HIGHLIGHTS ON INDUSTRIAL ENTERPRISES ACT, 2020...
Transcript of HIGHLIGHTS ON INDUSTRIAL ENTERPRISES ACT, 2020...
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HIGHLIGHTS ON INDUSTRIAL ENTERPRISES ACT, 2020 (2076)
March 12, 2020
Industrial Enterprises Act, 2020 (2076 BS) (the "Act") has been introduced repealing the
Industrial Enterprises Act, 2016 (2073 BS) (the "Previous Act"). The Act has been
authenticated by the President on February 11, 2020 (2076/10/28). The Act is in effect since
the date of authentication.
The Act is a principal legislation for registration, establishment and pre/post operational
compliances of industry. No person (either natural or legal) is permitted to operate its
business without establishing industry under this Act. Company registered under the
Companies Act at the Office of Company Registrar (the “OCR”) is not allowed to operate
business transaction without registering its industry under the Act.
Some of the key provisions of the Act has been set out below:
1. Industry Registration
1.1. Continuing the legacy of the Previous Act, the Act explicitly restricts to establish or operate industry
without registering an industry undergoing through the procedure as provided in the Act. The Act
tries to shift the concept of branch industries and emphasizes on the conversion of branch industries
into unit industry. The Act requires the existing branch industries to either; (a) register itself as a
separate industry within a year from the date of enactment of the Act or (b) establish it as a unit of
the main industry. Further, such unit are required to keep a separate record of the production and
transactions. Such record has to be circulated to the main office of the industry.
2. Classification of Industry
2.1. The Act continues the general classification of industries the based on; (a) size of investment on the
fixed assets, and (b) nature/sector of business. However, there have been changes in terms of
threshold of fixed assets which have been detailed in ANNEX- I. Similarly, there are some changes
in relation to nature and sector of business, which have been detailed in ANNEX- II.
2.2. In the Previous Act, industries provided in the Schedule 1 requiring approval were excluded from the
category of ‘Micro Industry’ the exclusion of which has been removed by the new Act.
2.3. The present Act has replaced the term ‘Construction Industry’ with the term ‘Infrastructure Industry’
and has covered wider areas of infrastructure industries including industries related to construction,
arrangement and operation of installation of pipelines for fuel and gas supply, energy house and
energy transmission line. Further, the Act has broadened the scope of Information, Broadcasting and
Communication Technology based industry to also cover the ‘Information Technology’ based
industry, which includes knowledge process outsourcing, data centers, internet service provider,
industry related to web portal, web design service, web hosting to name a few. The scope of service
industry have been broadened to cover among other the e-commerce, industry business providing
services to the general people using the electronic medium (online or software or apps or other similar
nature of medium), likewise, food court, catering and street food stalls services. Similarly to the
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previous Act, the Act has not classified “investment business” as any industry within the list.
Excluding such business under the list would create question on the permissibility of foreign
investment in investment business, unless the same is notified by the Government.
3. Regulating Authorities /Implementing Agencies
The Act moves towards regulating the industries in line with the existing three-tires of the federal
structure (Federal, Provincial and Local government) (the “Registering Authority”) and also
segregates powers and authorities of each of them. There are certain changes in terms of industry
registration process and registering authorities, in comparison to the Previous Act. The Act provides
different jurisdiction to following government authorities for registration of industry:
3.1. Department of Industry
Previously, the Department of Industry (“DOI”) was the primary government agency for registration
of industry. However, in current administrative set up DOI would be undertaking registration of
following industries:
a. Industries subject to obtain prior approval before registration as prescribed under Annexure 1
of the Act. (As detailed in ANNEX IV).
b. Industries based on Foreign Direct Investments (“FDI”)
c. Industries falling under Schedule 5 of the Constitution of Nepal. (As detailed in ANNEX V)
d. Industries which fall under the jurisdiction of two or more Provinces.
e. Industries providing academic consultancy services relating to diplomatic affairs.
3.2. Provincial Government
The registration, renewal and regulation of all industries which do not fall under the jurisdiction of
DOI would fall under the jurisdiction of Provincial Government. However, industries subjected to
obtain prior approval are not excluded from obtaining the required approval. Provided, that DOI as a
central authority would be responsible to register, renewal and regulation of such industry until the
provincial laws are not formed.
