Market Profile of Nepal

I. Overview

II. Geographical Analysis

 Capital

 Land Areas

 Regions / Provinces

III. Economic Structure

IV. Major Economic Indicator

V. Currency

VI. Religion

VII. Population

VIII. Language

IX. Top Export Products

X. Trade Policies and Trade Agreement

XI. Taxation System

XII. References

I. Overview
 Nepal is one of the poorest countries in the
world, with a GDP per capita of only USD835. After years of transition,
Nepal is headed for political stability following local, provincial and
federal elections in 2017. Although economic activity rebounded strongly
in Nepal in 2017, the country still faces increasing domestic and
external risks. The Nepalese economy will benefit from infrastructure
investment by both the Indian and Chinese governments(World Bank, Fitch
Solutions). Nepal is among the least developed countries in the world,
with about one-quarter of its population living below the poverty line.
Nepal is heavily dependent on remittances, which amount to as much as
30% of GDP. Agriculture is the mainstay of the economy, providing a
livelihood for almost two-thirds of the population but accounting for
less than a third of GDP. Industrial activity mainly involves the
processing of agricultural products, including pulses, jute, sugarcane,
tobacco, and grain.

GDP (purchasing power parity): $79.19 billion (2017 est.) $73.39 billion
(2016 est.) $72.96 billion (2015 est.) note: data are in 2017
dollarscountry comparison to the world: 95 [see also: GDP country ranks

GDP (official exchange rate): $24.88 billion (2017 est.) [see also: GDP
(official exchange rate) country ranks

GDP - real growth rate: 7.9% (2017 est.) 0.6% (2016 est.) 3.3% (2015
est.)country comparison to the world: 9 [see also: GDP - real growth
rate country ranks

GDP - per capita: $2,700 (2017 est.) $2,500 (2016 est.) $2,500 (2015
est.) note: data are in 2017 dollars country comparison to the world:
195 [see also: GDP - per capita country ranks

Gross national saving: 45.4% of GDP (2017 est.) 40.2% of GDP (2016 est.)
44% of GDP (2015 est.)country comparison to the world: 7 see also:

Gross national saving country ranks

GDP - composition, by end use: household consumption: 78% (2017 est.)

GDP - composition, by end use - household consumption country ranks ]

government consumption: 11.7% (2017 est.) see also:

GDP - composition, by end use - government consumption country ranks ]

investment in fixed capital: 33.8% (2017 est.) see also:

GDP - composition, by end use - investment in fixed capital country

ranks ] investment in inventories: 8.7% (2017 est.) see also:

GDP - composition, by end use - investment in inventories country

ranks ] exports of goods and services: 9.8% (2017 est.) see also:
GDP - composition, by end use - exports of goods and services country
ranks ] imports of goods and services: -42% (2017 est.) see also: GDP -
composition, by end use - imports of goods and services country ranks

GDP - composition, by sector of origin: agriculture: 27% (2017 est.) see

also: GDP - composition, by sector of origin - agriculture country ranks
industry: 13.5% (2017 est.) [see also: GDP - composition, by sector of
origin - industry country ranks ] services: 59.5% (2017 est.) [see also:
GDP - composition, by sector of origin - services country ranks

Nepal has considerable scope for exploiting its potential

in hydropower, with an estimated 42,000 MW of commercially feasible
capacity. Nepal has signed trade and investment agreements with India,
China, and other countries, but political uncertainty and a difficult
business climate have hampered foreign investment. The United States and
Nepal signed a $500 million Millennium Challenge Corporation Compact in
September 2017 which will expand Nepal’s electricity infrastructure and
help maintain transportation infrastructure.

Massive earthquakes struck Nepal in early 2015, which

damaged or destroyed infrastructure and homes and set back economic
development. Although political gridlock and lack of capacity have
hindered post-earthquake recovery, government-led reconstruction efforts
have progressively picked up speed, although many hard hit areas still
have seen little assistance. Additional challenges to Nepal's growth
include its landlocked geographic location, inconsistent electricity
supply, and underdeveloped transportation infrastructure.

. Nepal is undergoing a historic transition toward a federal

and secular republic. This represents a window of opportunity for the
country to further reduce poverty, increase the income of the bottom 40
percent, and pursue its ambitious agenda of inclusive growth and
accountable service delivery. In 2018, the World Bank came up with its
Country Partnership Framework (CPF) covering the five-year period of
FY2019-2023. Coincidentally, this came at a time of historic
transformation in Nepal, as a new government took up office in February
2018. The signing of the Comprehensive Peace Agreement in 2006 ended a
10-year conflict that came at a significant cost of lives and foregone
economic development. Since then, Nepal has gone through lengthy and
complex transitions towards a new Constitution in 2015 that set in place
a federal structure. By the end of 2017, elections were successfully
held at the federal, state, and local tiers. There is a newfound
optimism for greater political stability, inclusion, good governance and
sustainable growth. The new federal structure presents unprecedented
opportunities for Nepal to reset its development storyline, as outlined
in the Systematic Country Diagnostic (SCD). At the same time, the shift
to federalism poses new challenges and source of fragility, given the
heightened popular aspirations and expectations. Key challenges include
the need to clarify the functions and accountabilities of the federal,
state, and local governments; deliver basic services and maintain
infrastructure development; create a conducive environment for the
private sector; and address governance weaknesses that may worsen in the
early years of the new federal system.

II. Geographic Analysis

 Captal

Both New Delhi and Kathmandu lay claim to a region, known as

Kalapani, as part of their countries' territory.India's new political
map has stirred controversy in Nepal, with both New Delhi and Kathmandu
laying claim to a region, known as Kalapani, as part of their countries'
territory. Members of the opposition parties protested in the capital
Kathmandu as well as other parts of the country, accusing India of
"illegally occupying" its land.

