Export incentives

The government’s decision to set aside Rs 240 million for cash incentives to exporters may well help Nepal save its flagging export base. The growing mismatch between rising imports and shrinking exports has punched a large hole in the country´s balance of payments. As a result, the economy faced a serious setback last year, when the trade deficit touched a record Rs 317.6 billion, 46.5 percent more than a year earlier.



It was just over a decade ago that Nepal’s largest export, carpets, used to generate as much as Rs 14 billion and readymade garments fetched over Rs 12 billion. Today, the two biggest exports are still the same, but their export volume hovers around just Rs 4 billion each. With remittances and service income booming, the government can do little to curb consumption and imports. So, promoting exports is probably the best prescription for the deepening economic ill.



Against this background, the government´s decision to provide a higher incentive of 4 percent of total export value to commodities with higher value addition and 2 percent incentive to commodities generating lesser value addition makes much sense. It will encourage entrepreneurs to go for production and export of commodities with higher value addition.



Such a policy will encourage producers who are deploying low value addition, to increase local value addition in their production. Of course, such differential incentive has complicated the work of the agencies concerned. They must now set out a clear mechanism to deal with this swiftly. And note that this complication must not become an excuse for delay in the payment of due incentives or for giving exporters unnecessary trouble. The authorized agencies must clearly understand that incentives are meant for enthusing the exporters, not for frustrating them.



However, another equally import aspect of the whole export incentives scheme is to make sure that the incentives do not fall into the wrong hands. Given the rise in corruption and mismanagement in public services, there are high chances of leakages. There might be manipulation while certifying the proportion of local value addition in exportable commodities and the volume of exports.



So, the agency authorized to distribute incentives must be asked to make public the volume of cash incentives paid out, including details of the commodities, on a routine basis. The government must also use the incentives as a parameter for cross-checking tax compliance by the beneficiaries. Basically, the overall operations of the scheme should be made transparent to avoid any repetition of the notorious Carpet Scandal of the 1970s, when heads rolled in the upper reaches of government over corruption in export incentives then.

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