3.3. Government of Nepal
The Act mandates certain industries (such as industry based on atomic energy, industries producing
radioactive material, atomic energy and uranium energy related industries) which can only be
established and operated by the Government of Nepal.
3.4. Local Authorities
After enactment of local, federal, and provincial laws micro entrepreneurship, cottage and small scale
industry having fixed capital as prescribed under the respective provincial law shall be regulated by
the respective local authorities. Until formulation and enactment of separate local laws all industries
shall be regulated by the DOI.
3.5. Timeline of Industry Registration
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The timeline of the industry registration is stated as 5 days in the Act. Previously, the time line of
registration was 15 (fifteen) days. In past instances, some cases of industry registration has taken
more than 15 days. In this context, 5 days’ timeline for registration of industry seems attractive to the
investors; however, it may take longer period of time in case to case basis.
4. Approval and Compliance Requirement
The Act mandates numerous approval requirements. Some major approval and compliance
requirements are highlighted as follows:
4.1. Prior Approval for Industry Registration
The Act requires prior approval to be obtained from Industrial and Investment Promotion Board
(“IIPB”) for industry registration. Section 8 of the Act provides specific list of industries which
require prior approval. The list has been attached in ANNEX IV.
4.2. Notification Requirement for Industry Operation and Extension of Industry Operation
The industry registration authority provides specific timeline for each industry to commence its
Operation, Commercial Production or Transaction (the “Operation”). The Act requires industries to
inform the industry Registration Authority about the Operation within 30 days from the date of such
Operation. In case industries fail to operate within the given timeline, it shall obtain industry operation
extension 30 days before the expiry of the given timeline for industry operation.
Previously, failure of filing an application for industry operation extension would have resulted in
immediate cancellation of industry. There was no provision of delay payment and extension of
industry operation after expiry of the given timeline. However, the Act has currently provided
additional 6 months period to obtain industry operation extension and provides provision in relation
to delay fee submission for delay application for industry operation extension. The industry operation
extension can be provided based on the progress of construction work on the site and nature of the
industry. However, approval from IIPB is required to be obtained in case industry operation extension
is required for more than 3 times.
As per the previous Act, failure of obtaining timely extension of industry operation would result in
cancellations of industry registration but under the new Act instead of industry cancellation it would
be automatically be inactive.
Principally, obtaining extension of industry operation is merely a technical matter; default in
obtaining industry registration extension would not cancel the entire business vehicle as such. In this
context, the current Act provides more flexible approach to obtain industry operation extension. For
instance a business vehicle undertaking hydropower project cannot be technically cancelled from its
real existence only because of failure of industry operation extension.
4.3. Approval for changes in capital structure, capacity and objective of industry
The Act mandates prior approval to be taken from the Registering Authority by the industry
which is intending to increase the existing capital, capacity, adding additional objectives, and
changing the existing objectives. However, such approval is not required to be obtained by
the micro industry or cottage and small scale industry with fixed capital of NPR. 10,000,000
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(Ten Million) which are not required to obtain prior approval for industry registration. The
Act envisages that increase in production rate by merely enhancing the capacity without
altering installed machinery, equipment shall not be considered as increase in capacity.
4.4. Requirement to submit “ZERO” details
The industry should forward zero details (Shuunya Biwaran) of production and business transaction
of the industry to the Registering Authority if the industry is closed for more than a year or has no
production or transaction throughout the year.
4.5. Submission of Progress report and other details
The Act requires industry to submit annual progress report, plans and activities in relation to industry
in compliance with corporate social responsibility requirement within the end of 6 months of every
financial year to the Registering Authority.
4.6. Submission of details as prescribed at the time of industry registration
Each industry is required to notify certain details as prescribed in the registration certificate to the
Regulating Authorities within the end of 6 months of every financial year to the Registering
Authority.
4.7. Prior approval for transfer of Location of Industry
The Act requires approval from province or local level if the industry is being transferred within the
province. However, if industry is being transferred from one province to another province, approval
from DOI must be obtained.
