Industries established with foreign investment in the form of joint venture or wholly foreign owned units are entitled to get all the facilities and incentives stated in the IEA and the FITTA, the details of which is given in Appendix- 20. The FITTA provides for the various repatriation facilities as mentioned in the earlier chapter..
The facilities and incentives available to the industries have been spelt out in the Section 15 of the Industrial Enterprises Act, 1992. Cottage industries are exempt from sales tax, excise duty and income tax. Moreover, the government can also grant additional facilities to the national priority industries. The procedure for obtaining facilities and incentives stipulated in said Acts are discussed below:
- Income Tax Exemption
Corporate tax shall not exceed 20 percent of profit for industries other than industries manufacturing cigarettes, bidi, cigar, tobacco, alcohol and beer.
There is a 5% income tax on dividends earned out of investment in any industry. And, export earnings are taxed at 40% of the income tax imposed on other industries. However, the tax amount shall not exceed 0.5% of the total export amount.
- Income Tax Deduction
The Industrial Enterprises Act provides for income tax rebate of 30, 25 and 20 percent for the industries other than cigarette, bidi, alcohol and beer established and operating in remote, undeveloped, underdeveloped areas of the country respectively. In order to enjoy this facility, the concerned industry must submit a certificate showing that it was operational in that particular area during the period.
- Concessional Rate of Custom Duty
Manufacturing industries importing plant, machinery and equipment required for direct production process falling under the chapter 84 of the harmonised custom classification with the duty rate of 5 percent are given 80 percent rebate on the custom duty and full exemption from any sales tax.
- Excise Duty Rebate and Refund
Industries established and operating in the remote, undeveloped and underdeveloped areas, as mentioned in the Appendix-23, are entitled to 35, 25 and 15 percent rebate in the excise duty respectively for a period of ten years from the date of operation. For getting this facility the concerned industry should produce a certificate stating that the industry is operating in the said area during the period.
- Duty Draw-back
Any duty or taxes levied on the raw materials, auxiliary raw materials etc. used for producing goods for export are entitled to get refund of these duty and taxes based on the quantity of export.
- Bonded warehouse facility
The duty drawback facility is available to the industries on the quantities of raw materials imported and used for the production of goods for export. Export oriented industries may obtain the facility of bonded warehouse. The raw materials can be imported just by entering into a passbook without paying any custom duty or sales tax. Those raw materials are deducted from the passbook upon export of finished product. However, the industry must also submit a bank guarantee, which must be sufficient to cover the duties.
- Opening of Foreign Currency Account
Foreigners and companies can open and operate foreign currency account in any of the commercial banks in Nepal. Export oriented industrial companies can also open Foreign Currency Account. Industries incorporated as 100 percent foreign owned or as a joint venture may also open a foreign currency account to deposit the equity share of the foreign party in convertible currency. This can be used only to import equipment and plants as well as other fixed assets necessary for the industry.
Required DocumentsThe application for Duty Draw-back must be submitted within a year of the export date. The application must include the completed form, given in Appendix – 25, along with all the original documents relating to
- a) Custom declaration form for the import of raw materials (Aayaat Pragyapan Patra)
- b) Receipt of the duty payment
- c) Calculation of the raw material uses
- d) Sales invoice
- e) Certificate of receipt of payment
- f) Copy of the agreement with the buyer
The duty draw-back facility is also available if the industry sales its products within Nepal in convertible foreign currency. The duty draw-back facility will not be available if the industry does not apply for the same within a year of the date of export or deemed export.
The industry in order to avail Bonded warehouse facility must apply to the Department of Custom along with the following documents:
- a) Company registration certificate
- b) Memorandum and Articles of Association
- c) Industry registration certificate
- d) L/C copy for input of raw materials
- e) Lease contract if the building for industry is on rent and land registration certificate if company owns the land.
- f) Recommendation from Garment Association if the industry is a garment unit.
- g) Bank guarantee
Frequently Asked Questions (FAQs)