KATHMANDU: The Nepal-India Chamber of Commerce and Industry (NICCI) appraised Finance Minister Rameshwor Khanal about the impact of General Sales Tax (GST) review by Indian government and its impact on Nepal’s manufacturing industry, the possibility of help by the Indian companies in Nepal in the reconstruction, without any reason halt of the Initial Public Offerings (IPO) by the Securities Board of Nepal (SEBON), and few of the long-standing issues regarding the foreign direct investment (FDI).
During the courtesy call on Wednesday at the office of the Finance Minister at Singhadurbar led by Officiating President Kunal Kayal, NICCI also expressed the concern on the impact of the recently changed GST in India, and asked the minister to take steps to save the domestic manufacturing industries.
India’s 56th GST Council has approved broad rate changes effective from September 22. This re-bases India MRPs across several Fast-Moving Consumer Goods (FMCG) lines. Due to the change in the GST in India, it will result in widening price arbitrage (raising grey-channel risk) and improved affordability for impacted formal imports – as price ladder’s shift downwards along with India MRP revisions. “Initial workings indicate potential turnover and margin pressure, if we mirror India MRPs versus a potential price arbitrage opportunity via wholesalers if we hold Nepal pricing as-is,” a letter submitted to the Finance Minister reads.
NICCI also highlighted the inflow of illegal trade that will bleed the Nepal government as it will hurt the coffer. “Lower India MRPs + better exporter liquidity increases the incentive for retail-pack leakage into Nepal via the open border,” the letter reads, adding that expected inflow spikes in border adjacencies, with near-term cannibalization of Nepal manufactured products and adverse price perception. “Nepali industries are already disadvantaged by the viz-a-viz India cost model on account of added custom duties etc hence that features into pricing, however when products come through grey channel they save on customs and that benefit makes local manufacturers extremely uncompetitive.”
Likewise, Selective formal import economics improve as India ex-factory nets fall; however, Nepal customs, VAT (which is 13 percent) and product excise remain binding. Most impacted categories, for example, may be shampoos and foods as imports become cheaper for the Nepali consumer, NICCI highlighted. “However, the local manufacturers will not see any such benefit to revise their pricing.”
Due to the change, local production could be disadvantaged, if we shadow India MRPs without equivalent tax relief, the letter submitted by NICCI reads. “Affected categories for example include soaps, toothpaste, shampoo, and food products and many others.”
NICCI has also suggested a three-pronged approach to counter the change and protect the domestic manufacturing industry. “Making raw material imports cheaper (the same benefit could be passed on to consumers through pricing benefits) and/or provide production linked benefits to domestic manufacturers; increasing FG import customs to improve the incentive curve for local manufacturing; and curbing parallel flow of goods through routine and random raids in stores in bordering towns and the industry players can also help identify such outlets where such contraband products are flowing from India without any customs earning for the Nepal government, and seize India MRP stocks where outlets do not have VAT bills from a designated and registered importer.
Addressing the NICCI delegation, Finance Minister Khanal said that the major task of the incumbent government is to hold a free and fair election, and help in reconstruction. “The companies can help the government by donating to the fund established by the government,” he said, adding that the long-standing issues raised by the NICCI needs new laws, which the incumbent government has no mandate. “However, I will try to facilitate the issues.”
The IPO issues will be solved by the SEBON soon, he said, adding, “The GST issue will also be looked upon.”
Comment