4.8. Notification in relation to closure of industry
Industry shall notify Registering Authority about the closure of industry within 30 days from the
date of closer of commercial production or transaction.
5. Environment Compliance
5.1. Pursuant to the Act, industry should commence activity related to establishment and operation only
after completion of applicable environment studies such as Initial Environmental Examination (IEE)
and Environmental Impact Assessment (EIA). The Act further mandates to carry out such
environment studies in the events where the industry increases capital, enhances capacity, adds or
changes objective or shifts or changes location of the industry.
5.2. The industry which does not require IEE and EIA should, during registration, disclose grounds and
reasons for the same along with the self-declaration that the industry will take appropriate measures
to mitigate adverse impact on the environment.
6. Incentives and Facilities to the Industries
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6.1. There have been some major changes in the Act in terms of incentives and facilities to the industries.
A significant change to note in the new Act is the removal of exemption of the Value Added Tax
(“VAT”) on production cost of the exported goods on the basis of export quantity.
6.2. The other remarkable changes include 100% income tax exemption to the Micro Industries being in
operation at the time of commencement of this Act; 50% income tax exemption to the Cottage and
Small Scale Industries with at least 10 Million (Nepalese Rupees Ten Million) being in operation by
the time of commencement of this Act and coming into operation pursuant to this Act; 50%
exemption on the rate of the income tax levied on the income from the sale of production by Local
tea producing and processing industries, dairy industries and clothes producing industries.
6.3. The new Act has brought changes in exemption, facilities and concession on income tax, custom duty
and various other charges on various nature of production. The major changes brought about in the
new Act have been detailed in ANNEX-III.
6.4. The Act provides statutory protection for changes in law regarding benefits and exemption provided
under the Act and other applicable laws. The stabilization provision states that no provisions shall be
made limiting the benefits and exemptions prescribed under the Act and other applicable laws. The
difference with the Act and the Previous Act is that the current law only guarantees non-limitation of
the incentives, concessions, facilities or subsidies guaranteed under the current Act, whereas the
previous IEA had the same provision extending to the scope of concessions, facilities or subsidies
provided by, both, the then IEA and the then prevailing laws.
7. Land Ceiling
7.1. The industry which requires a land area more than the land ceiling prescribed as per the prevailing
laws of Nepal should submit an application to the Registering Authority for the exemption on land.
The industry should use the exempted land as obtained only for the purpose for which the land is
taken. The Act provides restrictive regime in use of land obtained beyond ceiling. The Act explicitly
restricts exempted land from being sold, transferred or used as collateral in consideration of obtaining
loan from the banks or financial institutions. This provision is a hindrance to projects that operate
with loan investment because the land acquired by industries beyond ceiling cannot be mortgaged.
8. Corporate Social Responsibility (CSR)
8.1. The Act provides explicit provision to allocate at least 1% of the annual net profit (which was unclear
in the Previous Act) to be utilized towards Corporate Social Responsibility (the “CSR Requirement”).
The CSR Requirement is applicable to all (i) medium industries and large industries and (ii) cottage
industries and small industries having annual turnover more than NPR 150,000,000.
8.2. The fund allocated for CSR shall be utilized in the specific sector as provided under Rule 37 of the
Industrial Enterprise Regulation, 2019 (2076) (the "Regulation") by formulating annual plan and
program. The Rule 37 of the Regulation provides number of sectors/areas or/and activities where the
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amount allocated for CSR shall be spent in specific sectors including (a) Natural Calamities, (b)
Community Health Centers, (c) Preservation of Nepalese Architect, (d) Culture Socially Backward
Communities,(e) Community Schools, (f) pollution Control, (g) Waste Management, Reforestation,
(h) Preservation of Water Resource, (i) Promotion of Alternative Energy & Environment Protection,
(j) Campaign for the preparation & Broadcasting of Documentary against Smoking, Alcohol use. (k)
Rural Drinking Water, road, sewage & corresponding physical infrastructure for the social benefit.
