Nepal Chamber of Commerce

» Policies » Industrial Policy 1992

Industrial Policy 1992

In order to create an environment necessary to enable the private sector to play a principal role in the industrialization endeavour of the country, the public sector industries will mostly be privatized and no private sector industries will be nationalized. At the same time, the Government will make no interference in fixing the price of industrial products other than creating open and competitive atmosphere If necessary, during the initial period of industrialization, Government may establish, in the form of joint ventures either with the national or foreign private sector or foreign governments,

some of the industries which the private sector is reluctant to set up but are essential for the national economy as a whole. However, the shares owned by the Government and public sector corporations of such industries will also be gradually transferred to the private sector.

A policy of determining the wages on the basis of productivity will be adopted. Legal arrangements will be made for rendering assistance to rehabilitate the sick industries which are found feasible to rehabilitate but those sick industries which cannot be rehabilitated and will only be burdensome for the national economy shall be allowed to close down after payments of wages and facilities to the labourers and employees.

Private sector participation will be encouraged also in community and private forest development, generation and distribution of hydro-electricity, and in construction and management of nursing home, hospital, power propelled railway, roads, bridges, tunnels, ropeways, etc.

Objectives
1. To increase the contribution of industrial sector to the national economy through the enhancement of industrial production and productivity.
2. To put emphasis on the development of the industries utilizing local resources and industries which are export oriented.
3. To reduce the pressure of unemployment and under employment in the agriculture sector through the development of labour intensive industries.
4. To adopt appropriate policy conducive to industrialization for the balanced regional development of the country.
Policies
1. To develop industries through healthy competition in order to utilize the comparative advantage of the country,
2. To protect industries through customs duties,
3. To eliminate, as per time-bound schedule, the protection accorded to industries,
4. To develop industries utilising national labour, skill and resources as well as industries having national importance,
5. To accelerate the pace of economic development through the export of industrial goods,
6. To emphasise development of small, cottage and agro-based industries in order to create employment opportunities, particularly in rural areas,
7. To attract the foreign investment and to emphasize the transfer of advanced technology and efficient management.
Strategies
1. To liberalize and simplify the procedures for the establishment, expansion and modernization of industries,
2. To provide all the necessary services to be accorded to industries through one window system,
3. To emphasize the development of competitive import substitution industries in the country itself in order to reduce the pressure on the economy resulting from imports of daily consumer goods and construction materials,
4. To make the industrial protection system simple and transparent,
5. To encourage industrial investment in underdeveloped areas in order to achieve balanced regional develpment.
6. To make necessary arrangements in order to meet as much as possible the requirement of skilled industrial manpower within the country and to conduct all the related training and research programmes in an integrated way,
7. To provide additional incentives to the entrepreneur reinvesting his profit to his own industry or other ancillary industries.
8. To carry out the restructuring programme with a view to rehabilitate the sick industry after reviewing the conditions of such industry,
9. To make necessary institutional arrangements for productivity improvement through the upgradation of technical know-how and efficiency of the industries in order to compete in the free and competitive world market,
10. To take ahead the production and productivity improvement campaign,
11. To take measures to minimize the adverse effect to environment while establishing, expanding and modernising industrial units,
12. To conduct skill-development programmes for the devlopment of skilled manpower,
13. To reserve the cottage and small scale industries for Nepalese only. However, technology transfer will be permitted in these industries.
14. To transfer the state-owned industries to the private sector in a phased manner,
15. To prepare and implement in a phased manner the guidelines relating to environment and pollution in order to control and mitigate the impact of industrial pollution on environment, residential area, national heritage etc.
Classification and Scale of Industries

For the purpose of industrial administration and facilities, industries are classified and scaled as stated below.
1. Classification:
  1. Manufacturing Industries: Industries which produce goods by utilising or processing raw materials, semi-processed materials, by-products or waste products,
  2. Energy Based Industries: Industries generating energy from water resources, wind, solar, coal, natural oil and gas, bio-gas or any other sources.
  3. Agro and Forest-Based Industries: Business mainly based on agriculture and forest such as integrated sericulture and silk production, horticulture and fruit processing, animal husbandry, poultry farming, fishery, tea gardening and processing, coffee farming and processing, herbiculture and herb processing, vegetable seed farming, floriculture, agro-forestry, community and private forestry etc.
  4. Mineral Industries: Mineral excavation, processing.
  5. Tourism Industries:
  6. Service Industries:
  7. Workshops, printing press, consultancy services, ginning and baling businesses, cinematography, construction business, public transportation, photography, hospital and nursing home, educational institutions, laboratory, air service, cold storage, etc.
  8. Construction Industries: Road, bridge, tunnel, ropeway, flying bridge, railway, trolley bus and office, commercial and residential complex etc.
2. Addition into the classification of Industries:
  