On Thursday, students linked to the opposition Nepali Congress party

protested outside the Indian embassy in Kathmandu, carrying signs that
read: "Back Off India", to protest against the map, bringing back the
memory of anti-India protests in the wake of the 2015 border blockade
imposed by India.Nepalese took to social media backing their
government's claim that Kalapani - a 35 square-kilometres (13.5 square-
miles) area in Nepal's far-western region - belonged to the landlocked
Himalayan nation with hashtags #BackoffIndia and #Kalapani trending on
Twitter.

Once serving as a trade route between India and what is now southwestern
China, the strategic area was "occupied" by India after New Delhi
withdrew its border forces following its war with China (in 1962),
according to Buddhi Narayan Shrestha, former director general of Nepal's
Survey Department.

Kalapani is the land of Nepal and our party stands firm on this
conviction. India is continuously trying to settle this issue but we
won't go back in our claim(NARAYAN KAJI SHRESTHA, SPOKESMAN OF THE
RULING NEPAL COMMUNIST PARTY)

"The Nepal government firmly believes that the Kalapani is a part of

Nepal," Nepal's Ministry of Foreign Affairs said in a statement on
Wednesday.

However, a spokesman of India's Ministry of External Affairs (MEA)

claimed the region was part of India.

"Our map accurately depicts the sovereign territory of India. The new
map in no manner has revised our boundary with Nepal," said MEA
spokesman Raveesh Kumar.

He reiterated India's "commitment to find a solution through dialogue in

the spirit of our close and friendly bilateral relations".
"At the same time, both countries should guard against vested interests
trying to create differences between our two countries."

Kalapani, which borders the Indian state of Uttarakhand, is also

included in Nepal's official map. Uttarakhand shares an 80km long porous
border with Nepal and a 344km border with China.

"Kalapani is the land of Nepal and our party stands firm on this
conviction. India is continuously trying to settle this issue but we
won't go back in our claim," Narayan Kaji Shrestha, a spokesman of the
ruling Nepal Communist Party, told Al Jazeera.

India's Ministry of Home Affairs published an updated map on Sunday

after stripping the Indian-administered Kashmir's special status and
splitting the Himalayan region into two federally administered
territories in August.

Kathmandu and New Delhi have held a series of talks to resolve the
boundary dispute, but Kalapani and the Susta area in southern Nepal
remain two major sticking points in negotiations, Gokul Prasad Baskota,
Nepal's communication and information technology minister, told Anadolu
news agency. Nepal also lays claim to Lipulekh Pass close to Kalapani
with a T-junction on the trading route between India and China since
2015.

Bipin Adhikari, a constitutional expert, said; "If you go through

historical proofs then it is clear that Kalapani is a part of Nepal. It
is an illegally occupied territory."India and Nepal share an 1,800km
(1,118 miles) open border, with thousands of people from both countries
crossing the frontier for work and travel.

Relations between the two countries were strained after Nepal blamed
India for imposing a border blockade in 2015, which crippled supplies to
the landlocked nation.Many experts in Nepal believe that India has not
honoured the 1950 Treaty of Peace and Friendship between the two
countries.

 Land

A 35-square km border area could cast shadow on India-Nepal ties

Kalapani, located 18 km from Lipulekh pass, is a transit route for the

Kailash-Mansarovar yatra and the Indo-Tibetan Border Police. Nepal Prime
Minister K.P. Oli on November 17 said the Kalapani area belonged to
Nepal and India. NEW DELHI/KATHMANDU: A new map released by India of its
geographical area has led to protests in neighbouring Nepal with
Kathmandu laying claim to a 35 sq km area on the border, while India
says it is its territory.The area, known as Kalapani, was shown in the
new maps released on the occasion of bifurcation of J&K into two UTs
last month. Kalapani, located 18 km from Lipulekh pass, is a transit
route for the Kailash-Mansarovar yatra and the Indo-Tibetan Border
Police. Nepal Prime Minister K.P. Oli on November 17 said the Kalapani
area belonged to Nepal and India should "immediately withdraw its Army
from there".

"The new map has in no manner revised our boundary with Nepal. The
boundary delineation exercise with Nepal is ongoing under the existing
mechanism," the Ministry of External Affairs spokesperson Raveesh Kumar
said earlier this month.

"We reiterate our commitment to find a solution through dialogue in the

spirit of our close and friendly bilateral relations," Kumar said. He
also said that both sides should "guard against vested interests trying
to create differences between our two countries". Meanwhile, Uttarakhand
Chief Minister Trivendra Singh Rawat on Tuesday said the Kalapani area
is an integral part of India.

"This is an unfortunate statement by the Nepal government, and not in

keeping with its culture. Kalapani is an integral part of India and will
remain so. I hope the matter will be defused through talks," Rawat is
quoted as saying.

Kalapani is located at an altitude of 3,600m on the Kailash Manasarovar

route. It borders Uttarakhand in India and Sudurpashchim Pradesh in
Nepal.

Since 1962, Kalapani has been manned by the Indo-Tibetan Border Police.

Under the Treaty of Sugauli signed between Nepal and the British East
India Company in 1816, the Maha Kali river was located as Nepal's
western boundary with India. The treaty made no mention of a ridgeline
and subsequent maps of the areas drawn by British surveyors showed the
source of the river at different places.

Nepal claims that the river located towards the west of the territory is
the main Maha Kali river and thus it falls in its territory, India
claims the ridgeline towards the east of the Kalapani territory, and
hence includes it in the Indian Union. Both the countries have been
producing maps, including the territory in their own area, to support
their claims.

 Regions / Provinces

Base on the statement of Suman Badtola, Managing Director 2019,

“the names of the seven(7) provinces are not yet fixed although
government have separated the regions or area of provinces”.