8.3. The Act further provides that the amount spent under CSR requirement can be deducted for the
purpose of income tax. The plans and programs related to CSR shall be submitted within the end of
6 months of every financial year to the DOI. The plans formulated plans and programs for CSR shall
be implemented in co-ordination with local authorities.
9. Contract Manufacturing
9.1. The content of the contract manufacturing has been updated in the Act in line with the Foreign
Investment and Technology Transfer Act, 2019. Previously contract manufacturing arrangement was
permissible for production of goods and services by the domestic industry. The Act there explicitly
restricts production of main goods of the industry through contract manufacturing. However, the Act
permits contract manufacturing arrangement in case of production of auxiliary products. The concept
also extends to supply of services but has not prescribed in detail.
9.2. The Act does not provide specific criteria to distinguish between main products and auxiliary
products. This provision provides much needed regulatory clarity on the regulation of contract
manufacturing arrangement. The Act does not mandate prior approval from the DOI to enter into a
contract manufacturing arrangement. The Act also entails provision of exemptions and benefits for
industry based on the contract manufacturing. Government is yet to issue notification relating to such
benefits and exemptions.
10. Offences and Sanctions
10.1. In comparison to the Previous Act, the Act provides more comprehensive offenses and punishment
for various non-compliances. The offences under the Act includes; (a) operation of industry without
registration, (b) performance of activities against objectives of an industry, (c) failure of notifying
about industry operation, commercial production or commencement of transaction of an industry
within given time period as provided by the Act, (d) transfer of an industry without obtaining prior
approval, (e) increment of capital, enhancement of capacity, addition or alteration of objectives
without obtaining prior approval, (f) failure to comply with the reporting/filing requirement as set out
under the Act, (g) misuse of incentives, exemptions, facilities and concessions as made available
under the Act, (h) non-fulfillment of the CSR Requirement in compliance with the Act, (i) non-
compliance conditions provided under the Act as well as breach of conditions or any directives issued
by the Ministry of Industry (“Ministry”) and (j) any other non-compliances as stated in the Act and
Regulation formulated under the Act.
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10.2. The Act provides offence specific punishment based on the nature and scale of the industry in more
extensive manner which is categorically presented as follows. Additional 50% fine in addition to the
fines stated below is applicable for industries which are subject to obtain approval from IIPB prior
registration.
S.N. Offences Scale of
Industry
Punishment (Amount in NPR.)
1. Operation of industry without
registration
Micro industry 5,000/-
Small and
Cottage
25,000/-
Medium 50,000/-
Large 100,000/-
Immediate closure of an industry along with above
mention fine.
2. Performance of activities
against objectives of the
industry.
Micro industry Up to 2000/-
Small and
Cottage
Up to 50,000/-
Medium Up to 100,000/-
Large Up to 500,000/-
3. Failure to notify about industry
operation, commercial
production or commencement
of transaction of an industry
within given time period as
provided by the Act.
Micro industry 2,000/- for each 6 months period
Small and
Cottage
10,000/- for each 6 months period
Medium and
Large
25,000/- for each 6 months period
4. Micro industry 5,000/-
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Transfer of an industry without
obtaining prior approval and
increment of capital,
enhancement of capacity, add
or alter objectives without
obtaining prior approval.
Small and
Cottage
25,000/- to 50,000/-
(Notes: Additional 100% fine for
industry which are subject to
receive approval for industry
registration)
Medium and
Large
100,000/- to 300,000/-
(Notes: Additional 100% fine for
industries which are subject to
receive prior approval for industry
registration)
5. Failure of submission of annual
detail within stipulated
timeframe as provided by the
Act.
Micro industry 1,000/-
Small and
Cottage
5,000/-
Medium 10,000/-
Large 25,000/-
6. misuse of incentives,
exemptions, facilities and
concessions as made available
under the Act
For all types of
industries.
Confiscation of available
incentives, exemptions, facilities
and concession (“Benefits”),
recovery of amount equivalent to
such benefits or levy fine equivalent
to such Benefits.
7. Non-compliance of CSR
responsibility.
For all types of
industries
Fine equivalent to 0.5% of gross
profit.
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8. Non-compliance of any
conditions or directives
provided by the Ministry.
