RESTRICTED  
  
WT/TPR/S/381  
8 October 2018  
(18-6175) Page: 1/117 
Trade Policy Review Body   
 
TRADE POLICY REVIEW  
REPORT BY THE SECRET ARIAT  
NEPAL 
This report, prepared for the second Trade Policy Review of Nepal, has been drawn up by the 
WTO Secretariat on its own responsibility. The Secretariat has, as required by the Agreement 
establishing the Trade Policy Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing 
the World Trade Organization), sought clarification from Nepal on its trade policies and practices.  
 
Any technical questions arising from this report may be addressed to John Fi nn (tel.  022 739 5081), 
Ricardo Barba Viniegra (tel. 022 739 5088) and Thakur Parajuli (tel. 022 739 5473).  
 
Document WT/TPR/G/ 381 contains the policy statement submitted by Nepal.  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note: This report is subject to restricted circulation and press embargo until the end of the 
first session of the meeting of the Trade Policy Review Body on Nepal. This report was drafted in 
English.  
  WT/TPR/S/ 381 • Nepal  
 
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  CONTENTS  
SUMMARY  ................................ ................................ ................................ .......................  6 
1   ECONOMIC ENVIRON MENT  ................................ ................................ .......................  10 
1.1   Main Features of the Economy  ................................ ................................ ...................  10 
1.2   Recent Economic Developments  ................................ ................................ .................  11 
1.3   Developments in Trade and Investment  ................................ ................................ ...... 14 
1.3.1    Trends and patterns in merchandise and services trade  ................................ ..............  14 
1.3.2    Trends and patterns in FDI  ................................ ................................ .....................  18 
2   TRADE AND INVEST MENT REGIMES ................................ ................................ ..........  20 
2.1   General Framework  ................................ ................................ ................................ .. 20 
2.2   Trade Policy Formulation and Objectives  ................................ ................................ ...... 20 
2.3   Trade Agreements and Arrangements  ................................ ................................ .........  25 
2.3.1    WTO ................................ ................................ ................................ ....................  25 
2.3.2    Regional and preferential agreements  ................................ ................................ ...... 26 
2.3.2.1    South Asian Free Trade Area (SAFTA) and South Asian Association for Regional 
Cooperation (SAARC) Agreement on Trade in Services (SATIS)  ................................ .............  27 
2.3.2.2    Bay of Bengal Initiative for Multi -Sectoral Technical and Economic Cooperation 
(BIMSTEC)  ................................ ................................ ................................ ......................  28 
2.3.2.3    Bilateral agreements  ................................ ................................ ...........................  29 
2.3.2.3.1    Bilateral agreement between India and Nepal  ................................ ......................  29 
2.3.2.3.2    Other agreements  ................................ ................................ ............................  29 
2.4   Investment Regime  ................................ ................................ ................................ .. 30 
3   TRADE POLI CIES AND PRACTICES B Y MEASURE  ................................ .......................  34 
3.1   Measures Directly Affecting Imports  ................................ ................................ ............  34 
3.1.1    Customs procedures, valuation, and requirements  ................................ .....................  34 
3.1.2    Rules of origin  ................................ ................................ ................................ ....... 38 
3.1.3    Tariffs  ................................ ................................ ................................ ..................  39 
3.1.3.1    Structure  ................................ ................................ ................................ ...........  39 
3.1.3.2    Applied tariff  ................................ ................................ ................................ ...... 40 
3.1.3.3   Tariff bindings  ................................ ................................ ................................ .... 42 
3.1.3.4    Tariff preferences  ................................ ................................ ................................  43 
3.1.3.5    Tariff exemptions  ................................ ................................ ................................  44 
3.1.4    Other duties and charges affecting imports  ................................ ...............................  45 
3.1.5    Import prohibitions, restrictions, and licensing  ................................ ..........................  45 
3.1.6    Anti-dumping, countervailing, and safeguard measures  ................................ ..............  47 
3.1.7    Other measures affecting imports  ................................ ................................ ............  47 
3.2   Measures Directly Affecting Exports  ................................ ................................ ............  47 
3.2.1    Customs procedures and requirements  ................................ ................................ ..... 47 
3.2.2    Taxes, charges, and levies  ................................ ................................ ......................  48 
3.2.3    Export prohibitions, restrictions, and licensing  ................................ ...........................  48 
3.2.4    Export support and promotion  ................................ ................................ .................  49 WT/TPR/S/ 381 • Nepal  
 
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  3.2.5    Export finance, insurance, and guarantees  ................................ ................................  50 
3.3   Measures Affecting Production and Trade  ................................ ................................ ..... 50 
3.3.1    Taxes and incentives  ................................ ................................ ..............................  50 
3.3.2    Standards and other technical requirements  ................................ .............................  53 
3.3.2.1    Standards and technical regulations  ................................ ................................ ...... 53 
3.3.3    Sanitary and phytosanitary requirements  ................................ ................................ .. 55 
3.3.4    Competition policy and price controls  ................................ ................................ ....... 56 
3.3.4.1    Compet ition policy  ................................ ................................ ..............................  56 
3.3.4.2    Price controls ................................ ................................ ................................ ...... 57 
3.3.5    State trading, state -owned enterprises, and privatization  ................................ ...........  58 
3.3.6    Government procurement  ................................ ................................ .......................  60 
3.3.7    Intellectual property rights  ................................ ................................ ......................  62 
3.3.7.1    Copyright  ................................ ................................ ................................ ...........  64 
3.3.7.2    Trademarks  ................................ ................................ ................................ ........  64 
3.3.7.3    Industrial designs  ................................ ................................ ...............................  65 
3.3.7.4    Patents  ................................ ................................ ................................ ..............  65 
3.3.7.5    Enforcement  ................................ ................................ ................................ ....... 66 
4   TRADE POLICIES B Y SECTOR  ................................ ................................ ....................  67 
4.1   Agriculture and Fisheries  ................................ ................................ ...........................  67 
4.1.1    Agriculture  ................................ ................................ ................................ ............  67 
4.1.1.1    Features  ................................ ................................ ................................ ............  67 
4.1.2    Trade  ................................ ................................ ................................ ...................  69 
4.1.3    Agriculture policies  ................................ ................................ ................................ . 71 
4.2   Mining and Energy  ................................ ................................ ................................ .... 77 
4.3   Manufacturing  ................................ ................................ ................................ ..........  84 
4.4   Services  ................................ ................................ ................................ ..................  87 
4.4.1    Financial Services  ................................ ................................ ................................ .. 87 
4.4.2    Banking  ................................ ................................ ................................ ................  90 
4.4.3    Insurance  ................................ ................................ ................................ .............  90 
4.4.4    Securities  ................................ ................................ ................................ .............  91 
4.5   Telecommunications and Postal Services  ................................ ................................ ..... 92 
4.6   Transport Services  ................................ ................................ ................................ .... 94 
4.6.1    Road transport and railways  ................................ ................................ ....................  95 
4.6.2    Air transport  ................................ ................................ ................................ .........  96 
4.6.3    Tourism  ................................ ................................ ................................ ................  96 
5   APPENDIX TABLES  ................................ ................................ ................................ ... 99 
 
CHARTS  
 
Chart 1.1 GDP by economic activity (at current prices), 2017 -18 ................................ ...........  10 
Chart 1.2 Product composition of merchandise trade, 2011 and 2017  ................................ ..... 16 
Chart 1.3 Direction of merchandise trade, 2011 and 2017  ................................ .....................  17 WT/TPR/S/ 381 • Nepal  
 
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  Chart 2.1 Interagency coordination mechanism for international trade  ................................ .... 22 
Chart 2.2 Nepal's imports and exports amongst RTA partners, 2017  ................................ ....... 27 
Chart 2.3 Status of trade between Nepal and India  ................................ ..............................  29 
Chart 2.4 Approving agencies and procedu re for starting a business  ................................ ....... 33 
Chart 3.1 Red lane import clearance process  ................................ ................................ ....... 35 
Chart 3.2 Frequency distribution of MFN tariff rates, FY 2018 -19 ................................ ............  40 
Chart 3.3 Average applied MFN and bound tariff rates, by HS section, FY 2018 -19 ...................  41 
Chart 3.4 Tariff escalations by 2 -digit ISIC industry, FY 2018 -19 ................................ ...........  41 
Chart 4.1 Farm structure 2001 -02 and 2011 -12 ................................ ................................ ... 68 
Chart 4.2 Energy consumption, 2010 and 2015  ................................ ................................ ... 81 
 
TABLES  
 
Table 1.1 Selected economic indicators, 2012/13 -2017/18  ................................ ....................  12 
Table 1.2 Structure of government revenue, 2011/12 -2016/17  ................................ .............  13 
Table 1.3 Balance of payments, 2012/ 13-2017/18  ................................ ...............................  14 
Table 1.4 FDI, 2012 -17................................ ................................ ................................ ..... 18 
Table 1.5 FDI stock by sector, mid -July 2016  ................................ ................................ ...... 18 
Table 1.6 FDI stock by source, mid -July 2016  ................................ ................................ ...... 19 
Table 2.1 Main trade -related legislation  ................................ ................................ ..............  22 
Table 2.2 Strategic areas identified in NTIS 2016  ................................ ................................ . 24 
Table 2.3 Selected notifications  to the WTO, January 2012 – August 2018  ..............................  25 
Table 2.4 BIMSTEC, fast and normal tracks for trade liberalization  ................................ .........  28 
Table 3.1 Documents required for imports  ................................ ................................ ...........  34 
Table 3.2 Time and cost for imports, 2018  ................................ ................................ ..........  36 
Table 3.3 Tariff structure, FY 2011 -12 and FY 2018 -19 ................................ .........................  39 
Table 3.4 Tariff lines where MFN applied exceeds bound rate, 2018 -19 ................................ ... 42 
Table 3.5 Summary analysis of the preferential tariff under SAFTA, 2018 -19 ...........................  43 
Table 3.6 Customs duty exemptions  ................................ ................................ ...................  44 
Table 3.7 Revenue collected at the customs border, FY 2012 -13 to 2017 -18 ...........................  45 
Table 3.8 Products subject to import prohibition s ................................ ................................ . 46 
Table 3.9 Imports requiring a licence or permit  ................................ ................................ .... 46 
Table 3.10 Demurrage for warehouses in customs  ................................ ...............................  47 
Table 3.11 Time and cost for exports, 2018  ................................ ................................ .........  48 
Table 3.12 List of products banned from exportation  ................................ ............................  48 
Table 3.13 Tax revenue FY 2012 -13 to FY 2017 -18 ................................ ..............................  50 
Table 3.14 Income tax rates in 2017 -18 ................................ ................................ .............  51 
Table 3.15 Corporation taxes, reductions and exemptions in 2018 -19................................ ..... 51 
Table 3.16 SOEs, operating profits and numbers of employees  ................................ ..............  59 
Table 3.17 Procurement metho ds and thresholds  ................................ ................................ . 61 
Table 3.18 IP legislation  ................................ ................................ ................................ .... 63 WT/TPR/S/ 381 • Nepal  
 