Capital

Province 1
Biratnagar

Province 2.
Janakpur

Province 3.
Hetauda
 Province 4 Gankadi.
Pokhara

Province 5.
Butwal

Province 6 Karnali.
Biratnagar

Province 7 Gudurpachim.
Godwari

III. Economic Structure

Economic performance in FY2018

1. Gross domestic product (GDP) growth edged down to an

estimated 6.3% in fiscal year 2018 (FY2018, ended 16 July 2018) from

7.9% in fiscal year 2017 that accelerated from a low base (Figure 1).

Floods of August 2017 crimped paddy production by 1.5% compared

to the previous year. Manufacturing grew by 8.0%, though down from

9.7% a year earlier, on increased availability of electricity.

Construction

grew at a sustained pace with the sub-sector taking off at sub-national

levels and the renewed acceleration of post-earthquake reconstruction.

Several small sized hydropower projects commenced operation, raising

the installed electricity capacity by 10.5% in FY2018 (Figure 2).

Tourists’ arrival (Figure 3) increased favoring the expansion of hotels

and restaurants and travel and communication services as the economy

recovered from the 2015 earthquakes and the September 2015 –

February 2016 trade and supply disruptions, further bolstered by the

prospects of a more stable socio-political environment.

.Introduction and objective

1. Landlocked-ness and mountainous terrain have historically

impeded the promotion of merchandise trade in Nepal. Lack of

competitiveness, in par with international goods, emanating from

structural bottlenecks and policy inconsistencies has further held back

merchandise exports. Consequently, Nepal’s merchandise trade deficit

as a share of gross domestic product (GDP) has substantially ballooned

over the years (Figure 1).

2. Growth in services exports, on the other hand, has been better

than the growth in merchandise exports (Figure 2). Services exports

have averaged 13.1% annual growth during 2008-2017, surpassing the

growth of neighboring countries, Bangladesh and India but falling

short of Sri Lanka (Figure 3). Services income, particularly from travel

and tourism and communication has increased, signaling a shift from

agro-based to service-oriented economy. But because of infrastructural,

institutional, legal and procedural barriers, trade in services1

in Nepal

has yet to achieve its full potential.

3. Landlocked and least developed countries like Nepal can

bridge their trade deficit via export diversification in services

sector.2

The services sector accounted for 66% of total exports and 13% of
total imports in FY2018, indicating its growing importance in external

trade (Figure 4). This Issue Focus sheds light on the current state and
prospects of Nepal’s services trade and suggests sector-specific policy
recommendations.
IV. Major Economic Indicators
 V. Currency

A Nepalese Rupee (Nepali: ररररररर, symbol: रर, Rs.; code: NPR) is

the official currency of the Federal Democratic Republic of Nepal. The
Nepalese rupee is subdivided into 100 paisa. The issuance of the
currency is controlled by the Nepal Rastra Bank, the central bank of
Nepal. The Nepalese rupee was introduced in 1932, when it replaced the
Nepalese mohar at the rate 2:1.

The USDNPR decreased 0.1100 or 0.10% to 114.6500 on Tuesday November 26

from 114.7600 in the previous trading session. Historically, the
Nepalese Rupee reached an all time high of 119.17 in October of 2018.

Nepalese Rupee

The USDNPR spot exchange rate specifies how much one currency is
currently worth in terms of the other. While the USDNPR spot exchange
rate is quoted and exchanged in the same day, the USDNPR forward rate is
quoted today but for delivery and payment on a specific future date..
This page provides - Nepalese Rupee - actual values, historical data,
forecast, chart, statistics, economic calendar and news. Nepalese Rupee
- actual data, historical chart and calendar of releases - was last
updated on November of 2019.

Actual Previous Highest Lowest Dates

Unit. Frequency

114.65 114.76 119.17. 69.62 2011 – 2019.

Daily
 VI. Religion

Nepal, the abode of the Himalayas and the mighty Mount Everest, since
time immemorial has witnessed the origin and development of many world
religions. Although it was officially a Hindu nation until 2007, people
of varied faiths have lived in harmony in Nepal for hundreds of years.

1. Hinduism

Hinduism is the dominant religion in Nepal with around 81% of the

population being Hindus. This is well evident from the many Hindu
temples spread throughout the country. Legend has it that a sage named
Ne Muni was the one to introduce the religion in Nepal in prehistoric
times, living in the Himalayas and teaching his doctrines. He also chose
the first ever king of Nepal - Bhuktaman and laid the foundation of the
Gopala Dynasty. The country is believed to be named after him. The
double triangular Nepali flag with sun and moon is also believed to be
given to the people by Lord Vishnu.

Legends apart, most of the dynasties that had ruled Nepal for centuries
- Lichhavi, Simroun, Thakuri, Suryavanshi, Malla and Shah, had Hindu
kings, thus leading to an overwhelming expansion of the religion in the
country over the years. Hindus in Nepal are polytheistic just like
Hindus elsewhere and celebrate numerous festivals throughout the year
such as Dashain & Tihar (Nepali equivalent of Durga Puja and Diwali),
Gaijatra, Fagun Purnima (Holi), Krishna Janmashtami, etc. The
Pashupatinath and Budhanilkantha are some of the well-known Hindu
temples. Janakpur in Nepal is considered by many to be the birthplace of
Sita and hence is another holy place.

Hindus and Buddhists in Nepal have shared many of their places of

worship, having found similarities in each others' religious beliefs and
practices - the Muktinath Temple is one such. They celebrate some common
festivals like Buddha Jayanti and Indrajatra. In fact, there are many
people who practice both religions.

2. Buddhism

The religion of Buddhism traces back its roots to the country, with
Lumbini in Nepal being the birthplace of Lord Buddha. His clan, the
Shakyas helped in the initial spread of Buddhism in the Kathmandu valley
and thereafter, the religion flourished during the reign of emperor
Ashoka, then during the Lichhavi period and during the Malla dynasty
until 1769 CE. After this period the Shah dynasty took over in Nepal and
Buddhism gradually declined with much of its practices being absorbed in
Hinduism. The Rana dynasty between 1846 to 1941 saw the religion
reaching a rock bottom with Buddhist monks being banished from the
country. Subsequent to that during the reign of Shahs, efforts were made
to revive the religion and Buddhism again started gaining prominence.

