Draft FDI policy raises minimum investment, dangles tax benefits

KATHMANDU, May 29

The government is planning to raise the minimum amount of capital foreign investors can invest in Nepal. As per a draft of the new Foreign Investment Policy 2013, investors will have to put in at least US$ 200,000 to start any venture in the country.

The minimum investment had been ramped up to Rs 5 million from Rs 2 million last year by the Department of Industry.

Meanwhile, the proposed policy for foreign direct investment (FDI) has also set down the five priority sectors for foreign investment as hydropower (generation and transmission), infrastructure (fast track highway, railway, tunnel, cable car, metro train, flyover and international airport), agriculture and herbs processing, tourism and mines and manufacturing industry.

Foreign financiers in the hydropower sector will not be allowed to invest in projects smaller than 30 MW. Likewise, the minimum investment has been set at US$ 10 million for transport and other infrastructure projects.

With regard to agro and herbs processing industry, export promotion and import substitution industry, the lowest outlay has been fixed at US$ 2 million. Foreign investors will have to put in at least US $ 2 million into mines and manufacturing industries.

Similarly, potential foreign investors in hotels will only be allowed to bankroll projects above the three-star category. However, the proposed policy has set no investment limits for the communication sector including information and technology parks.

The proposed new policy has barred foreign investment in seven sectors including cottage industries, arms, ammunition, explosives and gunpowder industries, currency and coinage business, real estate business, multi-brand business having a fixed capital of less than Rs 5 billion, hotels of three-star and lower categories, and enterprises involving cooks, guides and porters related to tourism.

The existing policy does not permit foreign investment in more than two dozen sectors including the seven sectors mentioned above and other sectors like personal  service  businesses  (hair  cutting,  beauty  parlour, tailoring and driving training), motion pictures business, tobacco, internal courier service, poultry farming, fishery, beekeeping, local catering service and rural tourism.

The draft states that the government will provide foreign financiers all the facilities and incentives on par with local investors. “Any hydropower or infrastructure project operated under FDI will enjoy 100 percent income tax exemption for 15 years from the date it comes online,” states the draft.

Similarly, under the tax exemption facility, the draft has assured potential foreign investors a 25 percent tax exemption on the taxable amount if they wish to reinvest the profits from their ventures here. “The tax will be waived if foreign investors invest in research and development (R&D) in sectors like agriculture, minerals and technology,” the draft said.

According to the draft, no enterprise will be nationalized as long as it remains in operation. And in case an enterprise has to be nationalized for public welfare, the government will compensate the investor as per the prevailing market price.

Source: Kathmandu Post