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  Table 3.19 Registration and renewal fees, 2018  ................................ ................................ ... 63 
Table 3.20 Trademarks  ................................ ................................ ................................ ..... 65 
Table 3.21 Industrial designs  ................................ ................................ .............................  65 
Table 3.22 Patents  ................................ ................................ ................................ ...........  66 
Table 4.1 Agriculture in the economy 2010 -11 to 2017 -18 ................................ ....................  67 
Table 4.2 Production of main agricultural commodities, 2010 -16 ................................ ............  69 
Table 4.3 Trade in agricultural products, 2013 -17 ................................ ................................  70 
Table 4.4 Eligible products and subsidy rates CISE 2070  ................................ .......................  71 
Table 4.5 Indicators and targets for the ADS vision  ................................ ..............................  72 
Table 4.6  Total 10 -year cost, ADS  ................................ ................................ .....................  73 
Table 4.7 Spending on agricultural programmes 2012 -13 to 2016 -17 ................................ ..... 74 
Table 4.8 Investment inc entives, 2018  ................................ ................................ ...............  78 
Table 4.9 Royalties for internal consumption projects, 2018  ................................ ..................  82 
Table 4.10 Royalties for export oriented hydropower projects, 2018  ................................ ....... 83 
Table 4.11 Investment incentives, 2018 ................................ ................................ ..............  83 
Table 4.12 Incentives for companies in SEZs, 2018  ................................ ..............................  85 
Table 4.13 Investment incentives, 2018 ................................ ................................ ..............  89 
Table 4.14 Telecommunications indicators, 2012 -17 ................................ .............................  92 
Table 4.15 Investment incentives, 2018 ................................ ................................ ..............  93 
Table 4.16 Investment incentives, 2018 ................................ ................................ ..............  94 
Table 4.17 Selected tourism indicators, 2012 -17 ................................ ................................ .. 97 
Table 4.18 Investment incentives, 2018 ................................ ................................ ..............  98 
Table 4.19 FDI projects in tourism, 2012 -13 to 2016 -17 ................................ .......................  98 
 
BOXES  
 
Box 2.1 L ist of ministries as of August 2018  ................................ ................................ ........  21 
 
APPENDIX TABLES  
 
Table A1.1 Merchandise exports by group of products, 2011 -17 ................................ .............  99 
Table A1.2 Merchandise total imports by group of products, 2011 -17 ................................ ... 101 
Table A1.3 Merchandise total exports by destination, 2011 -17 ................................ .............  103 
Table A1.4 Merchandise total imports by origin, 2011 -17 ................................ ....................  104 
 
Table A2.1 Outstanding notifications to the WTO, January 2012 – November 2018  .................  105 
Table A2.2 Unilateral Preferential Market access to Nepal as of April 2018  .............................  106 
Table A2.3 Nepalese manufactured articles allowed entry into India  ................................ ..... 107 
 
Table A3.1 Summary analysis of Nepal's MFN tariff, 2018 -19 ................................ ..............  108 
Table A3.2 Tariff lines subject to export duties, 2017 -18 ................................ .....................  110 
Table A3.3 Excise duties FY 2018 -19 ................................ ................................ ................  112 
 
Table A4.1 Fiscal concessions for different industries  ................................ ..........................  114 
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  SUMMARY  
1. Since the last Trade Policy Review of Nepal in 2012, economic growth has averaged 4.4% per 
year, despite GDP growth of only 0.4% in fiscal year (FY) 2015 -16 when the country was hit by two 
earthquakes which caused considerable damage to infrastructure and production. Growth recovered 
in the following years, driven by good monsoons, post -earthquake reconstruction, and higher 
government spending. However, if Nepal is to achieve its objective of being a middle -income country 
by 2030, annual GDP growth of over 7% will be needed.  
2. Although GDP per capita increased from US$708 in FY 2012 -13 to US$1,004 in FY 2017 -18, 
poverty alleviation continues to be a major challenge , with nearly six million Nepalese living in 
poverty.  A large portion of the 45% of total population that are  considered vulnerable may have also 
fallen back into poverty in the aftermath of the 2015 earthquake s. Estimates suggest that eight 
million people were affected by the earthquakes, with some US$7 billion in damages and losses.  
3. Nepal has achieved strong growth in government revenues in recent yea rs through 
strengthening tax administration, including at customs. Government expenditure, however, has 
outpaced government revenues, d ue in part to housing grants to earthquake -affected households 
and to an increase  in government wages and pensions . Following a review of the tax system, the 
Government is currently drafting a new single tax code to improve , consolidate and harmonize the 
main domestic taxes.  
4. Nepal's current account surplus turned into a deficit in FY 2016 -17 due primarily to increasing 
impor ts of goods and services, although the trade deficit was offset to some extent by strong 
remittances (about one  quarter of GDP in FY 2017 -18). The effects of the earthquakes, trade 
disruptions with India, and the appreciation of the real exchange rate affected the competitiveness 
of exports. Moreover, as a landlocked country, the transit of goods through India (mainly the port 
of Kolkata) to international markets imposes significant transport costs and delays on Nepalese 
exporters. Nepal has a narrow me rchandise export basket concentrated  in textiles, clothing, and 
agricultural products, while the structure of imports is considerably more diverse across commodity 
groups. Merchandise trade is mostly with India  (65% of imports and 57% of exports in 2017).  
5. The inward stock of foreign direct investment (FDI) represented 6.9% of GDP in 2017, still 
among the lowest in the region. Private investment, local and foreign, was  inhibited by several 
factors, notably government instability, bureaucratic burden, inadequ ate infrastructure, and 
restrictive labour regulations . To tackle these problems, attract larger FDI inflows , and improve the 
business climate , several measures  have been implemented, including improving customs 
procedures and the development of the Foreig n Investment Policy 2014,  as well as new legislation, 
such as the Industrial Enterprise s Act, 2016, the Labour Act, 2017, and the Special Economic Zone 
(SEZ)) Authority Act, 2016. There are no restrictions on foreign investment, apart from a negative 
list of 21 industries which include poultry, fisheries consultancy services, and rural tourism.   
6. The political instability up to early -2018 meant that, in some areas, new laws which were in 
development six years ago at the time of the last TPR have yet to be p resented to Parliament 
(including a bill on safeguards, anti -dumping and countervailing measures), and, in other cases, the 
laws may have been passed but the implementing regulations are still being drafted. Moreover, in 
some cases, where the laws and inst itutions are in place, there is little data on enforcement, such 
as the laws relating to intellectual property rights, government procurement, and competition policy.   
7. A new Constitution in 2015 (which replaced the Interim Constitution of 2007) and a new 
Government with a large majority in 2018 should create political stability, although the shift to a 
federal system of government would require significant institutional changes and, at the federal 
level, the Government has also implemented changes to the nu mber and authority of some 
ministries.  
8. Despite the major transformations in institutional and regulatory arrangements, the key 
development objectives remain largely the same as in 2012. In the 14th National Development Plan, 
trade is recognized as an impor tant factor towards achieving the objective of long -term inclusive 
and sustainable growth, which is also emphasized in the National Trade Integration Strategy (NTIS) 
2016, which is an update to NTIS 2010. The objectives of the Trade Policy 2015 are to enha nce WT/TPR/S/ 381 • Nepal  
 
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  access of goods, services and intellectual property to regional and world markets. It also aims to 
complement other policies, including the NTIS, and to implement WTO decisions.  
9. Nepal continues to participate in two overlapping regional agreements: th e South Asia Free 
Trade Area (SAFTA); and the Framework Agreement on the Bay of Bengal Initiative for Multi -Sectoral 
Technical and Economic Cooperation (BIMSTEC) FTA. In addition, Nepal has bilateral trade 
agreements with 17 countries, including t he Treaty  of Transit, the Treaty of Trade, Railways Services 
Agreement, and an Agreement of Cooperation to Control Unauthorized Trade  with India . The Transit 
Treaty allows Nepal to trade with other countries through the Kolkata/Haldia ports and, since 2016, 
Vishaka patnam.  In the WTO, Nepal has ratified the Trade Facilitation Agreement and the Protocol 
Amending the TRIPS Agreement. However, it is not a participant in the Information Technology 
Agreement, nor a party to the Government Procurement Agreement or its revi sion. Despite efforts 
to meet WTO notification requirements, many are still outstanding, including some relating to 
subsidies, domestic support for agriculture, services, customs valuation, and import licensing 
procedures.  
10. Since its last TPR, customs proce dures  have continued to improve. Nepal is currently 
implementing the fifth in a series of Customs Reform and Modernization Strategies and Action Plans 
(CRMSAPs), and an E -customs Master Plan which is intended to create a web -based paperless system 
of custo ms clearance using ASYCUDA World and a Single Administrative Document in the Nepal 
Customs Automation System (NECAS). At end -August 2018, the NECAS had been implemented in 
12 customs offices, covering 95% of Nepal's trade.  
11. Tariffs are  one of the main trade policy instrument s, and customs duties collected are an 
important source of government revenue. Nearly all tariffs are applied on an ad valorem  basis, with 
51 tariff lines subject to specific rates. The simple average applied MFN tar iff in FY 2018 -19 was 
12%, a slight decrease from 12.2% in FY 2011-12. Average tariffs on agricultural products (12.6%) 
are higher than those on non -agricultural products (11.9%). The highest ad valorem  rate of 80% 
applies to one tariff line related to tob acco, plus some motor vehicles, and arms and ammunition 
products. Specific duties are applied to some alcohol, tobacco, cement, and petroleum tariff lines. 
In general, tariff protection is particularly high for arms and ammunition and, to a much lesser 
extent, prepared foods and transport equipment. About 1.5% of agricultural products and 4% of 
non-agricultural tariff lines are duty free.  
12. In acceding to the WTO, Nepal bound all but 54 tariff lines at the HS eight -digit level and, in 
general, applied tariff s are much lower than bound rates,  with a 14.6 percentage point difference 
between the average MFN applied rate and the average bound rate. However, in FY 2018 -19, out of 
a total of 5,572 tariff lines, the applied rate s exceed the bound rates  for 38 tariff  lines.  In addition, 
in a small number of cases, a bound tariff line was subsequently separated into a number of separate 
tariff lines, and some of these new tariff lines (eight in total) bear applied tariffs in excess of the 
binding. There are also 12 tar iff lines subject to specific duties , where it is possible that they could 
exceed the bound ad valorem  rates.  
13. Import prohibitions or restrictions may be applied to some goods on the grounds of , inter alia , 
national security , protection of life or health , and protection of national treasures. Import licences 
or permits are required for some other goods, such as narcotic s, arm s and ammunition , and some 
communication s equipment. Nepal also prohibits the export of certain goods for various policy 
objectives , and about 100 products are subject to export duties  on grounds of environmental 
protection, food security, and to discourage trade diversion .  
14. Import duties and other taxes collected at the border are important sources of revenue, with 
import duties, VAT on imports, and excise duties on imports providing 18%, 19%, and 7% of total 
tax revenue, respectively. Exports are zero -rated for VAT and are exempt from excise duties. The 
corporation tax system is quite complex, with different rates depending on the type o f activity and 
a variety of rebates, reductions and exemptions for different industries, locations, and/or social 
goals, including under the SEZ Authority Act, 2016. The excise duty system is also complicated, with 
duties applied to about 600 products, inc luding alcohol and tobacco products and motor vehicles. It 
appears that, in two cases (cider and wine), the excise duty on domestic products is lower than on 
imported products.  WT/TPR/S/ 381 • Nepal  
 