Micro industry 5,000/-
Small and
Cottage
50,000/- to 100,000/-
Medium 150,000/- to 300,000/-
Large 250,000/- to 300,000/-
9. Any other non-compliances
provided under the Act and
Regulation framed pursuant to
the Act.
Micro industry Up to 15000/-
Small and
Cottage
Up to 15000/- to 30,000/-
Medium Up to 30,000/- to 50,000/-
Large Up to 50,000/- to 100,000/-
ANNEX- I
Industry Fixed Capital (Nrs.)
Previous Act
Act
Micro Up to 500,000 (Five Hundred Thousand) Up to 2,000,000 (Two Million)
[annual transaction increased to less than
10,000,000 (Ten Million) from less than
5,000,000 (Five Million)]
Cottage
There has been no Change.
Small-scale Up to 100,000,000 (One Hundred
Million)
Up to 150,000,000 (One Fifty Million)
Medium-scale From more than 100,000,000 (One
Hundred Million) to 250,000,000 (Two
Fifty Million)
From 150,000,000 (One Fifty Million) to
500,000,000 (Five Hundred Million)
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Large-scale More than 250,000,000 (Two Fifty
Million)
More than 500,000,000 (Five Hundred
Million)
ANNEX- II
Schedule
New sectors introduced by the Act Remarks
1. Approval
requiring
Industries
• Related to Microbrewery
• Related to LPG Refilling
• Related to manufacturing drone or providing
services through drones
2. Cottage
Industries
There has been no change.
3. Energy-
oriented
Industries
• Related to biogas energy
• Related to electricity energy to be produced as a
co-production of sugar industry
• Related to energy potentiality study
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4. Agriculture
and Forest
Product
based
Industries
• Related to production and storage of food
products
• Related to Challa Kadne business
• Related to milk production and processing of
dairy products
• Related to protection of botanical garden
• Related to operation and management of
agriculture market and Sheet Bhandar
• Related to establishment and management of
agriculture forest
• Related to seed conservation of cash crops
• Related to production of natural Reshajanya
products
• Related to wood industry including shaw-mill
and furniture
• Related to wood industry like parqueting,
seasoning, treatment plant, ply wood,
composite, board.
• Related to non-wood forest products including
paper, resin
• Related to the production of mushroom, tissue
culture, agroforest
• Related to cotton farming, production and
processing of cotton and cotton seeds.
5. Infrastructur
e Industry • Related to polluted water purification
• Related to private warehouse
• Related to infrastructure construction,
arrangement and operation of installation of
pipelines for fuel and gas supply
• Related to infrastructure construction,
arrangement and operation of energy house and
energy transmission line
• The current Act has
replaced
‘Construction
Industry’ with
‘Infrastructure
Industry’.
• The following
industries have
been removed from
the Schedule 5.
a) Related to
assembly and
convention centers
b) Related to
sewage and sewage
passage
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6. Tourism
Industry • Related to bar
• Related to trekking, jip flyer, ultra-light, sky
walking, sky diving and other similar types of
excursion activities
• Related to construction and operation of cable
cars
• Related to agriculture tourism
• Related to water park
The Act has
removed industries
related to operation
of mountain flight
from Schedule 6
7. Information
technology,
Communicati
on
technology
and
information
disseminatio
n based
Industry
Part (A)
• Related to Knowledge Process Outsourcing
• Related to data centers
• Digital signature certifying agency
• Related to web portal, web design service, web
hosting
Part (B)
• Internet Service Provider
• Related to satellite phone operator service
• Related to VSAT Service
• Related to social networking, online message,
video call, conference
In relation to VSAT,
the Previous Act
had not included the
VSAT as service,
but merely provided
‘VSAT’. This Act
has covered VSAT
Services.
Part (C)
• Related to Digital Television Network
• Related to the production of ‘BrittaChittra’
8. Service-
oriented
Industry
• Related to clinic, polyclinic, operation of
rehabilitation centre, physiotherapy clinic,
aayurved or other alternative hospitals.