  Industrial Promotion Board may add in the classification of industries.
3. Division of Scale:
  1. Traditional Cottage Industries: The traditional industries mobilizing specific skill or local raw material and resources and labour intensive and related with national customs, arts and culture as mentioned in Annex - I.
  2. Small Industries: Industries other than traditional cottage industries with a fixed capital investment not exceeding Rs. 10 million.
  3. Medium Industries: Industries with a fixed capital investment between Rs. 10 million and Rs. 50 million.
  4. Large Industries: Industries with a fixed capital investment more than Rs. 50 million.
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Industrial Licensing and Registration
1. A license is not required for establishment, expansion and modernization of industrial enterprises except for those related with defence, public health and environment as mentioned in Annex - 2. Decision to grant the license or not will be made within 30 days upon receipt of the application for the license. The cottage industries should be registered within 6 months after it comes into operation, but for other industries registration is compulsory before coming into operation. No feasibility study is required for the industries for registration. The applicant will be informed of the registration within 21 days of his application.
2. Permission should be taken for foreign investment in industries.
Facilities
1. No excise duty, sales tax and income tax shall be imposed on traditional cottage industries.
2. Income tax shall be exempted in the case of manufacturing industries (other than cigarette, bidi, alcohol, vegetable ghee, plastics and electronic assembly industries), energy based industries, agro and forest based industries (other than sawmill and catechu industries) and mineral based industries for a period of five years from the date of operation.
3. Income tax shall be exepted for a period of seven years from the date of operation in case of industries of national priority as listed in Annex - 3.
4. No income tax shall be imposed on the export earnings.
5. Industries are entitled to a reduction in tax rate on each income tax slab by 5 percentage points.
6. Industries (other than cigarette, bidi, and alcohol) established in the remote, undeveloped and underdeveloped districts as listed in Annex - 5 will be granted a rebate of 50 percent, 20 percent and 10 percent of income tax and 25 percent, 15 percent and 10 percent of excise duty respectively. If the classification in the annexure is changed and in consequences of which the industry is deprived of granted exemptions, in such case the industry shall still be enjoying the exemption for a period of five year from the date of commencement of its operation.
7. Industries are entitled to add 33 percent to the rate of depreciation allowed under the Income Tax Law.
8. Industries established as Public Limited companies with a minimum of 15 percent of shares distributed to more than
9. In case of an industry which diversifies itself through reinvestment or expands its installed capacity by 25 percent or more, or modernizes its technology or develops ancillary industries, it may deduct 40 percent of new additional fixed assets from its taxable income. Such remission may be deducted in lump sum or in installment basis within a period of three years.
10. Permission will be granted for a reduction up to 50 percent from the taxable income for the investment of an industry on equipment or process to minimise pollution.
11. An exemption of the income tax up to a period of 5 years shall be granted to the prescribed industries related to tourism, services and construction as notified in the Nepal Gazette by His Majesty's Government on the basis of recommendation of the Industrial Promotion Board.
12. Pre-operation cost covering the expenses of skill development shall be allowed to be capitalized.
13. Ten percent of the gross profit is allowed as a deduction against net income on account of expenses related with technology or product develpment and efficiency improvement.
14. No imcome tax will be imposed on dividends received from investment on industries.
15. While assessing the net income, an amount of up to 5 percent of gross income shall be allowed to be deducted as expenses for items as donation to school, college, university, religious places and social works.
16. Up to 5 percnt of gross income spent for advertisement of the products or promotion services for hospitality or any similar expenses shall be allowed to be deducted while assessing the net income.
17. Manufacturing, energy based, agro based, forest based and mineral based industries (other than cigarette, bidi, alcohol, sawmill, catechu) which utilize 90 percent or more of the locally available raw materials for their production and not listed in Annex - 3, shall be granted income tax exemption for an additional period of two years.
18. A single industry providing one thousand or more direct employment shall be granted income tax exemption of additional period of two years.
19. In case an industry utilizes the locally available raw materials, chemicals and packing materials etc. on which excise duty, or sales tax or both are already imposed, the excise duty, sales tax or both with be refunded to the industry.
Infrastructural Services
1. Priority will be given to the industries in providing electricity, water and communication facilities.
2. Industries will be given priority for Government land and sites in Industrial Districts for the establishment of industries.
Special Facility for Export Oriented Industries
1. The customs duty, excise duty and the sales tax imposed on raw materials and auxiliary raw materials utilised by export oriented industry shall be reimbursed to the exporters on the basis of the quantity of the export within 60 days upon the receipt of the application for such reimbursement.
2. The industries exporting 90 percent or more of their products are entitled to enjoy the same facilities as have been provided to the industries established in Export Processing Zone. The bonded warehouse facilities shall be continued.
3. In case an industry sells its product withn the country in convertible foreign currency, the excise duty and sales tax imposed on the quantity so sold and the customs duty, excise duty and the sales tax imposed on raw materials used in such products shall be reimbursed to such industries within 60 days upon the receipt of the application for such reimbursement.
4. The customs duty, excise duty and sales tax imposed on the production of intermediate goods to be used in the production of exportable goods shall be reimbursed to the exporter on the basis of the quantity of export within 60 days upon the receipt of the application for such reimbursement.
Other Facilities
1. In the case of goods which may be brought into Nepal at artificially lowered prices and which adversely affect the local industries, import duties will be imposed so as to ensure that the level of protection granted to local industries is maintained.
2. No industry shall be nationalized.
3. A rehabilitation programme for sick industries will be launched after conducting feasibility studies for the rehabilitation of such industries.
4. Arrangements will be made to avail the forests on lease or contract to forest products based industries which produce vegetation on their own for such industrial purpose.
Availability of facilities
1. The license or letter of registration will specify the facilities to be granted to the industries, the responsibilities of the industrialists and the terms and conditions to be observed by them. A separate committee wll be constituted with a representative of the private sector to resolve any problem faced by industrialists due to non-availability of facilities so mentioned. If an entrepreneurs fail to comply with the conditions to be observed by them, HMG can at any time cancel the license or registration. The concerned industrialist will be given adequate opportunity to present his case before cancelling such license or registration.
2. Enterprises will continue to enjoy incentives and facilities entitled to them by the Act legislated under this policy for the period specified by the same Act, without let or hindrance, not withstanding the amendments in this policy regarding classifications or facilities or incentives.
Industrial Support Service
1. Industrial Promotion Board:
  