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  15. The Nepal Council for Standards and the Nepal Bureau of Standards and Metrolog y are the 
main agencies responsible for developing and approving standards and technical regulations. Out of 
about 900 national standards (51 of which were developed since 2012), 11 are mandatory, i.e 
technical regulations (4 of which were made mandatory s ince 2012 and were notified to the WTO). 
Nepal is also a member of the South Asian Regional Standards Organization (SARSO), which 
develops standards for the South Asian Association for Regional Cooperation (SAARC). According to 
the authorities, most standa rds are based on those developed by international organizations or well -
known national standards bodies.  
16. Several government agencies are responsible for SPS measures under a variety of laws, rules, 
and regulations, including the National Standards for Phy tosanitary Measures Law, which was 
introduced in 2013 and sets out a framework for pest risk analysis. However, some legislation is 
quite dated, and, under the Agriculture Development Strategy (ADS), the authorities intend to 
prepare new legislation relati ng to food, establish an independent food authority, and enhance 
capacity in other agencies. A total of 13 SPS notifications have been made to the WTO, including the 
Framework for Pest Risk Analysis, and a quarantine list of pests for apples, citrus, potat oes, ginger, 
garlic, bananas, and coffee . 
17. The Competition Promotion and Market Protection Act of 2007 and its Implementing 
Regulation of 2010 prohibit anti -competitive agreements, abuse of dominant position, mergers and 
amalgamations with the intent of restricting trade, bid -rigging, and other ant i-competitive activities. 
Any person or business may provide information to designated market protection officers or the 
Competition Promotion and Market Protection Board relating to anti -competitive practices. However, 
although the legal and institutional  framework is in place, the Act has never been used to prosecute 
a case, although other laws have been used in about 30 other competition -related cases.   
18. There are about 40 state -owned enterprises. There has been no action under the privatization 
programm e since 2008. During the review period, SOEs as a group have become profitable, primarily 
because of reforms affecting two of the largest, the Nepal Oil Company (NOC) and the Nepal 
Electricity Authority. In the case of the NOC, which has the sole rights to  import, transport, store 
and distribute petroleum products, the introduction of the Automatic Petroleum Pricing Mechanism 
allows it to adjust prices.  
19. Although Nepal is neither an observer nor a party to the Government Procurement Agreement, 
it has a procu rement system regulated by the Public Procurement Act and overseen by the Public 
Procurement Monitoring Office. The procurement method depends on thresholds. The authorities 
stated that the system is now more transparent since e -bidding was introduced, sta rting in 2007, 
which applies to goods' contracts of more than NR 5 million and works' contracts of more than NR  10 
million.  
20. Although there were no changes to the legislation on intellectual property rights during the 
review period, the new Constitution now  explicitly includes intellectual property in the definition of 
property. Enforcement at the border is the responsibility of Customs but they may act only following 
a complaint by the holder of the IPR. Although data on enforcement at the border were not a vailable, 
there was a total of 679 cases relating to infringements of trademarks under consideration in the 
Department of Industry, of which 209 were under appeal in the courts.  
21. Agriculture represents over one quarter of GDP and two thirds of employment. N epal's  diverse 
topography creates the potential to produce a wide variety of products but it faces many challenges 
as a landlocked LDC with poor infrastructure, small scale farming, low productivity, and a  high risk 
of natural disasters (the  2015 earthquakes were estimated to have caused NR 28.3 billion in 
damages and losses to agriculture ). Current policy for agriculture is set out in the ADS 2015 -2035 
and several product -specific policy documents. The ADS includes a number of programmes aimed 
at improving efficiency, sustainability, and resilience to climate change and disasters. The largest 
programme is for irrigation (NR 95 billion over 10 years), and the total 10 -year cost of all 
programmes is about NR 502 billion, about 11% of which is to com e from donors. The ADS also sets 
out targets, with an emphasis on developing a trade surplus for agricultural goods, improving 
sustainability and competitiveness, and reducing poverty. The most recent notification to the WTO 
on domestic support is for  calendar years 2010 and 2011; it showed that all support was in the 
Green Box, and amounted to less than 1% of the value of production. Data on government spending 
during the review period shows that government programmes are focused on input and 
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  qualify for export support under the Cash Incentive for Exports (CISE) 2070, with a budget allocation 
of US$5.4 million for FY 2018 -19. 
22. The m ining and quarrying sector (0.6% of GDP in 2017 -18) is gradually being developed.  
Under the National Mineral Resources Policy  2017, Nepal's main policy objectives include making the 
sector more competitive, sustainable and environment ally friendly by using new and innovative 
technol ogy; and attracting larger private sector investment by providing incentives and facilities.  
23. The period 2016 -26 has been declared National Energy Crisis Reduction and Electricity 
Development Decade (Energy Emergency Decade).  Nepal recognizes that it must a ccelerate the 
development of its abundant hydropower potential as an important step to reduce poverty and 
stimulate economic growth. Hydropower development would provide clean energy to enhance 
economic and social development in rural and urban areas, and enable Nepal to generate revenue 
from the export of excess energy to neighbo uring countries.  Nepal aims to achieve zero power 
outages  and ensure energy security by 2019.  
24. The contribution of manufacturing to GDP has steadily declined during the last decades , to 
5.4% in 2017 -18. Reasons behind this overall downward trend include low labour productivity, high 
transport costs, production stoppages due to electricity cuts, and poor labour -employer relations 
leading to strikes . With the aim of promoting industria l activity and increasing its contribution to 
GDP, t he SEZ Authority Act 2016  and the Industrial Enterprises Act 2016  were enacted (the 
implementing regulations are still being drafted). Various incentives for m anufacturing and export -
oriented industries  are provided under both Acts.  
25. The services sector is, increasingly, the largest contributor to GDP, with nearly a 60% share 
in 2017 -18. Based on tourism -related receipts, Nepal became a net exporter of services during the 
review period.  The tourism sector is central to Nepal's social and economic development, and the 
Government's objective is to double tourist visitors by 2020, mak e it the number one employment 
generator by adding one million jobs to the sector  by 2020, and to almost quadruple the contribut ion 
of tourism to GDP by 2025. 
26. Nepal is developing its largely untapped financial services  market. A ccess to financial services 
and financial deepening have been growing over the last few years , and financial soundness 
indicators have improved.  Despite rec ent changes made to the regulatory framework of financial 
institutions, accelerating financial sector reforms is needed. Nepal's telecom sector has been further 
liberalized during the review period  through the adoption of various policy papers and regulati ons, 
including the National Broadband Policy 2015,  the National Information and Communications 
Technology Policy 2015, the S pectrum Policy 2016, and the Telecom Infrastructure Service 
Regulation 2017.   
27. Under its National Transport Policy,  Nepal is to invest over US$8 billion in road infrastructure, 
rail connectivity and transport sector management  in the next five years . The Government aims to 
connect all of Nepal's regions , develop a reliable, cost effective, safe , facility -oriented and 
sustainable transport system . Road transport is the predominant mode of transport in Nepal, 
accounting for 90% of the movement of passengers and goods.   
28. During the review period, Nepal has taken several steps to improve the trading and business 
environment, including ongoing programmes on import procedures, and the electronic government 
procurement system. Political stability should also give the Government the opportunity to enact 
new and/or updated legislation. However, some aspects of doing business in Nep al are still 
complicated, expensive and time -consuming, such as paying taxes and starting a business, and 
simplifying them may help improve the investment, trading, and business environment.  
 
 
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  1  ECONOMIC ENVIRONMENT  
1.1  Main Features of the Economy  
1.1.  The Nepalese economy is highly trade -oriented and dependent on remittances (around 26% of 
GDP)1, exports of goods and services (about 9% of GDP), and travel and tourism (some 4%  of 
GDP).2 Nepal is also an important recipient of official development assistance (ODA) .3 Annual 
average ODA flows amounted to US$ 1,100  million during 201 2-17.4 Moreover, Nepal has a narrow 
merchandise export basket concentrated in a few countries (Sectio n 1.3.1) and, as a landlocked 
country, the transit of goods through India (mainly the port of Kolkata) to international markets 
imposes significant shipping costs and delays on Nepalese exporters.5 
1.2.  As shown in Chart 1.1, the services sector constitutes the  backbone of the economy in terms 
of GDP share (5 7.6% in 201 7-18), followed by agriculture and related activities (27.6%), 
construction (7.6%), and manufacturing (5.4%). It is estimated that the agriculture sector employs 
over two thirds of workers.  
Chart 1.1 GDP by economic activity (at current prices), 2017 -18 
 
 
Source:  WTO Secretariat based on the data provided by the Central Bureau of Statistics.  
1.3.  Nepal  has a population of around 30 million, predominantly rural. Nepal has made  development 
progress over the last few years, as  reflected in an increase in GDP  per capita from US$708 in 
2012-13 to US$1,004 in 2017 -18. However, the alleviation of poverty continues to be one of its 
major challenges. According to N epal's national poverty line, nearly six million Nepalese live in 
poverty.6 Furthermore, a  large portion of the 45% of total population that are  considered vulnerable 
may have fallen back into poverty in the aftermath of the catastrophic earthquake s of 201 5.7 
                                                
1 Nepal is one of the largest recipients of remittances in the world. Close to half of the population rely on 
financial help from relatives abroad. The top three destinations for Nepali migrant workers are Malaysia (41%), 
Saudi Arabia (23%), and Qatar (20%) . Nepal Labour Market Update, ILO, January 2017.  
2 World Travel and Tourism Council online information. Viewed at:  
https://www.wttc.org/ -/medi a/files/reports/economic -impact -research/countries -2018/nepal2018.pdf . 
3 The main bilateral donors are EU  institutions/members.  
4 Ministry of Finance online information. Viewed at: 
http://mof.gov.np/uploads/document/file/20171231154547.pdf . 
5 To the north , trade with China is obstructed  physical ly by the Himalaya s. To the south, there are only 
two main roads connecting India and Kathmandu, and railway links are negligible. In additio n, competing firms 
in India have greater economies of scale and competitiveness , putting Nepalese firms at a disadvantage . 
6 The national poverty line established in 2010 -2011 represents the expenditure required to meet 
minimum food and non -food needs, and has historically been measured using the Nepal Living Standards Survey. 
IMF Country Report No. 17/74.  
7 Households with more than 10% probability of falling back into pov erty are considered "vulnerable ".  
Chart 1.1 GDP by economic activity (at current prices), 2017/18
Source: WTO Secretariat, based on Central Bureau of Statistics online information.Hotels & 
restaurants
2.0%Real estate & 
business activities
11.4%
Public administration 
& defense
2.9%Agriculture, 
forestry & fishing
27.6%Mining & 
quarrying 0.6%Manufacturing
5.4%Electricity, gas & 
water 1.2%Construction
7.6%
Services
57.6%Financial 
intermediation
6.3%
Transport, storage & 
communication
8.0%
Wholesale & 
retail trade
13.3%Education 
7.2%
Health, social & personal 
services  6.6%WT/TPR/S/ 381 • Nepal  
 