• Related to physical training, operation of Yog-
Dhyan or training scentre
• Related to swimming pool
• Related to operation of Sheet Bhandar
• Related to transport and cargo business or
service
• Related to Custom Agent (Bhansar Agent)
service
• Related to news dissemination service
• Related to water purification service
• Related to Cinema Hall (including multiplex)
• Related theatre (including multiplex)
• The current Act
tries to cover
operation of all
kinds of Sheet
Bhandar removing
the previous
limitation of only
the non-agriculture
Sheet Bhandar.
• The Previous Act
had covered only
the ‘cargo
businesses’. The
cargo as a service
and transport
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• Related to e-commerce, industry business
providing services to the general people using
the electronic medium (online or software or
apps or other similar nature of medium).
• Related to services providing machinery
equipment in lease
• Related to service businesses such as
purification or processing cut to length sheet,
photo film slitting, photo, paper slitting, tissue
paper slitting, ball wiring assembly and
importing finished goods in bulk and repacking
having uncountable processing and procedure
• Business related to clothing and Yarn dying,
Yarn sizing and printing on clothes (except for
weaving industry doing such for its own
purpose)
• Related to Veterinary services
• Related to service apartment
• Related to food court, catering and street food
stalls
• Related to equipment repair and installation,
ready mix concrete, export house, technology
and innovation center and service of providing
facilitated work space
business or service
has also been
covered under this
Act.
• The industry related
to mass
communication
service has been
removed from the
Schedule 8.
• The Previous Act
only covered the
‘water transport and
distribution
service’. The new
Act added ‘water
purification’ also
under the scope of
Schedule 8.
• The Act has
covered ‘Cinema
Hall’ along with
‘multiplex’, which
was previously not
covered. Similarly,
the present Act has
also covered all
kinds of theatre
including multiplex
theatre.
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9. Industries
with National
Priority
• Infrastructure industry
• Shoes sandals manufacturing industry, thread
manufacturing industry, livestock farming, fish
farming, chicken farming, bee farming,
horticulture, preliminary processing of rubber
based on local raw materials and manufacturing
of rubber products, industry preparing
medicines battling snakebite, artificial eye lens
manufacturing industry
• Information technology industry
• Industries established inside the Industrial Area,
Special Economic Zone and Industry Gram
built and operated by the private sector
• Goods production industry with high price low
weight/volume as identified and prescribed by
the Government of Nepal publishing the notice
in the Gazette after making required standards.
• Goods and Services production industry
specified by Nepal Trade Integration Strategy
as approved by the Government of Nepal
• Related to making movie
ANNEX-III Industry Previous Act Act
A. Income Tax Concession
Manufacturing industries
producing fruit based cider,
brandy or wine established
in any Undeveloped Region
Not Provided 25% exemption on the rate of income tax
for up to 10 years from the date of
commencement of business
Local tea producing and
processing industries, dairy
industries and clothes
producing industries
Not Provided. 50% exemption on the rate of the income
tax levied on the income from the sale of
such products
Manufacturing Industries
set up with the investment
of at least 1 billion rupees
and providing direct
employment to more than
100% income tax
exemption for first
five years from the
date of
100% income tax exemption for
first five years from the date of
commencement of business.
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500 individuals throughout
the year
commencement of
business.
50% exemption on the
income tax for next 3
years.
Industries already in
operation are entitled to
the above stated
exemption in case such
industries enhance their
installed capacity by at
least 25%, increase
investment to 1 bn.
(Nepalese Rupees One
Billion) and provide
direct employment to 500
(five hundred)
individuals throughout
the year.
50% exemption on the income tax for
next 3 years.
Industries already in operation are
entitled to the above stated exemption in
case such industries enhance their
installed capacity by at least 25%,
increase investment to 2 bn. (Nepalese
Rupees Two Billion) and provide direct
employment to 300 (thee hundred)
individuals throughout the year.
Industries conducting
research and excavation of
minerals (except white rock
(Chundhunga)) petroleum,
natural gas and fuel.
100% Income tax
exemption for first
7 years from the
date of
commencement of
transaction;
50% exemption on the
income tax for next 3
years.
Previously the white rock
was not covered.
Further, the timeline of
commencement of
commercial transaction
was mid-April 2019 A.D.
(Chaitra 2075 B.S.).
