KATHMANDU: The Confederation of Nepalese Industries (CNI) on Sunday urged the government to consider reducing VAT (value added tax) to 10 percent for a year and corporate tax to 20 percent for three years to stimulate the economy which has been knocked to its knees by the Great Quake.
Currently, VAT is 13 percent and corporate income tax is 25 percent. The CNI said that all the economic sectors of the country were passing through a critical phase and that the government should launch various initiatives to mitigate the challenges that have emerged in the aftermath of the terrible tremor.
Speaking at a press meet, CNI President Narendra Kumar Basnet said that the private sector body had made a number of suggestions categorized into four major areas, namely personal impact, impact to small and medium scale industries, banks and insurance companies and big industries. “We have submitted these suggestions to the finance minister, vice-chairman of the National Planning Commission and governor of Nepal Rastra Bank,” Basnet said.
The Asian Dev Bank (ADB) has made a downward revision of Nepal’s projected economic growth rate from 4.6 percent to 3.8 percent. The government has also estimated that the desired growth rate of 5 percent will not happen this year.
CNI Senior Vice-President Hari Bhakta Sharma said that the government needed to come up with concrete policies for an economic recovery. “There is no sector that has not felt the impact of the recent earthquake.
The government should come up with a broader policy to address the economic challenges created by the earthquake,” said Sharma, adding that the government should partner with capable institutions in the initiative to reinvigorate the economy.
Identifying insurance as one of the hardest hit sectors, the CNI has asked the government to extend a Rs250 million line of credit to each insurance company. According to the CNI, this credit line should be available for a period of five years at an interest rate of 3 percent.
Likewise, a business recovery fund or similar measure must be created to restore small and medium enterprises (SMEs) whose good health is critical to the overall revival of the economy, according to the CNI.
“The fund will be led by a cross-function steering committee of the government, private sector and multilaterals. It will work through a policy of grants, subsidized loans, and more importantly, sharing skills, knowledge and linkages to not only help rebuild the SMEs but build stronger and more efficient businesses,” the CNI said in a statement. “There is already a lot of donor interest in such funds which have also worked well in similar disaster situations globally.”
The CNI has presented a number of recommendations with regard to the country’s fiscal and monetary policies. “Interest rates must be brought down immediately to avoid the danger of a reverse cycle of depression. We must target borrowing rates of an average 5 percent,” the association said.
According to CNI Vice-President Anuj Agrawal, the CNI extensively researched global experiences including the Haiti earthquake and other large disasters besides the Great Economic Crisis before formulating the suggestions.
“We have also extensively consulted with global experts such as Deloitte, donors and individuals who have led reconstructions and rehabilitation programmes in post-earthquake scenarios across the world,” Agrawal said.