- 11 - 
 
  Estimates suggest that eight million people were affected by the earthquakes, with some US$7 billion 
in damages and losses.8  
1.4.  The national currency is the Nepali rupee (NR) which is pegged to the Indian rupee at a rate 
of 1.6. Consequently, prices in N epal are greatly influenced by inflation in India. The Nepal Rastra 
Bank (NRB), i.e. the central bank, is responsible for formulating monetary and exchange rate policy, 
and for overseeing banks and financial institutions . On 30 May 1994, Nepal accepted Article  VIII, 
Sections 2, 3 and 4, of the IMF Agreement.9 Currently, all merchandise imports (except for a few 
goods restricted for security or related reasons) are freely available through an open general license 
system, with foreign exchange provided thr ough the banking system at the market exchange rate.10 
1.5.  Nepal is a least developed country (LDC), and the Government 's vision is to graduate from this 
status by 2022 and transition to middle  income country status by 2030. To achieve these targets, 
an economi c growth rate of 7 –8% and investment in infrastructure of US$13-18 billion by 2020 is 
estimated to be required.11 The 14th Development Plan (2016/17 –2018/19) targets annual average 
growth of 7.2% and a reduction in the share of the population living in pove rty from 21.6% currently 
to 17%  by 2018 -19.12 
1.2  Recent Economic Developments  
1.6.  At the time of its previous TPR  held in 2012 , Nepal's macroeconomic performance had been 
broadly satisfactory . However , real GDP g rowth had averaged 4.2% per year during 2004-2011, 
among the lowest in the region.13 Key factors impeding higher rates of economic growth include 
supply -side constraints (notably  insufficient  energy supplies and poor infrastructure), and other 
structural impediments, such as weak institutional capacity, di fficult business climate , and political 
instability.  In August 2016, a new coalition, the ninth government in nine years, assumed power. 
Frequent changes in government have held back progress in addressing  structural constraints. 
According to the authorities, with the formation of a stable government at all levels, the focus has 
shifted from political stability to economic transformation.  
1.7.  Nepal 's eco nomy is rebounding following a slowdown caused by the 2015  earthquakes, trade 
disruptions that led to shortages of fuel and other essential goods, and lower -than-expected 
remittances due to weak growth in oil -producing host countries. Nepal's real GDP growth rate 
averaged 4.4 % during 2012-2017. According  to the I MF, the economy grew by 7.5% in 2017 (up 
from 0.4% in 2016) driven by a resurgence in investment activity, a good monsoon, an 
accommodative monetary policy, and rising government spending. For 2018, real GDP growth is 
estimated at only 5%, owing to floods that disrupted economic activity across all sectors, particularly 
agriculture  (Section 4.1.1).14  
                                                
8 Nepal Labour Market Update, ILO, January 2017.  
9 Article VIII spells out the obligation of the members in carrying out  their monetary policy. Section  2 
prohibits members from imposing restriction s on making current paym ents, and provides that governments must 
make foreign exchange available for goods, services, and invisibles ; Section 3 directs members to avoid 
discriminatory currency practices ; and Section 4 enables the convertibility of foreign held balances.   
10 The re striction on quantitative limits on foreign exchange for leisure travel was removed in 2011. The 
Industrial Enterprises Act has a 75% limit on the conversion and transfer to fore ign currency of salaries of 
non-residents from countries where convertible cur rency is in circulation. Since the limit applies to amounts that 
may be less than net salaries, it is an exchange restriction under Article VIII.  IMF Country Report No.  17/74.  
11 Office of the Investment Board online information. Viewed at: http://www.ibn.gov.np . 
12 IMF Country Report No. 17/74.  
13 WTO (2012), Trade Policy Review of Nepal , Geneva.  
14 IMF (201 8), World Economic Outlook , April, Washington, D.C.  WT/TPR/S/ 381 • Nepal  
 
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  Table 1.1 Selected economic indicators, 2012/13 -2017/18a 
 2012 -13 2013 -14 2014 -15 2015 -16 2016 -17 2017 -18b 
Real sector        
GDP per capita (US$)  708 725 766 748 866 1,004  
Real GDP growth (% change)  4.1 6.0 3.3 0.4 7.5 5.0 
Consumption expenditure (% GDP)  89.4 88.1 90.8 95.9 88.1 85.0 
Gross national savings (% GDP)  40.7 45.7 44.1 40.1 45.4 43.9 
Gross fixed capital formation (% GDP)  22.6 23.5 28.0 28.7 31.8 34.1 
Exports of goods and services (% GDP)  10.7 11.5 11.6 9.5 9.1 8.8 
Imports of goods and services (% GDP)  37.5 40.8 41.5 39.3 42.9 45.5 
Inflation (CPI average, % change)  9.9 9.1 7.2 9.9 4.5 6.0 
Money  and banking (% change)        
Broad money (M2, % change)  16.4 19.1 19.9 19.5 15.5 18.0 
Private sector credit (% change)  20.2 18.3 19.4 23.2 19.0 20.0 
Private sector credit/GDP  57.4 58.6 64.5 75.1 75.6 79.7 
Government finance        
Total revenue (NR billion)  296.8  363.6  405.9  482.1  609.2  730.0  
Total expenditure (NR billion)  358.6  435.1  531.3  601.0  837.2  1,083  
Public debt (% of GDP)  31.9 27.9 25.4 27.6 26.4 28.0 
  Foreign (% of GDP)  19.7 17.7 16.1 17.2 15.6 15.1 
External sector        
NR/US$ (period average)  88.0 98.3 99.5 106.4  106.2  103.0  
Real effective exchange ratec .. -2.8 7.7 5.9 .. .. 
Remittances (% GDP)  25.6 27.7 29.0 29.5 26.3 24.3 
Current account (%GDP)  3.4 4.6 5.1 6.2 -0.4 -6.6 
Total external debt (% GDP)  .. 18.0 15.9 16.9 .. .. 
Gross official reserves (US$ million)  .. 6,172  7,162  8,574  .. .. 
 In months of next year's imports  .. 8.3 10.4 10.1 .. .. 
..  Not available.  
a Fiscal year ends in mid -July. 
b Preliminary.  
c Average annual percentage  change ; appreciation (+), depreciation ( -). 
Source:  Ministry of Finance (201 7), Economic Survey Fiscal Year 201 7/18, Vol. I, Table Macro Economic 
Indicators; IMF Country Report No. 17/74; Central Bureau of Statistics online information: 
http://cbs.gov.np/sectoral_statistics/national_accounts/naoNepal201718 ; and information provided 
by the authorities . 
1.8.  Monetary policy  has largely remained accommodative during the review period, on the 
backdrop of s ignificant inflows of remittances. Credit to the private sector has been expanding . As a 
percentage of GDP, it went up from 57.4% in 2012 -13 to 79.7% in 2017 -18 (Table 1.1). Credit 
sector growth was the key driver of the increase in broad money (M2) during  2012-2013 to 
2015-2016. Thereafter, however, M2 growth slowed down because of reduced net foreign assets 
and lower sector credit growth.  
1.9.  The inflation rate , as measured by the consumer price index (CPI), averaged 8.1% during 
2012-2017, above India's inflation over the same period (6.4%). Nonetheless, Nepal's inflation went 
down from 9.9% in 2016 to 4.5% in 2017 (the lowest in more than a decade) as prices normalized 
following shortages of fuel and other essential goods due t o the trade disruptions in 2015-2016. 
For 2018, the IMF e stimates  an average inflation rate of 6%.15 The 14th Development Plan targets 
average inflation of 7.5% per annum. According to the IMF, this is not ambitious enough to maintain 
the currency peg, considering that India has an i nflation target of 4%.16  
1.10.   In July 2016, the NRB introduced an interest rate corridor, with specified lower and upper 
bounds. It was supported by the introduction of new instruments (two -week repos, two -
week deposit auctions, and the issuance of NRB bonds) needed to stabilize money market rates 
within the corridor.  According to the IMF, this corridor has been a positive step to strengthen ing the 
monetary policy framework , and regarding transmission which , in turn , supports the exc hange rate 
                                                
15 IMF (2017), World Economic Outlook , April, Washin gton, D.C.  
16 With inflation continuing to run 2 -3% higher than in India, the exchange rate would become 
overvalued . IMF Country Report No. 17/74.  WT/TPR/S/ 381 • Nepal  
 
- 13 - 
 
  peg by reducing the inflation wedge with India.17 Nepal has recently adopted the floor and ceiling 
rate of the interest rate corridor to reduce the volatility of interbank interest rates.  
1.11.   Despite the fact that Nepal has achieved strong growth in domestic revenues in recent years 
through strengthening tax administration, including at customs, government expenditure has 
outpaced government revenues. D ue in part to the disbursement of housing grants to 
earthquake -affected households and to a hike in government wages and pensions , government 
spending has been significantly higher than government revenue (Table 1.1), notably during 
2016-2017, with annual growth rates of 55.7% and 19.7%, respectively.  
1.12.   As a result of the wider gap between revenue and exp enditure, Nepal's overall fiscal balance, 
as percentage of GDP, went from 0.3% in FY2016 to 5.2% in FY2017. According to the IMF, to 
contain fiscal risks, and create additional space to address social and infrastructure gaps, financial 
support to state -owned enterprises (SOEs) should be phased out. In recent years, almost 2% of 
GDP was spent per annum on equity injections and loans to SOEs, including banks.18 
1.13.   Following a review of the tax system, the Government is currently drafting a new single tax 
code to implement tax policy improvements and to consolidate and harmonize main domestic taxes 
into one piece of legislation. VAT is the main contributor to government revenue with about 26% of 
the total, followed by income tax with 24% (Table 1.2).  Taxes and levi es on imports (VAT, customs, 
and excise duties) represented 59 % of total government revenue , or about 13 % of GDP , in 
2016-2017.  
Table 1.2 Structure of government revenue, 2011/12 -2016/17  
(NR billion)  
 2011 -12 2012 -13 2013 -14 2014 -15 2015 -16 2016 -17 
Value added tax  72.2 83.4 101.1  112.4  122.4  160.3  
Income tax  43.4 56.9 68.0 88.5 117.4  148.2  
Customs  52.3 66.1 78.1 74.7 82,2 113.2  
Excise duties  30.4 36.2 45.4 53.5 65.8 84.7 
Other taxes  8.0 16.6 19.9 26.9 33.3 41.1 
Non-tax revenue  37.8 36.8 44.2 49.9 60.9 61.7 
Total revenue  244.1  296.0  356.6  405.8  482.0  609.2  
Source:  Information provided by the authorities.  
1.14.   Nepal 's balance of payments  has been in surplus in recent years , with strong r emittances 
more than  offsetting declining exports of goods and services and expanding imports  (Table 1.3) . 
With a more  sound current account position and capital inflows, the NRB was able to build up gross 
reserves from NR 453.6  million in FY2012, equivalent to 8.8 months of imports, to NR 1,064.4  million 
in April 2018 (9.7 months of imports).19  
1.15.   Remittances h ave also contributed to an appreciation of the real exchange rate, which, in 
turn, has affected export competitiveness and increased the trade deficit.  Indeed, Nepal's 
merchandise trade deficit widened from NR 387.4  million in FY2012 to NR 816.6  million in the 
first nine months of FY 2017. Nepal 's current account balance , as a percentage  of GDP, moved from 
an average surplus of 4.8% over 2012 -16 to a deficit of 0.4% in 2017,  largely due to slowing 
remittances since 2016.  For 2018, the IMF expects the current account deficit to increase to 3.6 % 
of GDP.20  
                                                
