Businesses in Nepal face numerous challenges, from bureaucratic delays and regulatory hurdles to a complex legal landscape. The private sector has frequently voiced concerns over existing laws that are not business-friendly. In an insightful conversation with Madan Lamsal of New Business Age, Senior Advocate and former Attorney General Sushil Pant analyses critical issues affecting Nepal's business environment. Pant provides an in-depth examination of the obstacles businesses encounter, from flaws in legal provisions and their implementation to questions about the judicial system’s credibility. He also offers practical advice for navigating these obstacles, emphasizing the importance of timely legal consultation, proper tax compliance and regulatory adherence. Excerpts:

How valid are the concerns that existing laws are not business-friendly? Are the challenges rooted in the legal provisions themselves, their definitions, or their implementation?

The issue stems from both the formulation of legal provisions and their implementation. One major problem is the exclusion of key stakeholders from the lawmaking process. If the state were to begin drafting laws by first identifying the issues and determining the extent to which they can be addressed, while consulting private-sector representatives and other stakeholders such as chartered accountants, lawyers and management consultants, the resulting laws would be far more effective.

Representatives from umbrella organisations of traders and entrepreneurs, such as FNCCI, CNI and NCC, are regularly included in discussions with SEBON, the Investment Board Nepal, and the Ministry of Industry, Commerce and Supplies. Isn’t their feedback considered during policy formulation?

This is primarily an implementation-level issue, but the challenges persist there as well. Representatives from these organisations often lack the legal expertise needed to provide meaningful input, and their busy schedules further limit their capacity to contribute effectively. Additionally, many representatives focus on advancing policies that serve their vested interests rather than prioritising the broader needs of the business community or the national economy.

At times, representatives are sent to these forums with the intent of securing benefits for specific industries or individuals. My primary concern is that stakeholders should be involved from the very beginning of the lawmaking process. Unfortunately, bureaucrats often draft legal provisions based on their own convenience. By the time stakeholders are invited to provide feedback, usually at the bill committee stage, it is already too late to make substantial changes.

Regarding implementation, those tasked with interpreting and endorsing the law should be granted some flexibility. However, we have cultivated a culture that questions and discourages forward-thinking individuals which discourages proactive and effective decision-making.

Have there been instances where court verdicts have led to injustices against businesses?

Yes, such instances do exist. Timely verdicts are crucial because, as the saying goes, “justice hurried is justice buried, and justice delayed is justice denied”. In our common law system, precedents are meant to be followed. However, in Nepal, different precedents have been established for similar cases, creating inconsistency and confusion. Moreover, there have been instances where the government has failed to implement court verdicts, adversely impacting businesses. Some precedents are created arbitrarily, lacking clarity and careful thought.

In contrast, the US judicial system resolves 70-80% of cases through out-of-court settlements, preventing backlogs. Even justices take extended vacations. Nepal struggles to achieve this efficiency due to instability within its judicial system.

Labour disputes are now handled by the Labour Court, and most verdicts tend to favour labourers. While some of these decisions may be justified, many questionable verdicts still favor labourers. Does this represent justice or injustice?

While it can still be considered justice, the Labour Court often operates with biases, perceiving itself primarily as a court for labourers. This raises valid concerns. Appointments to these courts are frequently influenced by labour unions or political parties, leading to verdicts that often align with these affiliations.

Can you provide an example of how Nepal’s investment climate affects businesses?

A former US Secretary of State once expressed interest in establishing a large industry in Nepal. After conducting a feasibility study, he approached Nepal’s leadership and requested India's support to either build a railway track from the Nepal-India border to the coast or allocate space in India’s railway system for export. Neither request was granted by India.

Nepal’s response was equally discouraging. When foreign investors show interest, the government often fails to create a supportive environment. Investors frequently face demands from both the government and local communities for infrastructure such as roads, schools, health posts and job opportunities before being allowed to operate. An exception occurred during Dr Bhola Chalise’s tenure as Industry Secretary when Colgate received its operational licence within just seven days - a record for efficiency.

Frequent changes in legal provisions further complicate the investment climate. Policies often shift between the time an investment is planned and when production begins, causing financial losses. These unstable conditions have forced many factories to shut down, yet the government appears indifferent to these closures.

How effective have Nepali authorities been in promoting industries and products in both domestic and international markets?

While our leaders frequently speak of economic diplomacy, there is little accountability. Do Nepali envoys ever report the investment they attracted during their tenure? Why are individuals who fail to bring substantial investments repeatedly reappointed?

During your tenure as Attorney General, did you ever drop a case against a business because you believed continuing it would be unjust?