At present around 9% of the total population of Nepal practices the

religion and three main schools of thought can be observed - Tibetan,
Newar and Theravada Buddhism. Swayambhunath and Boudhanath are two of
the most popular Buddhist pilgrimage sites in Nepal, with the latter
even being a UNESCO World Heritage Site. In addition to these, the
country has numerous other Buddhist monuments and monasteries.

3. Islam

After Hinduism and Buddhism, Islam is the next most practised faith
constituting around 4.4% of the total population. The first ever Muslims
to have arrived in Nepal comprised of Kashmiris, Persians, Afghans and
Arabians who worked as courtiers, counsellors and musicians of Nepali
kings, traders, manufacturers of guns, and also trainers of Nepali
soldiers in the use of arms and ammunition. In later years, many of
these people escaped on the fear of being persecuted by Hindu kings,
while many others arrived in the country fleeing the revolt of 1857 in
India. The present-day Nepali Muslims are actually descendants of these
people and some other Kashmiri merchants who arrived as late as the
1970s and Tibetan Muslims who arrived in the country post-1959 after the
Communist takeover in China.

Most of these people now live in the Terai region in southern Nepal and
have cultural similarities with North-Indian Muslims. There are a number
of mosques in Nepal, Kashmiri Takia Mosque in Durbar Marg being the
oldest. The Raki Bazaar in Indra Chowk is named after the Iraqi
merchants who settled here during medieval times.beliefs of Tibetan
Buddhism, Shaivism and animism.

Each of the four tribes has their own religious texts and some distinct
beliefs, rituals and traditions. They celebrate festivals like Udhauli
and Ubhauli marking the onset of the winter and summer seasons
respectively and accordingly the migration of birds and animals to the
warmer south or cooler northern regions. Sometimes Dashain and Tihar are
also celebrated along with some sect-wise specific festivals.

Kiratis have a long and ancient history and they find their mention in
Hindu epics like Vedas and Mahabharata. Historians have confirmed that
Kirati kings have ruled over the Kathmandu valley for nearly 2000 years,
even prior to the Lichhavis. But despite such a long and rich history,
Kiratis at present comprise a meagre 3% of the Nepali population
residing mostly on the eastern parts.

5. Christianity

In Nepal there are around 380,000 reported Christians (1.4% of the

population), most of them being evangelical Protestants and very few
Catholics. The reason for this small share is that Christians had been
officially banned in Nepal for a long period of time until 1951. They
started entering Nepal in 1951 and the first church of Nepal - The Ram
Ghat church in Pokhara - was built in 1952. Subsequent years saw the
formation of many Christian missionary organizations who built hospitals
and made efforts to develop education and rural areas. However,
conversion or influencing people to change their faith remained illegal,
so the church did not develop much until 1990 when the situation
improved with the introduction of multi-party democracy in the country.

It has been said that Christians of Nepal have been victims of religious
violence and faced discrimination in the Hindu-majority country.
Christianity still continues to be a controversial religion in Nepal and
it is believed that the actual population of Christians in the country
is much higher than what is reported.

6. Others

The remaining 0.9% of the Nepali population is made up of Sikhs, Jains,

Bahai's, Jews and atheists.

Sikhism in Nepal was initiated in 1516 with Guru Nanak Dev visiting the
country, meditating and preaching there. In later years, many more Sikhs
entered the country fleeing from the British and settled there. At
present, there are nearly 7000 Sikhs in Nepal who worship in two of the
Gurdwaras in the country. The Nanak Math in Kathmandu is another holy
site for Nepali Sikhs.

Currently, there are around 4000 Jains in Nepal who form the Jain
society and worship in the Jain temple in Kathmandu. Members of both the
sects in Jainism - Digambar and Svetambara are allowed to worship there.
The roots of Jainism in Nepal can be traced back to as early as 300 BC,
when Bhadrabahu - the last acharya of the unified Jain sangha, went to
the country for penance and stayed there for twelve years preaching the
teachings of Lord Mahavira.

The Bahá'ís are a minority religion in Nepal with hardly 1500 people.
However, despite this religious minority, there is no denying the
contribution of the Bahai's in the social upliftment of the country.
They have engaged themselves in women empowerment schemes, rural
development programmes and formation of schools and clinics. Nepalis
started converting to Bahá'ísm in the 1950s following the entry of some
of the followers of the faith to Nepal and a United Nations conference
in Colombo.

Nepal does not have any native Jews. The practice of the religion began
only in 1986 with the embassy of Israel in Kathmandu organizing a
'Passover' - a traditional Jewish celebration and holiday, for the
Israeli people travelling to the country. Later on, the first Chabad
House opened in Kathmandu in 2000 which was a centre for hosting events
and services involving the local Jewish community and Jewish tourists.
Two other such houses opened in Pokhara and Manang in 2007 and 2010.

VII. Population

The Nepal Population (Live) counter shows a continuously

updated estimate of the current population of Nepal delivered by
Worldometers' RTS algorithm, which processes data collected from the
United Nations Population Division.

The Population of Nepal (1950 - 2019) chart plots the total population
count as of July 1 of each year, from 1950 to 2019.

The Yearly Population Growth Rate chart plots the annual percentage
changes in population registered on July 1 of each year, from 1951 to
2019. This value can differ from the Yearly % Change shown in the
historical table, which shows the last year equivalent percentage change
assuming homogeneous change in the preceding five year period.

