Starting a business in NEPAL..world bank report
Starting a business
Nepal ranks 49th in the world on the ease of starting
a business—a decline from last year’s position of 40th.
There are only 7 procedures needed to start up a business,
which take 31 days. While there is no minimum
capital requirement, the cost of starting a business is
relatively high at $212 or 78.5% of income per capita.
The expense is caused primarily by two procedures—
verifying the memorandum and articles of association
($136.73) and paying the fee to file the documents with
the company registrar’s office ($61.53).
Employing Workers
Nepal ranks 150th globally on the ease of employing
workers (figure 2.12). The cost of hiring is 10% of salary
compared with a South Asia average of 7%. Rules on
hiring and conditions of work are relatively flexible, with
the exception that term contracts are limited to fixed
term tasks. Firing workers is difficult and costly with
severance payment equivalent to 90 weeks of wages—the
3rd most expensive country in which to fire workers in
South Asia, along with Pakistan. Through an ordinance
by the King the Labor Law was amended in March 2006
to address some of the rigidities in the previous law.
But it was later revoked by the new government. The
revoked amendment contained more flexible provisions
for hiring workers on a contractual basis, increasing the
probationary period, allowing retrenchment during rationalization
of businesses, encouraging a safe working
place, and making it easier for a business to set its own
minimum remuneration.
Getting credit
Nepal ranks 101st on the ease of getting credit, and is
significantly behind Bangladesh, India and Pakistan
(figure 2.13). Access to credit is perceived by Nepalese
firms as one of the greatest barriers to doing business.
The underlying reason—weak legal rights for taking
and enforcing collateral. A new Insolvency Act has been
passed but has not yet been enforced due to the absence
of commercial courts. Similarly, a new Secured Transaction
Act has been passed but there is no implementing
agency to register movable assets as collateral. In the
absence of such a registry, financial institutions have
developed the practice of recording pledges on movable
assets in the land registry in cases where land is also
mortgaged as collateral. The result of these shortcomings
is that lending is more risky and financial institutions are
less willing to extend credit to businesses.
Nepal also has a credit bureau—the Credit Information
Center—which in 2004 was transferred from the
central bank to private ownership. Now 90% of the credit
bureau is owned by financial institutions, while the central
bank has retained 10% ownership. The bureau is mostly
used to verify whether a potential borrower is a defaulter
Paying taxes
Nepal is ranked 88th on the ease of paying taxes. Tax
rates are high—32.8% of commercial profits—although
lower than the regional average of 45.1%. The compliance
requirements are cumbersome and time consuming—a
business must make 35 payments per year and spend 408
hours fulfilling tax requirements. Pakistan is the only
country in the region where it takes longer to pay taxes.
Although corporate tax should be payable on profits, the
tax authorities continue to tax income on sales turnover
rather than net profits, as profits are often underreported.
Tax laws have been amended in recent years but lack clarity
and are often subject to various interpretations.
Enforcing contracts
Nepal ranks 105th on the ease of enforcing contracts,
behind Afghanistan, Bangladesh, India and Pakistan.
It takes 28 procedures and 590 days to enforce a simple
commercial contract through the courts, at a cost of 24%
of the value of the claim.
Trading across borders
As a land-locked country, Nepal’s trade regime is constrained,
and the problem is further compounded by
inadequate infrastructure and bureaucratic procedures.
Exporting requires 7 separate documents and takes 44
days. Importers need to submit 10 separate documents
and wait 37 days before goods are made available (table
2.6). Nepal ranks 136th on the ease of trading across
borders—a further decline from 133rd place last year.
Nepal ranks 49th in the world on the ease of starting
a business—a decline from last year’s position of 40th.
There are only 7 procedures needed to start up a business,
which take 31 days. While there is no minimum
capital requirement, the cost of starting a business is
relatively high at $212 or 78.5% of income per capita.
The expense is caused primarily by two procedures—
verifying the memorandum and articles of association
($136.73) and paying the fee to file the documents with
the company registrar’s office ($61.53).
Employing Workers
Nepal ranks 150th globally on the ease of employing
workers (figure 2.12). The cost of hiring is 10% of salary
compared with a South Asia average of 7%. Rules on
hiring and conditions of work are relatively flexible, with
the exception that term contracts are limited to fixed
term tasks. Firing workers is difficult and costly with
severance payment equivalent to 90 weeks of wages—the
3rd most expensive country in which to fire workers in
South Asia, along with Pakistan. Through an ordinance
by the King the Labor Law was amended in March 2006
to address some of the rigidities in the previous law.
But it was later revoked by the new government. The
revoked amendment contained more flexible provisions
for hiring workers on a contractual basis, increasing the
probationary period, allowing retrenchment during rationalization
of businesses, encouraging a safe working
place, and making it easier for a business to set its own
minimum remuneration.
Getting credit
Nepal ranks 101st on the ease of getting credit, and is
significantly behind Bangladesh, India and Pakistan
(figure 2.13). Access to credit is perceived by Nepalese
firms as one of the greatest barriers to doing business.
The underlying reason—weak legal rights for taking
and enforcing collateral. A new Insolvency Act has been
passed but has not yet been enforced due to the absence
of commercial courts. Similarly, a new Secured Transaction
Act has been passed but there is no implementing
agency to register movable assets as collateral. In the
absence of such a registry, financial institutions have
developed the practice of recording pledges on movable
assets in the land registry in cases where land is also
mortgaged as collateral. The result of these shortcomings
is that lending is more risky and financial institutions are
less willing to extend credit to businesses.
Nepal also has a credit bureau—the Credit Information
Center—which in 2004 was transferred from the
central bank to private ownership. Now 90% of the credit
bureau is owned by financial institutions, while the central
bank has retained 10% ownership. The bureau is mostly
used to verify whether a potential borrower is a defaulter
Paying taxes
Nepal is ranked 88th on the ease of paying taxes. Tax
rates are high—32.8% of commercial profits—although
lower than the regional average of 45.1%. The compliance
requirements are cumbersome and time consuming—a
business must make 35 payments per year and spend 408
hours fulfilling tax requirements. Pakistan is the only
country in the region where it takes longer to pay taxes.
Although corporate tax should be payable on profits, the
tax authorities continue to tax income on sales turnover
rather than net profits, as profits are often underreported.
Tax laws have been amended in recent years but lack clarity
and are often subject to various interpretations.
Enforcing contracts
Nepal ranks 105th on the ease of enforcing contracts,
behind Afghanistan, Bangladesh, India and Pakistan.
It takes 28 procedures and 590 days to enforce a simple
commercial contract through the courts, at a cost of 24%
of the value of the claim.
Trading across borders
As a land-locked country, Nepal’s trade regime is constrained,
and the problem is further compounded by
inadequate infrastructure and bureaucratic procedures.
Exporting requires 7 separate documents and takes 44
days. Importers need to submit 10 separate documents
and wait 37 days before goods are made available (table
2.6). Nepal ranks 136th on the ease of trading across
borders—a further decline from 133rd place last year.
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