17 IMF Country Report No. 17/74.  
18 IMF Country Report No. 17/74.  
19 Given  the peg to the Indian rupee, the need to absorb external shocks, and the low opportunity cost 
of holding reserves, seven  months of imports seem  adequate  to the IMF . IMF Country Report No. 17/74.  
20 IMF (2018), World Economic Outlook , April, Washington, D.C.  WT/TPR/S/ 381 • Nepal  
 
- 14 - 
 
  Table 1.3 Balance of payments, 2012/13 -2017/18a 
(US$ million)   
2012/13  2013/1 4 2014/15  2015/16  2016/17  2017/18b 
A. Current account  635 909 1,067  1,339  -94 -1,850  
 Trade balance  -5,247  -6,072  -6,670  -6,389  -8,446  -8,652  
 Exports f.o.b.  977 1,028  988 704 774 739 
 Imports f.o.b.  -6,224  -7,100  -7,658  -7,092  -9,219  -9,391  
 Services  (net) 87 214 275 92 26 -4 
  Credit  1,083  1,275  1,499  1,302  1,492  1,373  
    Travel  390 473 537 393 552 550 
 Debit  -995 -1,062  -1,224  -1,210  -1,466  -1,376  
 Income (net)  146 334 342 320 294 119 
 Credit  263 403 428 405 490 519 
 Debit  -117 -69 -86 -85 -196 -400 
 Transfers (net)  5,648  6,434  7,120  7,316  8,032  6,687  
 Credit  5,732  6,468  7,145  7,351  8,069  6,733  
 Debit  -84 -34 -26 -36 -37 -47 
B. Capital account  117 173 148 159 125 137 
C. Financial accountc  140 108 182 273 250 354 
A. + B. + C.  892 1,190  1,397  1,771  282 -1,360  
D. Miscellaneous items (net)  37 120 184 151 315 1,002 
A. + B. + C. + D.  929 1,311  1,582  1,922  597 -358 
E. Reserves and related items  -929 -1,311  -1,582  -1,922  -597 358 
 Reserve assets  -915 -1,297  -1,570  -1,923  -581 363 
 NRB -725 -1,170  -1,290  -1,632  -587 -87 
 Deposit money banks  -190 -127 -281 -291 6 451 
 Fund credit + loans  -13 -14 -12 1 -16 -5 
Changes in reserve (net)  
(- increase)  -768 -1,286  -1,437  -1,779  -777 184 
a Based on the monthly average exchange rate. The fiscal year ends in mid -July. 
b First ten  months.  
c Excluding E. (Reserves and related items).  
Source:  Data provided by the authorities.  
1.3  Developments in Trade and Investment  
1.3.1   Trends and patterns in merchandise and services trade  
1.16.   Trade (exports and imports of goods and services) accounted for 52% of GDP in FY2017 . 
Nepal  ranks 128th among world merchandise exporters , and 70th among importers (considering 
EU member States as one , and excluding intra -EU trade).21  
1.17.   During the review  period, Nepal 's export perform ance has been weak, lagging behind that of 
its peers.  Merchandise exports decreased from US$ 907.6  million in 201 1 to US$ 740.7  million in 
2017, mainly due to  the effects of the earthquakes and trade disruptions, while the appreciation of 
the real exchange r ate also affected the competitiveness of Nepalese exports. The export structure 
remains heavily concentrated in textiles, clothing, and agricultural products  which , together , 
accounted for 74.6% of total exports in 201 7, against 64.6% in 2011 ( Chart 1.2  and Table A1.1).  
Top export products are carpet, cardamom, yarn, juice, woven fabrics, black tea, jute bags, wire of 
iron, footwear and red lentils.  Also important are iron and steel, although their share in total 
merchandise exports decreased from 14.9% to 6.6% during the period , and chemicals (6.1% share 
in 2017) . 
1.18.   Merchandise exports are also highly concentrated geographically . However, the share of India , 
Nepal's single most important export market destination, decreased from 67.7% in 2011 to 56.7% 
in 2017, caused by lower growth in India. Th e European Union's participation in Nepal's total 
merchandise exports (led by Germany and the United Kingdom) averaged 11.7% during the period. 
Noteworthy is the increase in the share of Turkey in Nepal's total expor ts from 0.8% in  2011 to 
                                                
21 WTO statistics database, "Trade Profiles: Nepal ". 
Viewed  at: http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?Language=E&Country=NP . WT/TPR/S/ 381 • Nepal  
 
- 15 - 
 
  6.4% in 2017.  China and the United States also increased their share in Nepal's total merchandise 
exports  over the period (Chart 1. 3 and Table  A1.3). 
1.19.   Merchandise imports have grown considerably throughout the review period. They jum ped 
from US$5,916  million in 2011 to US$ 10,038  million in 201 7, driven by manufacturing products . 
There is considerably more balance across commodity groups in Nepal 's import structure ( Chart  1.2 
and Table A1.2). The largest categor y is machinery and trans port equipment with 24.7% share in 
2017 (18.4 in 2011), followed by food (17.6%), and fuels (15.2%). Chemical products and iron and 
steel also represent a sizeable part of Nepal's total merchandise imports .22  
1.20.   Merchandise imports are also highly concentrated geographically  (Chart 1.3 and Table  A1.4) . 
India continues to be Nepal 's largest source of merchandise imports with a 65.0 % share in 201 7, up 
from 63.4% in 2011, followed by China with 12.6% (11.7% in 2011). The participation of the 
European U nion in Nepal's total imports averaged 2.7% during the period, while that of the United 
States was 1.0%.  
 
                                                
22 Nepal's t op import pr oducts include fuel, gold, cement clinker, telephone, rice, vehicles, soybean oil, 
coal and machineries. Trade and Export Promotion Centre online information. Viewed at: http://tepc.gov.np . WT/TPR/S/ 381 • Nepal  
 
- 16 - 
 
  Chart 1.2 Product composition of merchandise trade, 2011 and 2017  
 
Source:  UNSD, Comtrade database  (SITC Rev. 3) . 
Chart 1.1  Product composition of merchandise trade, 2011 and 2017
2011 2017
Exports (f.o.b.)
Other consumer
goods  5.0%
Manufactures
73.8%
Total:  US$907.6 million Total:  US$740.7 million
Imports (c.i.f.)
Chemicals
12.1%Iron & steel
8.5%Transport 
equipment  4.7%
Manufactures
54.3%Electrical
machines  7.6%
Non-electrical 
machinery  6.0%Non-electrical 
machinery  8.5%Gold
2.6%
Electrical 
machines  7.3%Food
14.2%
Other semi -manuf.  
7.7%Transport 
equipment  8.9%
Chemicals
10.3%Manufactures
59.2%
Total:  US$5,915.9 million Total:  US$10,037.8 millionManufactures
68.3%
Textiles
33.7% Iron & steel
6.6%Textiles
32.1%
Other consumer goods
3.8%Gold
4.5%
Agriculture
16.4%Food
17.6%Clothing  
10.6%
Textiles & clothing
3.0%Other 
semi-manuf.  
4.5%Machinery & transport 
equipment  1.1%Other 
agriculture
3.8%Mining
4.3%
Source :  UNSD, Comtrade database (SITC Rev.3).Other consumer goods
4.1%
Mining
19.1%Other consumer 
goods  5.3%
Clothing
11.0%
Other 
semi-manuf.
4.1%Machinery & transport 
equipment  1.0%
Other semi -manuf.
7.2%Agriculture
19.0%Other agriculture
3.2%
Other 
agriculture
1.4%Other agriculture
2.2%
Mining
24.7%
Iron & steel
9.7%Iron & steel
15.5%Mining  1.8%
Chemicals
5.5%Chemicals  
6.1%
Textiles & clothing
4.1%
Fuels
15.2%Fuels
20.7%
Other mining
3.9%
Other mining  
4.0%Agriculture
29.9%Food
26.1%Food
18.6%
Agriculture
21.9%WT/TPR/S/ 381 • Nepal  
 
- 17 - 
 
  Chart 1.3 Direction of merchandise trade, 2011 and 2017  
 
Source:  UNSD, Comtrade database.  
1.21.   In services trade, Nepal  ranks 100th in the world (considering EU member States as one , and 
excluding intra -EU trade) , both as an exporter and an importer.23 On the back of important  tourism 
earnings, Nepal  has traditionally been a net exporter of services . However, in FY2017 a small deficit 
was registered  (Table 1. 3). 
                                                
23 WTO Statistics database, "Tra de Profiles: Nepal ". Viewed at:  
http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?Language=E&Country=NP . 
Chart 1.2  Direction of merchandise trade, 2011 and 2017
2011 2017
Exports (f.o.b.)
Total:  US$907.6 million Total:  US$740.7 million
Imports (c.i.f.)
Other 
6.9%
China
11.7%EU-28  2.3%
United Arab 
Emirates  5.6%EU-28  3.4%
China
12.6%
Total:  US$5,915.9 million Total:  US$10,037.8 millionU.A.E.  1.7%United States
7.7%Other Asia
8.1%
United States
11.2%Other 
3.8%
Source :  UNSD, Comtrade database.India
65.0%EU-28
13.3%
Asia
85.5%Asia
85.3%India
63.4%
Other
9.4%Other Asia
8.0%EU-28
12.0%Other
4.4%India  
67.7% India
56.7%
Other Asia
5.7%
Other Asia   
10.2%Asia
65.4%Asia
75.8%
Turkey
6.4%China
3.0%WT/TPR/S/ 381 • Nepal  
 