I have worked as a defence lawyer for the private sector. I even proposed a meeting between FNCCI and bureaucrats to address concerns about income tax, excise duties and VAT. However, FNCCI showed little interest in pursuing such discussions.

Why are there so few out-of-court settlements in Nepal?

Inconsistent verdicts are a major factor. Weak cases often succeed, leading to an increase in litigation. A foreigner once told me that Nepal is a unique country where “anything is possible, and everything is impossible”. This perfectly reflects the unpredictability of our judicial system.

Has the knowledge or understanding of judges contributed to delays in verdicts?

Nepali judges have established precedents of international standards, so it is unfair to say they lack knowledge. However, some verdicts appear to be influenced by publicity-driven sentiments, often resembling NGO-like agendas to build international reputations.

In civil matters, the root issue lies in the recruitment process, which has led to fewer experts in land systems and land code administration. Corruption, while present, is rarely punished. Judges found guilty of corruption are typically asked to resign rather than facing fines or imprisonment.

How can businesses avoid judicial hurdles?

Businesses should hire legal practitioners to prevent judicial complications rather than waiting for problems to arise. After the restoration of democracy in 1990, many businesses adopted this practice, but it has since declined. Today, legal consultations often occur only after issues arise, with some businesses retaining lawyers more out of necessity than strategic planning.

Business owners should prioritise accurate tax disclosure and maintain proper financial records. If managing these responsibilities personally is challenging, hiring a Chartered Accountant on a contract basis can be beneficial. Timely payment of taxes, including VAT, is crucial. Additionally, appointing a dedicated compliance officer to oversee monitoring and regulatory obligations can help prevent legal complications.

Other essential practices include addressing tax-related matters promptly, obtaining necessary permits, maintaining up-to-date insurance policies, and creating a calendar to track deadlines and compliance-related tasks effectively.

Regarding advance tax payments that are not refunded by the government, is there any way to recover those funds?

Ideally, the government should refund advance tax payments. However, if refunds are withheld, pursuing legal action is the only recourse. A favorable court verdict can resolve such issues.

There have been cases of business people being imprisoned for offenses they may not fully understand. What types of cases warrant imprisonment, and which ones do not?

There are two categories of incarcerated individuals: detainees, whose cases are under investigation or trials, and prisoners, who have been sentenced after a court ruling. Unfortunately, our legal system often follows a "first incarcerate, then listen" approach instead of "first listen, then incarcerate". Courts frequently adopt the stance: "Surrender yourself, go to jail, and then we’ll hear your case".

This issue has evolved over time and should be addressed by political leaders. However, most remain silent on the matter. Many prioritise highlighting their jail time as a badge of honour rather than their contributions to the nation. Furthermore, while serving their sentences, these leaders rarely advocate for prison reforms, perpetuating the systemic flaws.

In cases of cooperative fraud, where individuals end up in jail, is it acceptable for them not to repay the principal amount?

Serving jail time is often seen as a form of repayment, especially when the fraudster lacks sufficient assets to cover the debt. For example, if someone defrauds Rs 50 million but possesses only Rs 30 million in assets, the victim can claim those assets, while the remaining debt might be considered settled through imprisonment.

However, in cases of cooperative fraud, many culprits have already transferred funds abroad and relocated their families. They serve their sentences and walk free, avoiding full financial accountability. This is particularly troubling as it allows them to evade accountability.

The Commission for the Investigation of Abuse of Authority (CIAA) has proposed bringing the private sector under its jurisdiction - a move that has faced criticism from the private sector. What are your thoughts on this proposal?

There are two sides to this issue. On one hand, the CIAA has struggled with credibility and fairness which explains the private sector’s hesitation and criticism. On the other hand, the private sector is often complicit in corruption. Businesses frequently offer bribes to expedite processes, often justifying them as a necessity. However, both giving and accepting bribes are corrupt practices.

For example, there have been reports that the previous government collapsed over the appointment of the chairperson of the Securities Board of Nepal (SEBON). If true, this highlights the deep-rooted corruption within both sectors.

One major flaw in the legal framework is the lack of specific laws penalising those who offer bribes. Expanding the CIAA's jurisdiction to include the private sector could help combat economic crimes, but this would require the anti-graft body to operate with transparency and fairness.

Although the CIAA Chief Commissioner is appointed through political channels, they must prioritise the nation’s interests over political agendas. Greater independence and impartiality would make the CIAA more effective in addressing corruption and its impact on the economy.

(This interview was originally published in  January 2025 issue  of New Business Age Magazine.)

Watch the full interview on our Youtube Channel