  A high level Industrial Promotion Board as per Annex 4 shall be constituted to accelerate the pace of industrialization by coordinating the policies among the policy level institutions as well as the level of implementation.
2. Institutional Arrangement for Cottage and Small Industries:
  
  An institutional arrangement shall be made to provide facilities for the skill development training, management training, technical and consultancy services, machines and equipment, raw materials and marketing net-work for the products in an integrated way for the cottage and small scale industries which are based on local raw-materials, labour and the traditions.
3. Industrial District Management Company Limited:
  
  Industrial sheds and the lands owned by industrial estates shall be sold to the industrialists with the condition of using them to run industries. The management of the industrial estates shall be transferred to the industrialists within the estates. Industrial District Management Company Limited shall be made active in establishing new industrial estates with total or partial ownership of the private sector. HMG may provide additional facilities to the industries established within the industrial estates.
4. Arrangement for Finance for Small and Cottage Industries:
  
  A separate arrangement shall be made for providing loan for fixed and working capital for the small and cottage industries.
5. Institutional Arrangement for Technology Development and Transfer:
  
  A Technology Development and Transfer Agency shall be established in order to make the process of technology development and transfer more effective as well as to support the process of industrialization through proper import, development and management of the technology. It will disseminate the information and related statistics on technology and technology transfer to the industrialists free of charge.
6. Export Processing Zone :
  
  Export Processing Zone shall be established with a view to accelerate the pace of industrial development as well as to minimise the adverse effects on the balance of payments. No taxes shall be imposed on machine, equipment, raw materials and the exportable products of the industries established in the Zone.
7. Industrial Manpower and Productivity Council:
  
  Industrial Manpower and Productivity Council shall be set up wth the representation of HMG, employees and private sector to make the industrial sector more efficient and productive by conducting the productivity enhancement and skilled and efficient manpower supply programme as a national campaign. The Economic Service Centre shall be entrusted to carry out this productivity programme as a separate project until the new arrangement is made.
8. Special Arrangement for Environment and Industrial Pollution Control:
  
  A separate unit will be established in the Ministry of Industry to formulate policies, guidelines and standards to check and minimise the adverse effects of pollution due to industrial growth. Arrangements shall be made in the Department of Industry, manning it with qualified and skilled manpower, to conduct environmental impact assessment during the period of licensing itself. The Bureau of Nepal Standard and Metrology will be strengthened to develop standards to assess and monitor industral pollution.
9. Monitoring and Follow up Unit
  
  A Monitoring and Follow Up Unit shall be set up in The Ministry of Industry with the participation of private sector to investigate and monitor the implementation of industrial policy and related Acts and regulations. This unit shall also monitor and manage the possible monopolistic tendency that could arise in the industrial sector.
10. Establishment of Company Registrar Office:
  
  A Company Registrar's Office shall be set up for the administration and registration of companies related with industrial and commercial sectors as well as for the management of issues of shares, bonds, and debentures of the public limited companies.
11. Arrangements for One Window Services:
  
  To provide the incentives and facilities mentioned in this policy in time without any difficulty, a high level committee comprising the heads of related departments shall be set up under the Industrial Promotion Board.
  
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  Annexure - 1 | Annexure - 2 | Annexure - 3 | Annexure - 4 | Annexure - 5