- 18 - 
 
  1.3.2   Trends and patterns in FDI 
1.22.   During the review period, Nepal took measures to attract larger foreign direct investment 
(FDI) inflows and improve the business climate , including through the enactment of the Foreign 
Investment Policy 2014,  the Industrial Enterprise Act 2016 , and the  Labour Act 2017. Nepal grants 
equal treatment to foreign and domestic investors , allowing 100% foreign investment except for a 
negative list of 21 industries  (Section 2. 4). Moreover, under the Nepal Trade Integration Strategy 
(NTIS)  2016, FDI is especially encouraged in 19 economic activities identified as strategic 
(Table  2.2). 
1.23.   Nepal ranks 105th among 190 economies, and is the third most competitive economy in South 
Asia after India and Bhutan,  according to the World Bank's Ease of Doing  Business 2018 report . It 
improved from 107th in 2011 but is well below the record best of 94th in 2014. According to the World 
Bank, some of the most problematic areas for doing business are dealing with construction permits, 
enforcing contracts, paying t axes, getting electricity and starting a business.24  
1.24.   Nepal 's potential for attracting foreign investors and fostering domestic investment remains 
largely untapped. Its FDI inflows averaged US$ 92 million per year during 2012 -2017, reaching 
US$198  million in  2017 (Table 1. 4). FDI inward stock represented 6.9% of GDP in 2017, still among 
the lowest in the region. According to external sources, private investment, local and foreign, has 
been inhibited by several factors, notably government instability, ineffici ent government 
bureaucracy, inadequate infrastructure, and restrictive labour regulations .25  
Table 1.4 FDI, 2012 -17 
(US$ million)  
 2012  2013  2014  2015  2016  2017  
FDI inflows  92 71 30 52 106 198 
FDI inward stock 759 951 769 1,007  1,343  1,608  
FDI inward stock (% of GDP)  4.0 4.9 4.7 4.7 6.3 6.9 
Source:  UNCTAD (201 8), World Investment Report 201 8, Geneva.  
1.25.   According to a survey report on FDI in Nepal26, by mid -July 2016, the services sector (led by 
transport, storage and communication and financial intermediation) accounted for the highest share 
of total FDI stock, with 70.2% (Table 1.5), followed by manufacturing, mining and quarrying 
(15.1%), and electricity, gas and water (13.9%). The West Indies is the larg est source of total FDI 
stock, with 45.6%, while India and China are the most important single countries investing in Nepal 
with 19.8% and 7.9% of the total, respectively (Table 1.6).  
Table 1.5 FDI stock by se ctor, mid -July 2016  
(NR million)  
Sector  Paid-up Reserves  Foreign loans  Total  Share (%)  
Agriculture  395.2  0.0 0.0 395.2  0.3 
Construction  288.8  337.9  0.0 626.7  0.5 
Electricity, gas and water  10,930.9  6,854.9  1,391.6  19,177.5  13.9 
Manufacturing, mining and quarrying  7,7769.7  12,710.0  333.7  20,813.5  15.1 
Education  137.9  0.0 0.0 137.9  0.1 
Services  22,190.5  71,048.0  3,427.0  96,665.5  70.2 
   Financial intermediation  14,048.1  10,006.8  0.0 24,055.0  17.5 
   Hotels and restaurants  3,300.3  -325.2  0.0 2,975.1  2.2 
   Real estate activities  686.4  210.9  0.0 897.4  0.7 
   Transport, storage and communication  2,006.5  60,533.1  2,134.6  64,597.2  46.9 
   Other services  2,011.3  622.4  1,292.4  3,926.0  2.9 
Total  41,575.2  90,950.9  5,152.3  137,678.4  100.0  
Source:  NRB (2018), A Survey on Foreign Direct Investment in Nepal , Kathmandu.  
                                                
24 World Bank online information. Viewed at:  
http://www.doingbusiness.org/data/exploreeconomies/nepal . 
25 World Economic Forum online information. Viewed at: http://www3.weforum.org/docs/GCR2017 -
2018/05FullReport/TheGlobalCompetitivenessReport2017%E2%80%932018.pdf . 
26 NRB (2018), A Survey on F oreign Direct Investment in Nepal , Kathmandu.  WT/TPR/S/ 381 • Nepal  
 
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  Table 1.6 FDI stock by source, mid -July 2016  
(NRs million)  
Region/country  Paid-up Reserves  Foreign loans  Total  Share (%)  
West Indies  80.0 62,699.7  0.0 62,779.7  45.6 
India 11,228.8  14,432.0  1,593.3  27,254.1  19.8 
China  7,301.3  2,565.1  977.7  10,844.1  7.9 
Singapore  3,464.8  3,670.1  0.0 7,134.9  5.2 
Ireland  3,100.5  2,704.8  0.0 5,805.3  4.2 
Australia  1,934.2  1,897.3  0.0 3,831.6  2.8 
Korea, Republic of  2,811.4  18.0 75.3 2,904.6  2.1 
Bangladesh  1,662.6  847.3  0.0 2,509.9  1.8 
United Kingdom  1,162.2  1,168.6  0.0 2,330.8  1.7 
United States  1,151.5  1,129.4  46.7 2,327.6  1.7 
Other countries  7,677.9  -181.4  2,459,3  9,955.7  7.2 
Total  41,575.2  90,950.9  5,152.3  137,678.4  100.0  
Source:  NRB (2018), A Survey on Foreign Direct Investment in Nepal , Kathmandu.  
 WT/TPR/S/ 381 • Nepal  
 
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  2  TRADE AND INVESTMENT  REGIMES  
2.1.  Since its first TPR in 2012, Nepal has gone through major transformations in institutional and 
regulatory reform initiatives, including the Constitution, promulgated in 2015, which replaced the 
Interim Constitution of 2007. Concerning trade policy, it updated its trade policy in 2015, and the 
Nepal Trade Integration Strategy (NTIS) in 2016. During the review period, it ratified the Trade 
Facilitation Agreement (TFA), and the protocol amending the TRIPS agreement. Strengthening 
regional economic integration also continued, through the implementation and/or negotiation of 
regional trade agreements (RTAs). In addition, i t has taken several initiatives to encourage foreign 
direct investment (FDI).  
2.1  General Framework  
2.2.  The new Constitution was promulgated on 20 September 2015 through the second Constituent 
Assembly , and replaced the Interim Constitution which had been adopted on 15 January 2007. It is 
based on the principles of republicanism, federalism, secularism, and inclusiveness , and provides for 
a federal form of government at three levels: federal; provincial;  and local. There are seven 
provinc ial and 753 local governments . In implementing the Constitution, elections at these three 
levels were completed in December 2017 , and a new Government was formed.  
2.3.  As provided for in the Constitution, the President is the  head of State1, and the Prime Minister 
is the head of Government. Executive power is exercised by the Prime Minister and the Council of 
Ministers2. At the federal level, legislative power rests with the P arliament , which consists of  the 
House of Represent atives, and the National Assembly. The House of Representatives is made up of 
275 members , of which 165 are elected by a first -past-the-post system and 110 by each party based 
on its proportional representation  in the total vote . The National Assembly has 59 members , of which 
3 are nominated by the President , based on a recommendation from the Government, and the 
remaining 56 are elected from the seven provinces: eight from each province, which must include 
three females , one Dalit , and one from minorities or persons with disabilities .3   
2.4.  Legislative power at the federal, provincial, and local levels is set out in the Constitution. Most 
policies, including trade policy, are formulated and implemented at the federal level through acts of 
Parliament. In genera l, a draft act (bill or bidayak ) is presented by the Government to the Parliament 
for debate and adoption. If approved by Parliament, the bill is sent to the President for assent.  
2.5.  In terms of legal hierarchy, the Constitution is followed by Parliamentary acts and implementing 
legislation (such as rules, regulations, and governmental or administrative notifications, circulars 
and directives ). Under the Nepal Treaties Act, 1990, in case of divergence between the provisions 
of law and provisions of an interna tional treaty ratified by Parliament, the provision s of the treaty 
shall apply to the extent of the divergence .  
2.6.  According to the Constitution, Nepal's judiciary is  independent from the executive and 
legislative branches  of the Government . Under the Consti tution, the President appoints the Chief 
Justice  and other Supreme Court judges on the recommendation of the Constitutional Council  for 
Chief Justice , and of the Judicial Council  for other Supreme Court j udges. The Supreme Court has 
appellate jurisdiction over district and high court decisions, and is also the court of record.4  
2.2  Trade Policy Formulation and Objectives  
2.7.  According to the Constitution, the number of federal government ministries may not exceed 
25. Therefore, there have been several changes to t he system of administration and institutional 
                                                
1 The term of the President is five years , and t he President is elected by an electoral college composed of 
the members of the Federal Parliament and of the State Assemblies. The voting weightage of the members of 
the Federal Parliament and of the State Assemblies shall vary, as provided for in the federal law . 
2 The P resident appoint s the leader of a parliamentary party that commands majority in the House of 
Representatives as the Prime Minister, and the Council of Ministers is constituted under his /her chairpersonship.  
3 The Constitution of Nepal – Part 8.  
4 There are  three level s of courts – Supreme Court, High Court and Dis trict Court. In addition to these , 
the Constitution envisioned that judicial bodies may be formed at the local level to try cases under law , or other 
bodies may be formed , as required , to pursue al ternative dispute settlement methods.    WT/TPR/S/ 381 • Nepal  
 
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  arrangements to comply with this requirement. As of end -August 2018,  the ministries were as set 
out as in Box 2.1.  
 Box 2.1 List of ministries as of August 2018  
Office of the Prime Minister and Council of Ministers   
Defense  Health and Population  
Home Affairs  Foreign Affairs  
Energy, Water Resources and Irrigation  Education, Science and Technology  
Industry, Commerce and Supplies  Physical Infrastructure and Transportation  
Labor, Employment and Social Protection  Forest and Environment  
Federal Affairs and General Administration  Women, Children and Senior Citizens  
Finance  Youth and Sports  
Culture, Tourism and Civil Aviation  Law, Justice and Parliamentary Affairs  
Agriculture and Livestock Development  Water Supply  
Urban Development  Communication and Information Technology  
Land Management, Cooperatives and Poverty Alleviation   
Source:  Government online information. Viewed at: https://www.nepal.gov.np/NationalPortal/view -
page?id=157  [August 2018].  
(i) Trade policy  
2.8.  The Ministry of Industry, Commerce an d Supplies5 is the principal ministry responsible for 
formulating, implementing and monitoring policies, plans and programmes related to international 
trade, industrial development and investment.6 It is also the focal point for negotiations and the 
administration of trade agreements , and serves as a National Enquiry Point (NEP) for Trade  in 
Services. It also coordinates "aid for trade" initiatives, including the Enhanced Integrated Framework 
(EIF); and it takes the lead in developing trade -related legislation, in coordination with other relevant 
ministries and government agencies. In its role as having primary responsibility for international 
trade, an interagency coordination mechanism has been devised for dealing with issues related to 
international trade ( Chart 2.1 ).  
2.9.  While the Ministry of Industry, Commerce and Supplies is responsible for most aspects of trade 
policy, the Ministry of Finance is responsible for setting tariffs, which are assessed and collected by 
the Customs Department of that Ministry. Tariffs are set for each fiscal year (FY) through the Budget 
and Finance Act ( Arthik Bidhiyek ). 
                                                