Overall total population (both sexes and all ages) in the

country as of July 1 of the year indicated, as estimated by the United
Nations, Department of Economic and Social Affairs, Population Division.
World Population Prospects: The 2019 Revision. For forecasted years, the
U.N. medium-fertility variant is used.

Main Cities by Population in Nepal

 VIII. Language

The Nepali language, also called the Nepalese language, is an Indo-Aryan

language of the Indo-European language family. Historically, the
language of Nepali originated in the Hill Region of Nepal, in the
Western parts of the country. Around five hundred years ago, mountain
dwellers migrated eastwards and settling in the valleys of the Gandaki
basin. The language moved with them, and developed over the next few
hundred years to be the Nepali language that we can recognize today.

A very close relation to the Hindi languages, the Nepali language is

often considered to be mutually intelligible. However, the Nepali
language contains many more Sanskrit derivations, and considerably fewer
English and Persian loanwords. Tibeto-Burman languages have also had an
impact on the Nepali language, specifically in terms of grammatical
compilation. These days, the Nepali language is used as an everyday
language. It is also used as the dominant language by the government,
and within the media.

The Nepali language is, as the Hindi and Sanskrit languages are, often
written in the Devanagari script. Devangari is written from left to
right, and its most prominent and noticeable feature is the horizontal
line that runs along the top of the words, through the letters
themselves.

There are three main dialects to the Nepali language: Eastern, Central,
and Western. However, these dialects are relatively indistinct from each
other, and are primarily used to classify the geographical area of the
speaker, rather than having a historically separate history.

The Nepali language uses two grammatical genders within its language,
which are masculine and feminine, with no neuter pronoun. However,
looking a little closer at the language, it can be seen that the male
pronouns are more like neutral pronouns in terms of language, thus it
can be argued that the two grammatical genders in the Nepali language
are feminine and zero. If you need to denote a male or female person, in
the Nepali language there are a variety of suffixes for this, instead of
new words (Effective Language Learning 2019).

The Nepali language is the official language not only of the country of
Nepal, but is also one of the 23 official languages of India, where it
is spoken in the states of Sikkim and West Bengal. There are estimated
to be around 500,000 speakers of the Nepali language living in India
today, with small amounts of speakers also living in the cities of
Kolkata, Delhi, Bangalore, and Mumbai. The language is also spoken in
Myanmar and Bhutan, where it is known at Lhotshampa. However, the Nepali
language does not hold official language status in either of those
countries.

IX. Top Export Products

Daniel workman (2019) stated that strategically located between economic

powerhouses China and India, the Federal Democratic Republic of Nepal
shipped an estimated US$738.9 million worth of goods around the globe in
2018. That dollar amount reflects an -18% drop since 2013 and a -0.3%
downtick from 2017 to 2018.

In addition, Nepal furnished an estimated $2.1 billion worth of

international services during 2018 encompassing about $774.6 million
from travel-related services.

Based on estimates from the Central Intelligence Agency’s World

Factbook, Nepal’s exported goods plus services represent approximately
9.8% of total Nepalese economic output or Gross Domestic Product. Please
note that the overall value of exported goods and services includes re-
exports. The analysis below focuses on exported products only.

The latest available country-specific data shows that 92.6% of products

exported from Nepal were bought by importers in: India (56.7% of the
global total), United States (11.2%), Turkey (6.4%), Germany (3.9%),
United Kingdom (3.4%), China (3%), Italy (1.6%), France (1.5%),
Bangladesh (1.32%), Japan (1.3%), Canada (1.11%) and United Arab
Emirates (1.09%).

Given Nepal’s population of 29.7 million people, its total $738.9

million in 2018 exports translates to roughly $25 for every resident in
the South Asian country.

The unemployment rate for the landlocked central Himalayan country was
3.5% at September 2019, as forecast by Trading Economics.

Nepal’s Top 10 Exports

At the 2-digit Harmonized Tariff System code level, the following export
product groups represent the highest dollar value in Nepalese global
shipments during 2017. Also shown is the percentage share each export
category represents in terms of overall exports from Nepal.

1. Manmade staple fibers: US$87.9 million (11.9% of total

exports)
2. Textile floor coverings: $86.9 million (11.8%)
3. Coffee, tea, spices: $47.6 million (6.4%)
4. Beverages, spirits, vinegar: $44.8 million (6.1%)
5. Clothing, accessories (not knit or crochet): $44.7 million
(6.1%)
6. Plastics, plastic articles: $41.9 million (5.7%)
7. Miscellaneous textiles, worn clothing: $37.9 million (5.1%)
8. Iron, steel: $36.4 million (4.9%)
9. Knit or crochet clothing, accessories: $35.6 million (4.8%)
10.Food industry waste, animal fodder: $32.6 million (4.4%)

Nepal’s top 10 exports account for roughly two-thirds (66.1%) of the

overall value of its global shipments.

Beverages, spirits and vinegar was the fastest-growing among the top 10
export categories, thanks to a 7,220% gain since 2017.

In second place for improving export sales was plastics and plastic
articles which rose in value by 405.2%.

Nepal’s shipments of knitted or crocheted clothing and accessories

posted the third-fastest gain in value up by 111.5%.

The leading decliner among Nepal’s top 10 export categories was coffee,
tea and spices via its -39.5% drop.

At the more granular four-digit Harmonized Tariff System code level,

yarn made from synthetic staple fibers represent Nepal’s most valuable
exported product at 11.3% of the country’s total. In second place was
textile floor coverings including carpets (9.8%) trailed by non-
alcoholic drinks excluding water, juices or milk (5.9%), nutmeg, mace
and cardamoms (5%), miscellaneous plastic items (4.1%), synthetic yarn
woven fabrics (3%), packing sacks or bags (also 3.) shawls and scarves:
(2.9%), iron or non-alloy steel wire (2.6%) then knitted or crocheted
jerseys and pullovers (2.2%).