100% Income tax exemption for
first 7 years from the date of
commencement of transaction;
50% exemption on the income tax for
next 3 years.
The timeline of commencement of
commercial transaction has been
extended up to mid-April 2024 A.D.
(Chaitra 2080 B.S.)
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Industries related to the
operation of zoological,
geological and bio-tech
park, and software
development, data
processing, cyber café and
digital mapping established
inside the technology park
and information technology
park specified by Nepal
Government by publishing
notice in Nepal Gazette.
50% exemption on tax
imposed on income of
such industries
Industries related to the
operation of zoological,
geological park was not
covered by the Previous
Act.
50% exemption on tax imposed on
income of such industries
Manufacturing industry
having interns equivalent to
at least 10% of the total
human resource
Not Provided. Such industries are entitled to deduct for
the purpose of income tax any such cost
incurred in providing subsistence
expenses, internship expenses and
expenses incurred in enhancing the
production capacity of human resource
working in the industry.
Industry registering the
intellectual property in
foreign country for its
protection
Reimbursement of cost
was available from the
Government of Nepal
Such industries are entitled to deduct
such cost for the purpose of income tax
Industries, other than
tobacco and liquor
industries and Casinos,
utilizing the accrued
proceeds in capitalization in
shares for expansion of the
capacity of the same or for
other production or energy
oriented industries or for
the industries relating to
agriculture and forest
products
Not Provided. 100% exemption on dividend tax levied
as a dividend distribution on such
capitalization
Pioneer Law Associates Pvt. Ltd. Regd. No. 38549/062/063 Pioneer House, 246-Sahayog Marg, Anamnagar, Kathmandu, Nepal. Phone No.: +977-1-5705340, +977-1-5707102 Email: [email protected], www.pioneerlaw.com
Cottage and Small Scale
Industries with at least 10
Million (Nepalese Rupees
Ten Million) which are
already in operation by the
time of commencement of
this Act and coming into
operation pursuant to this
Act
Not provided. 50% exemption on the income tax as
applicable
B. VAT Exemption
The arrangement of VAT refund has been removed by the new Act. Previously, there
was the arrangement of providing refund of the VAT to the industries exporting
goods manufactured in Nepal.
C. Custom Duty Exemption
Industries not having
Bonded Warehouse or
Passbook facility
The Government of
Nepal may refund the
amount of Duty Draw
Back in export of goods
after determining the
aggregate of costs
incurred in import
(Samadar) as prescribed
in Nepal Gazette.
The Government of Nepal Ministry of
Finance shall determine the rate of Duty
Draw Back in export of goods by such
industries and then, through the One Stop
Service Centre, shall refund the amount
of Duty Draw Back as per the determined
rate.
For all industries Custom duty is levied at
the minimum rate on
import of machinery,
transformers, generators
having a capacity of 10
Kilowatt and other
industrial devices
imported by an industry
for commercial purpose.
Custom duty is levied at the minimum
rate on import of machinery, generators
or industrial equipment with 10 Kilowatt
capacity imported by an industry for
commercial purpose.
[Import of Transformer has been
removed from this category.]
Industries producing
intermediate goods used in
Not provided. Such industries are entitled to refund of
the custom duty on the produced goods
based on the quantity of export.
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the industrial goods being
imported
D. Duty Exemption
Micro Industries already under operation at the time of commencement of this Act are entitled to 100%
income tax exemption.
Previously, the exemption was available only for up to 5 years from the date of commencement of
business or transaction.
E. Additional benefits for Female Entrepreneurs
There has been no significant change in relation to the benefits available to the industries registered
under the ownership of female entrepreneurs. In terms of availing export finance, such can be made
through banking channel from the Financing Female Entrepreneurs Fund. Previously, there was no
clarity as to the means and source of financing.
F. Additional Exemptions and benefits
The new Act has also covered female entrepreneurs and industries operating inside the
industrial zone to become entitled of the additional exemptions and benefits. In addition
to the previously available exemptions and benefits, following benefits have been added
by the new Act: 1. Government of Nepal may provide incentives, exemptions, benefits or concessions to the
production oriented industries, industries related to agriculture and forest products and minerals
industry.
