Finance and Investment Legislation

Finance and Investment Legislation

The Employee Provident Fund, the Credit Guarantee Corporation, the Citizen Investment Fund, the Stock Exchange Center, and two sizable state-controlled commercial banks make up Nepal's financial system. Private finance firms, insurance businesses, and share market corporations are also included.

Commercial banks, financial institutions, and insurance providers are permitted to set their own rates for deposits and loans. However, commercial banks are obligated to devote a minimum of 12% of their credit extensions to the high-priority investment sectors as decided by Nepal Rastra Bank periodically. Thus, the finance industry in Nepal has expanded quickly.

The 1992 passage of the Foreign Investment and Technology Transfer Act (FITTA). This Act aims to improve the nation's environment for foreign investment and technology transfer. In other words, the Act aims to maximize the mobilization of capital, human, and other natural resources in order to make the economy more viable, dynamic, and competitive.

The 1992 passage of the Foreign Investment and Technology Transfer Act (FITTA). This Act aims to improve the nation's environment for foreign investment and technology transfer. In other words, the Act aims to maximize the mobilization of capital, human, and other natural resources in order to make the economy more viable, dynamic, and competitive.

The Act includes provisions for financial and tax incentives to private industries, including exemptions from income tax holidays, sales tax and excise tax exemptions, dividend and profit repatriation, capital and interest fees, royalties to foreign investors, and simplified industrial enterprise licensing procedures. By submitting an application for a permission or license with the Development of Industry, a foreign investor, acting alone or in a partnership with a Nepalese investor, may start an industrial firm. It is possible for foreign investment to take the form of loans, stock, technology, or services.

The Annex of the FITTA has Two Parts

A list of sectors that are off-limits to foreign investment is provided in Part A. This list consists of

1. Cottage businesses
2. Services provided to individuals, such as hair cutting, beauty services, tailoring, and driving instruction.
3. Explosives and gunpowder production are part of the arms and munitions industries.
4. Radioactive substances.
5. Real estate industry, excluding the building sector.
6. The production of national language films.
7. Currency and coin printing is part of the security printing industry.

The business activities that are often not permitted for foreign investment are listed in Part B of the Annex. However, the government has the authority to alter this list. These consist of

• Travel company.
• Pony trekking, horseback riding, and trekking agencies.
• Production of alcohol, cigarettes, and bidis.
• Service for internal couriers.
• Automated energy; accomodation for tourists.
• Fisheries, poultry farming
• Bee-keeping.
• Management, accounting, engineering, and legal services are examples of consulting services.

The Foreign Exchange Regulation Act of 1961 controls currency exchange. It mandates that all transactions in foreign exchange be conducted through licensed foreign exchange dealers, such as commercial banks, licensed dealers, or money changers. The Nepal Rastra Bank or another authorized bank must receive the export-related foreign exchange earnings. Similar to this, all payments in convertible foreign currency must have approval from the Ministry of Finance, with the exception of payments for imports and a few other specific payments. The Nepal Rastra Bank is in charge of overseeing the foreign exchange laws.

In 1993, the open market exchange rate system came into existence. All export revenue can be kept and applied to any purpose under this method. There is no longer a need for import licenses to purchase foreign money for specified commodities. It is possible to open free foreign currency bank accounts and get interest payments in foreign currencies. Due to this regulation, Nepalese rupees are fully convertible for all current account transactions. Thus, Nepal has taken steps to develop a free and open financial market there.

An essential and dependable method of raising domestic revenue is taxation. Residents of a state view it as a required contribution in exchange for the state's provision of peace, security, and justice to them. The Income Tax Act of 2001 regulates Nepal's corporate tax system.

• Corporate taxes are not subject to a separate body of law.
• The taxpayers are required to keep their financial records updated according to the government's fiscal year.
• Both individuals and businesses are required to submit their income tax returns to the local tax office in their respective jurisdictions.
• By adhering to the Director-General of the Income Tax Department's guidelines, corporate taxpayers can determine their own annual profit and submit the return to the tax office.
• If an incorrect assessment is made, the taxpayer will be fined 50% of the amount that was delayed as a result of the incorrect assessment.

The Finance Act of 1993 broadened the scope of income taxation by bringing organized establishments, public corporations, and several other public and private businesses inside its net fold.

In Nepal, the tax holiday is a widely recognized idea. Different Acts offer varying tax benefits to sectors of the economy and commercial entities. Here are a few crucial ones mentioned:

• Tax holidays for electrical power firms for fifteen years.
• Traditional cottage industries, such as those producing carpet, handicrafts, textiles, clothes, leather, jewelry, and other items, are exempt from paying taxes.
• Export-related profits are not subject to income tax.
• The manufacturing sector is five years tax-free, except the cigarette, alcohol, beer, plastic, etc. industries. Sectors of national importance, agro- and forest-based industries, and businesses employing 600 or more people all receive an additional two years of tax holidays.
• Certain industries that use 80 percent or more local raw materials and 100 percent local labor are free from income tax at a rate of 10 percent.
• If the industry diversifies itself by reinvestment or the growth of installed capacity, 40% of new additional fixed asset investment is deducted from taxable income.
• For the investment of an industry to reduce or control pollution, 50% of taxable income is deducted.

A regulated market where shares, debentures, and government bonds can be purchased and sold is the stock exchange. The stock exchange is thought to be a crucial part of a nation's expanding capital market. It is also necessary for corporate enterprises to operate properly. Resource mobilization is made simpler and more efficient for company houses by developed capital markets. Transactions on the stock market are either made for investment purposes or for speculative purposes. In contrast to speculative transactions, which are done with the objective of profiting by selling the assets at advantageous prices, investment transactions are made with the goal of generating a return on the securities by holding them for a longer period of time.

The only stock exchange in the nation is NEPSE. The Nepal Rastra Bank, the Nepali Industrial Development Corporation, and the Government are the NEPSE's legal owners. Its members receive a minor ownership stake as well. To conduct securities business, individuals in the securities industry, such as stockbrokers, market makers, and securities dealers registered with the Board, must become members of NEPSE. In a similar vein, issue managers who take part in the main issue activities must join NEPSE in order to operate.

Reference

Pant, P. R. (2009). Business Environment in Nepal (SIXTH ed.). Kathmandu, Nepal: Buddha Academic Publishers and Distributers.

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