Nepal is a landlocked Least Developed Country (LDC) in Southern Asia,

located between China and India. Nepal mainly exports carpets, beverage,
textile, tea and plastic. Its main export partners include India, the
US, Bangladesh and Germany. Nepal mainly imports fuel, apparel, gold,
iron and steel, machinery and equipment. India, China, the UAE,
Indonesia and Thailand are main import partners. It is a member of Bay
of Bengal Initiative on Multi-Sectoral Technical and Economic
Cooperation (BIMSTEC), the South Asian Association for Regional
Cooperation (SAARC) and the World Trade Organization (WTO).

Imports in Nepal decreased to 112526.80 Million NPR in March from

115838.30 Million NPR in February of 2019. Imports in Nepal averaged
41044.62 Million NPR from 2001 until 2019, reaching an all time high of
141240.60 Million NPR in September of 2018 and a record low of 8000.30
Million NPR in October of 2001.

Nepal is a landlocked Least Developed Country (LDC) in Southern Asia,

located between China and India. Nepal mainly exports carpets, beverage,
textile, tea and plastic. Its main export partners include India, the
US, Bangladesh and Germany. Nepal mainly imports fuel, apparel, gold,
iron and steel, machinery and equipment. India, China, the UAE,
Indonesia and Thailand are main import partners. It is a member of Bay
of Bengal Initiative on Multi-Sectoral Technical and Economic
Cooperation (BIMSTEC), the South Asian Association for Regional
Cooperation (SAARC) and the World Trade Organization (WTO).

Top 20 products listed in decreasing order of their export potential to

the world. Development indicators are relative to the country’s current
situation, green indicating performance above its trade-weighted median
and red otherwise. A blank cell indicates that data are not available. A
blank cell in export potential means that the product was not
consistently demanded over five years by any country in the respective
region. Exports (US$ thousand) correspond to average exports to the
world over the period 2009-2013.
 X. Trade Policies and Trade Agreement

This second Trade Policy Review of Nepal has offered us a good

opportunity to deepen our understanding of recent developments in, and
challenges to, its trade and investment policies since the last review
in 2012. I would like to thank the Nepali delegation, led by H. E. Mr.
Chandra Kumar Ghimire, Secretary of the Ministry of Industry, Commerce
and Supplies , for their constructive engagement throughout this
exercise. I would also like to thank our discussant, Ambassador Manuel
Teehankee, Permanent Representative of the Philippines to the WTO, for
his stimulating observations, as well as the 23 delegations which took
the floor, for their active participation in this Review.

Members commended Nepal for the positive economic performance during the
review period, with an average annual real GDP growth rate of 4.4%. This
was achieved despite being hit by big earthquakes in 2015 that caused
considerable loss of lives, and damage to infrastructure and production.
It was noted that Nepal is taking steps to diversify its narrow
production and export base which continue to be concentrated in
textiles, clothing and agricultural products and reliant on a limited
number of trading partners, particularly India. Members encouraged Nepal
to continue its economic reform process, including through its National
Trade Integration Strategy, and address its supply-side constraints,
notably high transit and transportation costs. This, in turn, would
enable Nepal to tackle its remittances-induced growing trade deficit,
further reduce poverty, and achieve its objectives of graduating from
LDC status by 2022 and become a middle-income country by 2030.Members
welcomed Nepal's adoption of a new Constitution in 2015. Nepal stated
that the new Constitution laid down a solid foundation for the country's
socio-economic transformation. Political stability should allow Nepal to
update legislation and enact laws which were in development at the time
of the last TPR, for example a bill on safeguards, anti-dumping and
countervailing measures.

Encouraging Nepal to continue its constructive engagement with the WTO,

Members asked Nepal to fulfil its outstanding WTO notifications,
including in the areas of domestic support for agriculture, customs
valuation, import licensing, and services. Some Members asked Nepal to
become an observer to the Government Procurement Agreement and the
Information Technology Agreement (ITA), and consider joining ongoing
discussions on the MC11 Joint Initiatives. Questions were asked about
Nepal's two overlapping regional agreements, the South Asia Free Trade
Area (SAFTA) and the Framework Agreement on the Bay of Bengal Initiative
for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), and on
Nepal's 17 bilateral trade agreements.
Trade Agreement

Describes bilateral and multilateral trade agreements that this country

is party to, including with the United States. Includes websites and
other resources where U.S. companies can get more information on how to
take advantage of these agreements.

Last Published: 2/1/2019

Nepal has ratified the South Asian Association for Regional Cooperation
(SAARC) Agreement on a South Asian Free Trade Area (SAFTA). Under
SAFTA, the eight SAARC nations (Nepal, Bhutan, India, Bangladesh,
Pakistan, Sri Lanka, Maldives, and Afghanistan) have pledged to cut
tariff rates on a product-by-product basis, and more than 5,000 items
are entitled to preferential duty treatment in the participating
countries. However, the long “negative list” of goods that are excluded
from preferential duty treatment under SAFTA has limited the agreement’s
impact on regional trade.

Nepal became the 147th member of the World Trade Organization (WTO) in
April 2004. Nepal was given until December 2006 to comply with its WTO
obligations, but to date it has only partially fulfilled these
obligations, largely due to continued political instability.

In February 2004, Nepal became a member of the Bay of Bengal Initiative

for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC). Other
members include Bangladesh, Bhutan, India, Burma, Sri Lanka, and
Thailand. BIMSTEC seeks to establish a more comprehensive free-trade
area through deeper and more substantial sector coverage of services and
an open and competitive investment regime. The regional group
constitutes a bridge between South and South East Asia and represents a
reinforcement of relations among these countries. BIMSTEC has also
established a platform for intra-regional cooperation between SAARC and
ASEAN members. The fourth BIMSTEC Summit is scheduled to be held in
Kathmandu in late August 2018.

