Easing up Starting a Business in Nepal

– This article was originally published by Ashesh Shrestha in the Himalayan Times on the May 19, 2019.

How easy or difficult it is to start a business is one of the important determinants of investments.  The cost incurred in starting a business is largely sunk cost which cannot be recovered and hence the larger the cost of starting a business, there is less incentives for aspiring entrepreneurs to start a business. Hence minimizing the cost of starting a business (both monetary and non-monetary) becomes important to attract new businesses and investments in the economy. If we look at the business registration procedures in Nepal, there are various hassles which have increased the cost of starting a business. Hence, in order to make business registration process easy, less costly and less time consuming to the entrepreneurs, we need to make various reforms.

  • Substituting Memorandum and Articles of association by a single document

Currently, the entrepreneurs are not able to prepare Memorandum and Articles of Association (MoA and AoA) without professional help. Even though formats of MoA and AoA are available and provided by the government, entrepreneurs cannot use it themselves without any professional help from lawyers. It is highly recommended that Memorandum of Association and Article of association is substituted by a single document which can be easily prepared by layman without any professional help. This could reduce the cost and time of starting a business significantly.

  • Allocating technical human resource for effective implementation of electronic registration

Even though agencies like Office of the Company Registrar (OCR), Inland Revenue Department (IRD), and Department of Industry (DOI) have built necessary infrastructure for accepting digital signature, they lack technical human resource for administering it. Hence, the government should assign technical human resource to these agencies so that digital signature can be immediately brought into practice and electronic registration of businesses could be fully implemented.

  • Reducing Incorporation fees

Registration fees amounts to more than 10 percent of the per capital income which is very high. By reducing the incorporation fees, many informal and new businesses can be attracted to get registered. As many new businesses will get registered, the loss in the revenue resulting from the reduction of the fees can be easily recovered through the increased revenue base.

  • Making regulatory agencies responsible instead of individual bureaucrats

Multiple tasks have to be performed under the same government agency for which entrepreneurs themselves have to move from one desk to another. This has created a maze within the regulatory office which has created confusions and made the registration process more complicated to the entrepreneurs. In order to solve this problem, the service delivery mechanism should be such that it should be responsibility of the regulatory agency and not the individual bureaucrats to provide the service. This will save the entrepreneurs from having to move from desk to desk and as they will not have to personally meet the bureaucrats, it will also control the corruption to a certain extent.

  • Easing up post registration compliances

In order to encourage small and micro businesses who are operating informally, post- registration compliance such as compliances to taxes should also be made easy. Instead of having multiple system of taxation which is difficult to comply with, a simple flat tax regime which is easy to understand should be introduced. As post registration compliance also plays and important role in entrepreneurs decision to register new businesses, these should also be made easy.

  • Devolution of government agencies

As mentioned above, centralized regulation is one of the major reasons which has led to significant rise in the cost of registration. In order to tackle with this issue, the government agencies responsible for business registration should be devolved. The new federal structure has provided us with the opportunity to devolve these agencies and bring them to the state level. As matters related to industrialization and business are the exclusive responsibility of the state, the works related to business registration can be brought closer to the people.

  • Establishment of one- window service center

Establishment of one window service center comprising the representatives of all the relevant government agencies would save a lot of time and effort required for business registration. It will spare entrepreneurs from having to visit multiple government agencies. Another way to tackle with this problem could also be to make use of Information and Communication Technology to share information among the concerned regulatory agencies. Such provision will help do away with having to submit the copies of the same documents again and again at various government agencies. 

  • Bureaucrats should only be transferred within same department/ ministry

Frequent transfers of bureaucrats has been cited as one of the reasons which has adversely affected service delivery. Also, we have not been able to rip benefits of specialisation. Therefore, it is highly recommended that the bureaucrats should only be transferred within the same department or ministry.