5 The Ministry has gone through several splitting and merging exercises; three separate ministries 
(Industry, Commerce and Supplies) were merged into one in 2002. In 2008, it was divided into two: one being 
the Minis try of Industry; and the other the Ministry of Commerce and Supplies. The latter was further divided 
into two in 2015: the Ministry of Commerce and the Ministry of Supplies. In April 2018, these three ministries 
were again merged into one, the Ministry of Industry, Commerce and Supplies.    
6 Ministry of Industry, Commerce and Supplies online information. Viewed at: 
http://moc.gov.np/content.php?id=398  [August 2018].  WT/TPR/S/ 381 • Nepal  
 
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  Chart 2.1 Interagency coordination mechanism for international trade  
 
Source:  Based on i nformation provided by the authori ties. 
2.10.   The Chair of the Board of Trade (BOT) is the Minister of Industry, Commerce and Supplies , 
while the other members7 include representatives from the public and private sectors as well as 
academics . The Board aims to coordinate the implementation of the trade policy, and give s advice 
on current policy and recommendations on  future policy to the Government. The BOT is supported 
by subsidiary committees chaired by the Secretary of the Ministry of Industry, Commerce and 
Supplies . Sectoral focal points are designated by the responsible ministries and agencies (including 
the Nepal Rastra Bank  (NRB) ) to deal with WTO -related issues. Private sector representatives 
participate in different committees. Under the Ministry of Industry, Commerce and Supplies , a Trade 
and Export Promotion Centre (TEPC) has been established as the national trade promotion agency , 
with the objective of promoting foreign trade in general , and export s in particular.  
(ii) Main trade laws  
2.11.   The principal legislation relating to trade is set out in  Table 2.1 . In addition to these laws, the 
authorities noted t hat a bill on foreign investment has been prepared by the Ministry of Industry, 
Commerce and Supplies, and the first National Intellectual Property Policy was released.  
Table 2.1 Main trade -related legislation  
Issues  
Customs  Customs Act , 2007  
 Customs Rules , 2007 
Export and import licensing  Export and Import Control Act , 1957 ( as amended in 2006)  
 Export and Import Rules , 1978  
Technical barriers to trade  Nepal Standards  (Certification Mark) Act , 1980 (as amended)  
 Nepal Standards (Certification Mark) Regulations , 1982 (as 
amended)  
 Drugs Act,  1978 (as amended in 2000)  
 Drug Registration Rules , 1981 (as amended in 2001)  
Sanitary and phytosanitary measures  Nepal Seeds Act, 1988 
 Seeds Regulation, 1997 
 Plant Protection Act , 2007 
 Plants Protection Rules, 2010 
 Food Act, 1966 
 Food Regulation, 1970  
 Feed Act (Animal Concentrate s), 1976 
Animal Health and Livestock Services Act , 1998  
Competition policies  Competition Promotion and Market Protection Act , 2007 
Competition Promotion and Market Protection Regulation , 2007  
 Consumer Protection Act , 1998  
Consumer Protection Regulation , 2000  
Privatization  Privatization Act, 1993 
Investment regime  Foreign Investment and Technology Transfer Act , 1992 (as 
amended)  
 Industrial Enterprises Act , 2016 
Government procurement  Public Procurement Act , 2007  
 Public Procurement Rules , 2007  
                                                
7 Members from the Department of Comme rce, the TEPC, Nepal Transit and Warehousing Company Ltd., 
the Federation of Nepalese Chambers of Commerce and Industries, the Confederation of Nepalese Industries, 
the Nepal Chamber of Commerce, the Federation of Nepal Cottage and Small Industries, and the Federation of 
Nepal Gold and Silver Dealers Association.    
WT/TPR/S/ 381 • Nepal  
 
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  Issues  
Trade -related intellectual property 
rights  Patent, Design and Trade Mark Act , 1965  
 Copyright Act , 2002  
 Copyright Regulations , 2004  
Source:  Information provided by the authorit ies. 
(iii) Policy objectives  
2.12.   The key policy objectives for development are set out in periodic development plans. The 
objectives in the current Plan, the fourteenth, remain largely unchanged, with the basic aims of 
poverty reduction and improving overall living standards. It aims to achieve socio -economic 
transformation by reducing poverty through employment -orientated economic growth.8  
2.13.   Under the Plan, trade is recognized as an important factor towards achieving the objective of 
long-term inclusive and sustainable growth , which is also emphasized in the NTIS 2 016.9 In addition, 
the Trade Policy 2015 includes outward -looking strategies , which emphasize export promotion. The 
objective of the Trade Policy is to reduce the trade deficit by enhancing the supply side capacity, 
and to enhance access of goods, services  and intellectual property to regional and world markets. It 
also aims to complement other policies, including the NTIS, and to implement WTO decisions.10  
2.14.   In 2002, at the request of the Government, the World Bank carried out Nepal's first Diagnostic 
Trade Integration Studies (DTIS) on behalf of the Integrated Framework Working Group, which was 
finalized as the Nepal Trade and Competitiveness Study  (NTCS) examined the trade regime and its 
performance, and identified products with comparative and competitive advantages.11 An updated 
version of the NTCS 2004, the NTIS was published in 2010 by the then Ministry of Commerce and 
Supplies, and focused on the development of 12 goods and 7 services areas for making trade 
inclusive and equitable , and contributing to the poverty reduction goal adopted by the Government.12  
2.15.   According to the authorities, despite plans, reforms and other measures, Nepal' s trade 
performance over the past decade was not satisfactory , as the trade in goods deficit continu ed to 
increase , mainly due to supply -side constraints, low investment, inadequate trade infrastructure , 
and inadequate trade facilitation measures. Therefore, NTIS 2010 was updated in 2016 (NTIS 2016) . 
This is now Nepal's third -generation trade integration  strategy , and it aims to address trade and 
competitiveness challenges in the export sector.13 
2.16.   NTIS 2016 also provides the foundation for the implementation of Trade Policy  2015, through 
enhancing export competitiveness by addressing cross -cutting issues, a nd improving value chain 
development for priority products. It i ncludes  actions and measures in 19 strategic areas, covering 
7 cross-cutting and 12 product -specific sub -sectors , as well as SWOT analyses for priorit y products, 
export targets and the identif ication of responsible agencies.  
                                                
8 National Planning Commission (2017), 14th Plan (FY 2073 -74 to 2075/76) , February. Viewed at: 
https://www.npc.gov.np/en/category /periodic_plans  [August 2018].  
9 Ministry of Industry, Commerce and Supplies ( 2016), National Trade Integration Strategy 2016 (NTIS 
2016) , Kathmandu. Viewed at: http://www.moc.gov.np/downloadfile/NTIS%202016_1492763963.pdf  [August 
2018].  
10 Ministry of Industry, Commerce and Supplies ( 2016), Trade Policy 2072 , Kathmandu. Viewed at:  
http://www.moc.gov.n p/downloadsdetail.php?id=23  (Nepalese) [August 2018].     
11 EIF (2003), Nepal – Trade and Competitiveness Study , 22 October. Viewed at: 
https://w ww.enhancedif.org/en/system/files/uploads/nepal_dtis_2003.pdf?file=1&type=node&id=2857  
[August 2018].  
12 Ministry of Commerce and Supplies (2010), National Trade Integration Strategy 2010 , Kathmandu . 
Viewed at: http://eifnepal.gov.np/publication/f51e0NTIS%202010%20exe%20sum%20160610.pdf  [August 
2018].  
13 Ministry of Commerce (2016), National Trade Integration Strategy 2016 , Kathmandu. Viewed at: 
http://www.moc.gov.np/downloadfile/NTIS%202016_1492763963.pdf  [August 2018].  WT/TPR/S/ 381 • Nepal  
 
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  Table 2.2 Strategic areas identified in NTIS 2016  
Category  Strategic areas  
Cross -cutting (7)  (i) Trade capacity, including trade negotiation s 
 (ii) Trade and investment environment  
 (iii) Trade and transport facilitation  
 (iv) Standards and technical regulations  
 (v) Sanitary and phytosanitary standards  
 (vi) Intellectual property rights 
 (vii) Trade in services  
Agro-based (4)  (viii) Large cardamom  
 (ix) Ginger  
 (x) Tea 
 (xi) Medicinal and aromatic plants (MAPs)  
Craft and manufacturing (5)  (xii) All fabrics, textile, yarn and ropes 
 (xiii) Leather  
 (xiv) Footwear  
 (xv) Chyangra Pashmina  
 (xvi) Knotted carpets  
Services (3)  (xvii) Skilled and semi-skilled professionals in various categories  
 (xviii)  IT services and Business Process Outsourcing ( BPO)  
 (xix) Tourism  
Source:  NTIS 2016 . 
2.17.   NTIS 2016 identified 190 actions  to be implemented by 2020 , with the focus on : improving 
supply capacity through increased  production and productivity; product and value chain 
development; development of trade -related infrastructure to address supply -side constraints ; and 
enhanced market access in terms of both technical and institutional capacity building.  The four main 
objectives  are:  
(i) Strengthen the trade - and export -enabling environment;  
(ii) Focus on product development and strengthen the supply -side capacity of priority 
products ;  
(iii) Strengthen institutional capacity, trade negotiation and inter -agency coordination ; and  
(iv) Build and enhance trade -related infrastructure.  
2.18.   With the review of NTIS 2010 and its implementation experiences, NTIS 2016 has pointed out 
several challenges to be addressed to achieve targeted goals  for the development of the export 
sectors :  
(i) The a doption of key legal and regulatory reforms to create a trade and investment 
enabling environment remains slow ;  
(ii) The transportation and energy infrastructure remain a constraint, particularly as 
Nepal is a landlocked country;  
(iii) Non-tariff measures have been serious bo ttlenecks for the access of Nepalese 
products into foreign markets;  
(iv) Inadequate legal framework to protect intellectual property rights;  
(v) Nepal lacks clear, well -coordinated, and institutionalized value -chains to maximize 
value addition in potential export  sectors;  
(vi) Nepal lacks sufficient investment in modern technologies for products and services 
with export potential ; attracting foreign investment to expand the manufacturing 
base and technology transfer to ensure quality products remain s an additional 
challenge to trade sector developmen t;  
(vii)  Exported commodities are mainly unprocessed goods;  WT/TPR/S/ 381 • Nepal  
 
