A Litmus Test

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A Litmus Test

In late October, after the World Bank released the Doing Business 2019 report, Finance Minister Dr Yubaraj Khatiwada publicly asked the multilateral lender to revise its decision to lower Nepal’s position on the Ease of Doing Business Index. As a result of the government’s reaction, a team from the World Bank is on a visit to talk to government officials and other stakeholders. 

In this year’s edition of the Ease of Doing Business Index, Nepal slipped five notches down to the 110th spot among 190 countries ranked. The major contributing factors to this decline, according to the report, are the problems and hassles in taxation that businesses face while doing business here. Out of the 190 countries, Nepal is on the 158th spot in the paying taxes sub-index and businesses operating in Nepal had to make 39 payments and spend 353 hours to comply with fiscal obligations in taxation in 2017, compared to the global average of 24 hours and 237 hours. This clearly indicates the ineffectiveness of tax system reforms undertaken by successive governments in recent years.  

Several researches conducted over the years by national and international institutions, too, include the problems in taxation among the key bottlenecks for local and foreign investments in Nepal. The current government has carried out a conservative assessment of taxation, which is reflected in the country’s first federal budget, the budget for FY2018/19, in the form of income tax hikes alongside excise duty increase and removal of VAT exemption for certain businesses. But this is unlikely to be of any help to improve the situation. Now it is up to the government to work for a meaningful tax reform. 

In the meantime, Nepal hasn’t been able to make noticeable improvements in other sub-indices of the Ease of Doing Business Index 2019, which indicates that the business environment has not become favourable as claimed by the government. Among the 190 nations, Nepal ranked 154th in enforcing contracts, 148th in dealing with construction permits and 137th in getting electricity.   

The latest Ease of Doing Business Index reminds the government to focus on specific areas of improvements in order to create an environment conducive to business. The results will be better if the government starts looking into these specific areas rather than expressing its displeasure over the country’s position on the index. 

The next year will be crucial in terms of economic reforms for Nepal as the effectiveness of the measures undertaken now will be evaluated by the World Bank to determine the rank of Nepal among economies the world over. If Nepal can achieve an improved rating on the index next year, that could help increase investor confidence in Nepal and increase the level of predictability. The rank of a country on the Ease of Doing Business Index carries a huge meaning for international investors as they make their investment decisions by evaluating the sub indices besides the opportunities present in that country.  

Improving the country’s position in the overall ranking and also on the sub indices is now a litmus test for the government which hardly misses any opportunity to claim that economic development and prosperity are its major goals. 

Madan Lamsal
madanlamsal@gmail.com

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