Nepal has signed bilateral trade treaties with seventeen countries,

including the United States, United Kingdom, Yugoslavia, India, Russia,
South Korea, North Korea, Egypt, Bangladesh, Sri Lanka, Bulgaria, China,
Czech Republic, Pakistan, Romania, Mongolia, and Poland. The treaty
Nepal signed with India in 1996 and amended in 2009 is its most
important in terms of trade volume. Except for some items under
quantitative restrictions, the trade treaty puts Nepal in a unilateral
duty-free trade regime with India, which accounted for more than 60
percent of Nepal’s total trade in FY 2016/17.
 XI. Taxation

Article of Pramod K. Swarnkar (2019) The Hon'ble Finance Minister, Dr.

Yuvaraj Khatiwada presented annual budget of 1532 billion (PY Rs.1,315
billion) on May 29th, 2019 for the financial year 2076-77 (2019-20)
through Finance Bill, 2076.

This budget has highly prioritized the qualitative reform of lifestyle

by fulfillment of fundamental rights of the citizens.

There has been significant progress in financial, social, physical

infrastructure and reconstruction in the country. Investment friendly
laws and infrastructural development has enabled Nepal to become an
attractive location for foreign investment. Equitable development of
prosperous social oriented economy by upgrading to medium income earning
country within 2030 A.D.

Out of the total budget, Rs.957 billion (62%) as against previous budget
of Rs.845 billion (64%) will go to recurrent expenditure, Rs.408 billion
(27%) PY Rs.314 billion (26%) to capital expenditure and Rs.167 billion
(12%) PY Rs156 billion (12%) for financing provision (i.e. principal
payment of loans). The size of budget is 14% (PY 3%) more than previous
year's budget.

The budget aims to collect Rs. 981 billion (64%) (PY Rs.831 billion)
from revenue, Rs58 billion (4%) (PY Rs.59 billion) from foreign grants,
Rs. 298 billion (19%) (PY Rs.253 billion) from foreign loan and Rs.195
billion (13%) (PY Rs.172 billion) from internal loans.

The GDP growth is estimated at 8.5 % (PY estimated 7%)and inflation rate
at 6 % (PY 6.5%).

The key highlights in the budget, how it affects the inpiduals and
corporate business entities in Nepal, as well as overseas entities
proposing to do business in Nepal are outlined in here.

The Income Tax, Education Service Tax, Vehicle Tax etc. contained in the
Finance Act, 2076 (2019) will apply to financial year starting from 1st
Shrawan 2076 (i.e. July 17, 2019). Value Added Tax (VAT), Customs Duty,
Excise Duty, Health Service Tax and Infrastructure Tax provisions shall
apply immediately on its announcement.

Tax Reveniew

Nepal’s Tax Revenue was reported at 1.889 USD bn in Jun 2018. This
records an increase from the previous number of 1.538 USD bn for Mar
2018. Nepal’s Tax Revenue data is updated quarterly, averaging 324.817
USD mn from Sep 1997 to Jun 2018, with 84 observations. The data reached
an all-time high of 1.889 USD bn in Jun 2018 and a record low of 82.088
USD mn in Sep 1998. Nepal’s Tax Revenue data remains active status in
CEIC and is reported by CEIC Data. The data is categorized under World
Trend Plus’s Global Economic Monitor – Table: Tax Revenue: USD:
Quarterly: Asia. CEIC shifts period-end for Tax Revenue and converts it
into USD. Nepal Rastra Bank provides Tax Revenue in local currency.
Nepal Rastra Bank average market exchange rate is used for currency
conversions. Tax Revenue is reported in quarterly frequency, ending in
January, April, July and October.

Major Changes in Income Tax Act,

2058 (2002)

Provisions amending Tax Rates

1. Tax Exemption and Tax Rate for Cooperatives (Amendment in Sec. 11 (2)
and Sec. 2 (3)

of Schedule 1)

The income of following cooperatives is exempt from Tax:

• The Agro and forest based cooperatives, established at any place in

Nepal, and

• Cooperatives involved in financial transactions operated in Rural

Municipality

The tax rates for the cooperatives other than those exempt from tax are
as follows:

• Cooperatives involved in financial transaction

o that operates in Metropolitan City and Sub-metropolitan city: 10%

o That operates in urban municipality: 5%

• Other transactions of Cooperatives: 20%

2. Relocating the provisions of Applicable Tax Rate of Income of Special

Industry from

Schedule 1 to Sec. 11 (insertion of new Sec. 11Kha and deletion of Sec.

1 (14) and Sec.

2(3Ka) of Schedule 1)

There shall be exemption on income tax rate for the income generated
from the operation of Special (Production,

agro-forest or mineral based) Industry throughout the income year as

follows:

• Where the special industry is operated by a resident natural person

and his income from special industry is

subject to 30% tax rate, at the rate one-third

• Where the special industry is operated by an entity, at the rate 20%

This rate should be taken as the applicable tax rate in case of income
from operation of special industry, and

other concessions under Sec. 11 is also available in addition to this

concession.

3. Relocating the provisions of Applicable Tax Rate of Income from

Export from Schedule

1 to Sec. 11 (Amendment of Sec. 11Nga, deletion of Sec. 1 (15) of

Schedule 1 and

amendment of Sec. 2 (3Ka) of Schedule 1)

There shall be exemption on income tax rate for the income generated
from export during any income year:

• Where the export income is generated by a resident natural person and

his income from export is subject to

30% tax rate, at the rate fifty percent and in case of income subject to
20% tax rate, at the rate 25%

• Where the export income is generated by an entity, at the rate 20%

Income Tax provisions for 2019/20

Introduction to Income Tax Law of Nepal

The principal taxes in Nepal are:

• the income tax and

• indirect taxes, such as value added tax (VAT), customs duty and excise
duties,

• Taxes levied by Province Government and Local Governments

Capital gains form part of normal business income. Natural persons are
also charged on gain on non-business

chargeable assets (investment assets).