2. The exemption may be provided on the custom duty to be levied to the micro and cottage and small
scale industries while importing novel technologies including machineries, tools and equipment as
required for enhancing capacity of such industries.
3. The Government of Nepal may make special arrangement in relation to providing incentives,
exemptions, benefits or concessions to the industries operating inside industrial zone, product
specific zone and industrial cluster.
4. The Government of Nepal may provide incentives, exemptions, benefits or concessions to the
industries established in the under developed, undeveloped and least developed regions.
ANNEX IV: List of Industry Requiring Prior Approval before Registration 1. Industries producing explosives including arms and ammunition and gunpowder,
2. Security printing, bank notes and coin industries,
3. Cigarette, bidi, cigar, chewing tobacco and industries producing other goods of a similar nature
utilizing tobacco as the basic raw material and industry producing electric cigarettes,
4. Microbrewery, Alcohol, beer producing industries,
5. Stone, ballast, sand excavation processing industry,
Pioneer Law Associates Pvt. Ltd. Regd. No. 38549/062/063 Pioneer House, 246-Sahayog Marg, Anamnagar, Kathmandu, Nepal. Phone No.: +977-1-5705340, +977-1-5707102 Email: [email protected], www.pioneerlaw.com
6. Industries producing radio communication equipment,
7. Industries like mining of precious minerals and petroleum products ,
8. Liquefied petroleum gas (L.P.G) refiling industries,
9. All kinds of industries that produce drone products or provide services through drone,
10. Other industries that need to take permission as prescribed by the prevalent laws.)
ANNEX V: Industries falling under Schedule 5 of the Constitution of Nepal
S.
No.
MATTERS
1. Relating to defense and military
(a) Protection of national unity and territorial integrity
(b) Relating to national security
2 War and defense
3 Arms and ammunitions factories and production thereof
4 Central Police, Armed Police Force, national intelligence and investigation,
peace, security
5 Central planning, central bank, finance policies, monetary and banking, monetary
policies, foreign grants, aid and loans
6 Foreign and diplomatic affairs, international relations and United Nations related
matters
7 International treaties or agreements, extradition, mutual legal assistance and
international borders, international boundary rivers
8 Telecommunications, allocation of radio frequency, radio, television and postal
matters
9 Customs, excise-duty, value-added tax, corporate income tax, individual income
tax, remuneration tax, passport fee, visa fee, tourism fee, service charge and fee,
penalty
10 Federal civil service, judicial service and other government services
11 Policies relating to conservation and multiple uses of water resources
12 Inland and inter-State electricity transmission lines
13 Central statistics (national and international standards and quality)
14 Central level large electricity, irrigation and other projects
15 Central universities, central level academies, universities standards and
regulation, central libraries
16 Health policies, health services, health standards, quality and monitoring, national
or specialized service providing hospitals, traditional treatment services and
communicable disease control
17 Federal Parliament, Federal Executive, Local level related affairs, special
structure
18 International trade, exchange, port, quarantine
19 Civil aviation, international airports
20 National transportation policies, management of railways and national highways
21 Laws relating to the Supreme Court, High Courts, District Courts and
administration of justice
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22 Citizenship, passport, visa, immigration
23 Atomic energy, air space and astronomy
24 Intellectual property (including patents, designs, trademarks and copyrights)
25 Measurement
26 Mines excavation
27 National and international environment management, national parks, wildlife
reserves and wetlands, national forest policies, carbon services
28 Insurance policies, securities, cooperatives regulation
29 Land use policies, human settlement development policies, tourism policies,
environment adaptation
30 Criminal and civil laws making
31 Security printing
32 Social security and poverty alleviation
32 Constitutional Bodies, commissions of national importance
34 Sites of archaeological importance and ancient monuments
35 Any matter not enumerated in the Lists of Federal Powers, State Powers and Local
level Powers or in the Concurrent List and any matter not specified in this
Constitution and in the Federal law
**DISCLAIMER: This document is prepared for general understanding and should not be taken for any legal purpose without consulting legal professionals. ** The copyright of the document is vested with PLA. **