KATHMANDU: Nepal’s private sector suffered losses amounting to an estimated Rs100 billion due to the April 25 Great Earthquake, the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) said. The overall damage caused by the massive tremor has been estimated at Rs500-1,000 billion, which is 25-50 percent of the country’s gross domestic product (GDP).
Speaking at an interaction entitled Revising Nepal’s Economy: Role of Private Sector, FNCCI Officiating President Pashupati Murarka said the government should not introduce new taxes in the coming budget when the private sector had been so badly battered by the earthquake.
A High-Level Tax System Review Commission has urged the government to impose a “reconstruction tax” to raise money to rebuild the country after the devastating earthquake. Murarka asked the government to involve the private sector in the rebuilding process by creating an environment where it could contribute greatly to the effort.
Likewise, senior vice-president of the Confederation of Nepalese Industries (CNI) Hari Bhakta Sharma urged the government to increase the cash flow in the economy, boost liquidity in the market by buying bonds instead of selling them and increase consumption by slashing value added tax (VAT) to 10 percent from the current 13 percent for the next two-three years.
He also recommended cutting income tax although Nepal’s tax rate is considered to be among the lowest in the world. The country’s income tax is 25 percent for the corporate sector and 30 percent for the banking sector. He also stressed the need to involve the private sector in the reconstruction process.
“The government needs to name a number of organisations as partner organisations which can lead the reconstruction effort since it is not capable of handling the entire reconstruction programme on its own,” he said. He added that the focus sectors needed to be identified in order to mobilize the private sector.
Likewise, Kamlesh Agrawal, secretary general at the Nepal Chamber of Commerce, said that, judging from the current situation, imports would increase, exports would go down and revenue collection too would drop as a result of the quake. “This has, therefore, caused a great economic loss to the nation,” Agrawal said.
Meanwhile, the prospects are brighter for the banking sector despite sustaining significant losses as the flow of remittance, which is a major source of income for banks, has not changed, said Anil Shah, vice-president of the Nepal Bankers’ Association. In fact, remittance inflow has surged following the quake, according to Nepal Rastra Bank.
Shah stressed the need to form an economic revival committee including members from the government, central bank and private sector in order to promote coordination among different stakeholders in terms of decision making.
“An example of coordination failure is provided by the central bank’s announcement to provide housing loans at 2 percent interest when the government has said that building permits will not be issued to houses over two stories,” Shah said.
Private sector bodies said that the quake had damaged factory buildings and machinery in many places. According to the Asian Development Bank, the 14 quake-affected districts account for 20 percent of the country’s total manufacturing establishments. Similarly, nearly a quarter of the total hydropower produced in the country has been hit by the earthquake.
The drastic slowdown in capital spending and building activities following the earthquake will hit construction. “The cumulative impact of these sub-sectoral developments means that we now see industrial growth at 2.3 percent lower than the 3.5 percent level forecast in March,” said the ADB.
There has been a sharp fall in wholesale and retail trade in the severely affected districts. Tourism has dropped sharply due to the earthquake, landslides and avalanches, resulting in booking cancellations and changed travel plans. These factors are also expected to hit the service industry this year.