Tax incentives focus mainly on establishments in special zones,

industries such as Information Technology,

Hydropower etc, and encouraging investments in agriculture, tourism, and

undeveloped areas. The incentives are

normally in the form of rebates in income tax rates.

The income tax law has provisions for GAAR, Transfer pricing and
controlled foreign entities, but detailed

guidelines are yet to be prepared.

Inland Revenue Department under Ministry of Finance administers income

tax, VAT and excise duties while

Department of Custom administers custom charges.

2. Charge of Tax
A resident person is charged to tax on world-wide income, while non-
residents are subject to tax only on Nepal

sourced income. There are specific guidelines for ascertaining Nepal

sourced incomes.

Generally, a natural person is resident if he stays in Nepal for a

period of 183 days or more in an income year

(Mid July to Mid July) or if his habitual place of abode is in Nepal. A

company is considered resident in Nepal if it

is incorporated in Nepal or if it has effective control and management

in Nepal in the year.

3. Heads of Income

There are four heads of income:

a. Employment

b. Business

c. Investment

d. Windfall Gain

In general, a tax payer's taxable income is determined by aggregating

the income from all of the heads. The

computation of business income is normally based on the profits shown in

the financial statements, after adjusting

for exempt income, final withholding payments, nondeductible

expenditure, special deductions and unabsorbed

losses and depreciation.

Expenditures are allowed for deduction for income from business and
investment. But any deductions and

expenditure incurred for earning final withholding payments and exempt

incomes are not allowed as deduction.

Taxation of Business & Entities

1 Normal Tax Rates- Applicable tax rates

• General companies/firms/industries (not listed below) 25%

• Banks and Financial Institutions 30%

• General Insurance Companies 30%

• Entities engaged in the business of petroleum products 30%

• Industries producing products with tobacco as basic raw material and

Industries producing liquors, beers and similar other products 30%

• Telecommunication or Internet Service Provider Companies 30%

• Entities involved in Money Transfer Business 30%

• Entities involved in Security Market Business 30%

• Entities Involved in Merchant Banking Business 30%

• Entities operating Commodity Future Market 30%

• Entities involved in Commodity and Security Broker Business 30%

• Cooperative registered as per Cooperative Act, 2074 and

Engaged in dealing in Financial Transactions in Municipality Area 5%

• Cooperative registered as per Cooperative Act, 2074 and

Engaged in dealing in Financial Transactions in Metro or sub-metro Area

10%

• Trust of deceased or incapacitated person Rates as natural person

Withholding Taxes (WHT or TDS)

1 Concept

• WHT is deducted only by resident persons.

• The resident natural person cannot withhold Tax except that is in

connection with business.

• For the recipient, WHT can be either advance tax or final tax.

• Advance Tax can be claimed in the year such income is included as

income in income tax statement of

the person.

• WHT is final tax if the payment falls within the list of final
withholding payment. No further tax is levied

in case of final withholding payments and so it is not required to be

included in income, and any

expenditure incurred for earning the income cannot be claimed.

Final withholding payments basically include:

a. Payments received by natural persons other than in connection with

business such as gains from

investment insurance, retirement payments, interest etc.

b. Windfall gains

c. Payments received by tax exempt organization

d. Payments made to non-resident person

e. Dividend distributed by resident entity and benefit distributed to a

natural person by Mutual Fund

f. Meeting allowance, Payment for occasional lecture, payment for

setting question paper and

checking answer sheets

• Even if the payer fails to withhold tax, it is regarded that WHT has
been deducted by the payer (deemed

WHT).
• The Withholding taxes deducted from the recipient and the return of
such taxes shall be filed within 25th of

next month as per Nepalese calendar for every deduction in each month.

The person choosing to pay tax based on turnover shall deposit tax
withheld by it while making payment of

tax in installments as per Sec. 95 (1Ka), i.e. by Poush end (Mid

January) along with installment amount and

by Ashad end (Mid July) along with second installment tax amount.

2 Income from Employment

Resident employer should withhold tax while making employment income

payment with sources in Nepal to an

employer as follows:

Monthly WHT = Annual Tax calculated as per schedule 1 on annual

employment income divided by 12.

The WHT is not final tax, but the employee is exempt from submitting
returns provided certain conditions are

fulfilled, such as only Nepal sourced employment income, one employer at

a time etc. and the taxable income of

such person does not exceed Rs. 4 Million. If the employee has foreign
sourced income or the taxable income of

such employee exceeds Rs. 4 Million, tax return is mandatory.

Tax Returns

1 Payment of Advance Tax & Estimated Tax Return

Every person liable to pay installment tax is required to file an

estimated tax return within 30th Poush 2076 (14

th

January, 2020).

Advance tax (in installment) is to be paid by every person having or

likely to have assessable income from

business or assessable income from investment in an income year.

However, in case a person’s total estimated

tax liability is below Rs. 7,500 advance tax in installments need not be
paid.

• Advance Tax

Due Dates Amount to be deposited (Notes)

Poush end 2076 (14th January 2020) 40% of estimated tax liability

Chaitra end 2076 (13th April 2020) 70% of estimated tax liability

Ashad end 2077 (Mid July 2020) 100% of estimated tax liability

Annual Tax Returns

Annual tax return should generally be filed within 3 months from the end
of an income year. So, the due date of

filing annual tax returns for the income year 2076/77 (2019/20) is Asoj
end 2077 (Mid October, 2020). However, a

taxpayer may have this due date extended for a maximum period of 3
months i.e. up to Poush end 2077 (Mid

January, 2021) in case he files an application in the IRD with bonafide

reasons for such extension. This extension

only applies to tax return submission and not for payment of tax.

The annual return may be revised within one month of filing return , if
returns are filed within due date.
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