Futile Promises of the Government Sway the Hopes and Dreams of Industrialist

By – Niyati Shrestha

Industrial estates and special economic zones are the special demarcated zones for the construction of factories on an economic scale in sites with facilities of water, transport, electricity and other services. One of the special features of such areas is that they have special economic and business regulations from the rest of the country. Governments create such areas to encourage entrepreneurs to establish their industries by providing them premises and amenities to run a factory at a reasonable price that creates a favorable atmosphere for the healthy growth of industries eventually increasing the country’s production and productivity. However, this has not been the case for the industrialists in Nepal as the government has decided to increase the rental charges of land inside the industrial estates along with the charges of water and electricity supply.

The issue began four years ago when Industrial District Management Ltd (IDML) increased rent charges inside the industrial estates by 687 percent. It was put into effect from July 17, 2018 but the decision was objected to by the industrialists. Addressing the concerns of industrialists, the then Industry Minister Matrika Prasad Yadav instructed IDML not to implement the decision and the public company got along with it. Industrialists had been paying rents at old rates until now and have cleared the dues till mid July but IDML is now determined to recover all the rental charges at the new rates from the firms collectively of the past four years. 

The industrialists, who contribute almost Rs. 50 billion to the government’s revenue and create a chain of employment opportunities in the country, are not happy about this decision. Along with this, IDML has also demanded electricity and water supply charges from the firms operating inside the estates which is claimed to be unfair by the industrialists.

The main income source of IDML is the promotional rentals levied on lands and buildings. Along with this, the public company also earns from the price differential between the concessional and wholesale purchase of electricity from Nepal Electricity Authority and retail distribution to the industries inside the industrial estate. Some sources of income include its own water supply system, entry fee, renewal fee, etc. 

The unfair charges specifically on land, electricity and water supply shows that IDML took the decision to fulfill their own self interest – to increase its own revenue. The officials from IDML tried to clarify their decision by stating that the prices inside the industrial estates are cheaper in comparison to the market price. But the prices should be cheaper as the main motive of creating such zones is to support their production through special provisions and privileges. So, their statement is not justifiable.

On the other hand, the government makes promises to increase the country’s exports by promoting such manufacturing industries along with other promises of creating a stable environment to attract foreign direct investments. In order to widen the export trade, it has even delineated Special Economic Zones (SEZ) in different parts of the country. It was decided that  nine zones would be established all over the country but only one Bhairahawa SEZ is in operation which was established around twenty years ago. Even after two decades, the SEZ is not in its full operation as it has been failing to attract new investors due to rules and regulations that contradict from the provisions of SEZ Act. Moreover, the provision mentioned in the Section 28 of Industrial Enterprise Act 2020 clearly states that, the Government of Nepal may make provisions and incentives for industries operated in such industrial zones. However, no such incentives regarding rental charges and amenities charges have been mentioned in Income Tax Act 2002 except for some degree of cutbacks in the income tax of such industries. Such contradiction in two different acts shows how hollow these promises actually are.   

Such an unstable investment climate of the country is already evident in flawed provisions of lengthy bureaucratic processes to initiate and operate the business. In a situation where the government is already failing to create a stable environment for new investments, this hiked rental prices for already established industries highlights uncertainty in the investment climate that might further demotivate investors and businessmen to continue operation. This will result in increased fall of production, loss of employment opportunities and even lesser exports that will impose a great risk to the country in the long run.

 In order to avoid such a situation in the future, the government should revise their decision, if not it should at least stop asking industrialists to pay additional hiked prices of the last four years. In addition to this, the inclusion of provisions regarding rental charges and service charges in the Income Tax Act might help the government to implement the provisions stated in the Industrial Enterprise Act which are in favor of such special industries. This will ultimately create a safer environment for enterprise building in the country that will eventually help to promote the country’s relatively smaller exports.