer cum exporter. The role of fully exporting companies has weakened the role of producer cum exporter in Nepalese context. Therefore the role of exporting companies is vital to strengthen sales in the foreign trade of Nepal.

    (Dr.Regmi is a former Deputy Executive Director of TEPC.)

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