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  (viii)  Shortage of semi -skilled labour14;  
(ix) Service sectors lack a focus on international trade;  
(x) Coordination amongst line agencies remains weak; and  
(xi) Technical and financial support from donors ha s not focused exclusively on areas of 
trade -related infrastructure and capacity development.  
2.19.   The EIF has been providing institutional capacity building and catalytic investment to support 
the M inistry of Industry, Commerce and Supplie s and line ministries in implementing the NTIS, in 
collaboration with other development partners, the private sector and local stakeholders. In FY 2017-
18, the Government allocated about US$4 million to support the implementation of NTIS, double the 
amount  of the previous year . According to OECD Credit Reporting System ( CRS) data, Nepal received 
US$278.8 million in 2016 in aid for trade.15  
2.3  Trade Agreements and Arrangements  
2.3.1   WTO  
2.20.   Nepal has  been a WTO Member since 23 April 2004 when it became the first least  developed 
country  (LDC)  to join the WTO through the full working party negotiation process. As an LDC, it is a 
beneficiary of the special and differential treatment provisions applicable to the LDCs under WTO 
agreements. It actively participates in the WTO, including as an LDC and on behalf of LDCs - including 
through its role as Coordinator of the LDC group in the WTO in 2013 and during the Ministerial 
Conference in Bali.   
2.21.   According to the authorities, Nepal is a strong be liever in, and supporter of, a rules -based, 
transparent, and non -discriminatory multilateral trading system. It is of the view that international 
support mechanisms like Aid for Trade should leverage their efforts with other donor partners to 
strengthen th e technical, regulatory, institutional and infrastructural capacities of LDCs.16 
2.22.   During the review period, Nepal ratified the TFA on 24 January 2017, and the protocol 
amending the TRIPS agreement on 11 March 2016. It accords at least MFN treatment to all it s 
trading partners, including for non -WTO Members. As of August 2018, it had not been involved in 
any cases under the WTO dispute settlement mechanism.  
2.23.   Since 2012 , Nepal has made efforts to fulfil its notifications obligations to the WTO , including 
the not ification of category 'A' commitments under the TFA. The most recent notifications (2012 -18) 
on the different legal provisions are shown in Table 2.3. However, there are still outstanding 
notifications to be notified to the different committees, some of wh ich are listed in Table A2.1 . The 
authorities stated that several notifications are in the final stage s of preparation before being  
submitted to the corresponding bodies of the WTO.   
Table 2.3 Selected notific ations to the WTO, January 2012 – August 2018  
Legal provision  Description of 
requirement  Frequency  WTO document  
Agreement on Agriculture  
Articles 10 and 18.2  Export subsidies 
(Table  ES:1)  Annual  GFYAG/N/NPL/3, 2 October 2012  
(for calendar years 2010 and 
2011)  
                                                
14 Exports of remittance -generating services are valued for their significant contribution to poverty 
reduction. However, it has also been stated that the sector has created domestic labo ur shortages, 
especially shortages of semi -skilled human resources.  
15 OECD QWIDS online database for aid for the following sectors: transport and storage; communications, 
energy, banking and financial services; business and other services; agriculture; forestry; fishing; industry; 
mineral resources and mining; trade policies and regulations; and tourism. Viewed at: 
http://www.oecd.org/dac/stats/idsonline.htm  [August 2018].  
16 Statement by the Minister for Commerce at the 11th WTO Ministerial Conference, 12 December 2017. 
Viewed at https://www.wto.org/english/thewto_e/minist_e/mc11_e/statements_e/npl_e.pdf  [September 2018].  WT/TPR/S/ 381 • Nepal  
 
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  Legal provision  Description of 
requirement  Frequency  WTO document  
Article 18.2  Domestic support 
commitments 
(Table  DS:1)  Annual  G/AG/N/NPL/4, 3 October 2012  
(for calendar year s 2010 and 
2011) 
General Agreement on Trade in Services  
Article III:3  Measures that 
significantly affect trade 
in services  Ad hoc  S/C/N/647, 17 September 2012  
S/C/N/648, 17 September 2012  
S/C/N/649, 17 September 2012  
S/C/N/650, 17 September 2012  
Article III:4 and/or IV:2  Contact and enquiry 
points  Once, then 
changes  S/ENQ/78/Rev.16, 22 April 2016  
Agreement on Implementation of Article VI of the GATT 1994 (Anti -Dumping Agreement)  
Article 18.5  New or changes to laws 
or regulations relevant to 
the Agreement and the 
administration of such 
laws and regulations  Ad hoc  G/ADP/N/1/NPL/1, 8 August 2012  
Agreement on Implementation of Article VII of the GATT 1994 (Customs Valuation Agreement)  
Article 22  New or changes to laws 
or regulations relevant to 
the Agreement and the 
administration of such 
laws and regulations  Ad hoc  G/VAL/N/1/NPL/1, 30 June 2015  
Agreement on Trade Facilitation  
Articles 15 and 16  Notification of category A 
commitments   G/TFA/N/NPL/1, 16 February 2018  
WT/PCTF/N/NPL/1, 27 October 
2015 
Agreement on Rules of Origin  
Article 5 and paragraph 4 
of Annex II  Non-preferential and 
preferential rules of 
origin   G/RO/N/165, 3 April 2018  
Agreement on Import Licensing Procedures  
Article 1.4(a), 5, 7.3 
and/or 8.2(b)  Questionnaire  Annual  G/LIC/N/3/NPL/1, 3  October 2012  
G/LIC/N/3/NPL/2, 14  April 2015  
Agreement on Subsidies and Countervailing Measures  
Articles 25.11 and 25.12  Countervailing duty 
actions  Ad hoc  G/SCM/N/202/NPL, 8  August 2012  
Article 32.6  Laws and regulations  Ad hoc  G/SCM/N/1/NPL/1, 8  August 2012  
Agreement on Trade -Related Aspects of Intellectual Property Rights  
Article 69  Laws and regulations  Contact 
points  IP/N/3/NPL/1  
22 January 2015  
Agreement on Safeguards  
Article 12.6  Legislation  Ad hoc  G/SG/N/1/NPL/1, 7 August 2012  
Agreement on the Application of Sanitary and Phytosanitary Measures  
Article 7 and Annex B, 
paragraph 5  Proposed and adopted 
SPS regulations  Ad hoc  Several notifications  
(series G/SPS/N/NPL)  
Agreement on Technical Barriers to Trade  
Articles 2.9 and 15.2  Proposed and adopted 
technical regulations and 
conformity assessment 
procedures  Prior to or, 
for urgent  
problems, 
immediately 
after the 
measure is 
taken  Several notifications  
(series G/TBT/N/NPL)  
Source:  WTO Secretariat.  
2.3.2   Regional and preferential agreements  
2.24.   Nepal continues to participate in two overlapping regional agreements: the South Asian Free 
Tree Area (SAFTA) and the Bay of Bengal Initiative for Multi -Sectoral Technical and Economic 
Cooperation (BIMSTEC); and in 17 bilateral agreements. Nepal's international trade (in goods) is 
mainly concentrated with reciprocal RTA parties , which represented 67% of its imports and 58% of 
its exports (Chart 2.2) ; practically all this trade is with India,  which represented 65% and 57% of 
Nepal's imports and exports , respectively , in 2017.   WT/TPR/S/ 381 • Nepal  
 
- 27 - 
 
  Chart 2.2 Nepal's imports and exports amongst RTA partners , 2017  
 
 
 
 
Source:  UNSD, Comtrade database . 
2.3.2.1   South Asian Free Trade Area (SAFTA) and South Asian Association for Regional 
Cooperation (SAARC ) Agreement on Trade in Services (SATIS)  
2.25.   The South Asian Association for Regional Cooperation (SAARC) was founded in 1985 ; Nepal 
has been  an active member since its inception and hosts its Secretariat in Kathmandu. In order to 
deepen  trade cooperation amongst the SAARC memberships,17 the SAFTA was signed in Janua ry 
2004 and has been implemented and started tariff liberalization effective from July 2006 (for 
Nepal) .18  
2.26.   As a successor to the South Asian Preferential Trade Arrangement (SAPTA)19, the SAFTA was 
revived to reach a higher level of integration of trade in t he region , by recognizing the varying levels 
of development of its members. It provides the basis for trade liberalization programmes for LDCs 
and non -LDCs separately , in terms of tariff reductions and inclusion of products in the sensitive list. 
As an LDC , Nepal benefits from special and differential treatment accorded to LDCs under the 
Arrangement,  while offering similar benefits to other LDCs (i.e. Afghanistan, Bangladesh, and 
Bhutan). Each SAFTA member maintains a list of exceptions (Sensitive List) , and Nepal's original list 
contained 1,295 tariff lines at the HS eight-digit level for non -LDCs, and 1,257 tariff lines for LDCs. 
At the Sixth Meeting of the SAFTA Ministerial Council (SMC) in 2012, an initiative to reduce the 
number of products on the se nsitive lists by 20% was undertaken ; this was implemented by Nepal 
in 2014  through a Financial Ordinance . As a result, Nepal currently has 1,036 tariff lines for non-
LDCs and 998 tariff lines for LDCs on its revised Sensitive List.20  
2.27.   Under the SAFTA, Nepal  provides lower duties or a margin of preference on over 2,837 tariff 
lines for non -LDCs, and an additional 37 lines for LDCs, with a preference margin of 2.2 percentage 
                                                
17 The original seven members were Bangladesh, Bhutan, Maldives, Nepal, India, Pakistan, and Sri 
Lanka. Afghanistan joined the SAARC in 2005, and acceded to S AFTA on 7  August  2011. Viewed at 
http://saarc -sec.org/  [August 2018].  
18 WTO document WT/COMTD/N/26, 21 April 2008 . 
19 The SAPTA was signed in 1993 (Nepal was the first part y to ratify it) to promote and sustain mutual 
trade and economic cooperation among the member states through the exchange of trade concessions. It was 
agreed that the SAPTA would be a first step to higher levels of trade liberalization and economic cooperation 
among the members. In 1997, SAARC members reiterated their commitment to the creation of the SAFTA not 
later than 2005. Four rounds of trade liberalization were c ompleted within the SAPTA , covering over 5,000  tariff 
subheadings. Each round contributed to increased product coverage and deeper tariff concessions . 
20 SAARC online information. Viewed at: http://saarc -
sec.org/areas_of_cooperation/area_detail/economic -trade-and-finance/click -for-details_7  [August 2018].  
Imports Exports67%
58%33%
42%Rest of the World
RTA Partners
Source:    UNSD, Comtrade database.Chart 2.2  Nepal's imports and exports amongst RTA partners, 2017WT/TPR/S/ 381 • Nepal  
 
- 28 - 
 
  points vis-à-vis the prevailing MFN tariffs in agriculture products (WTO definition) a nd 2.9 percentage 
points (3 percentage points for LDCs) in non -agriculture products (Section 3.1.3.4) . Despite the fact 
that Nepal has been engaging actively in negotiations in the SAFTA in order to benefit from the 
preferential market access in the region , there is not much evidence of any increase in export 
volumes under the agreement. Neither Nepal nor Bhutan recorded exports under the SAFTA until 
2013.21 One reason for this may be because Nepal's exports are mainly to India,  with which it has a 
separate bilateral agreement.  
2.28.   In addition, SAARC members have been undertaking initiatives to cooperate in other areas , 
such as harmonization of customs procedures, standards, double taxation, and trade in services. At 
the Sixteenth SAARC Summit in 2010, the SATIS  was signed ; it was subsequently ratified by all 
members states and entered into force on 29 November 2012. As noted by the Eleventh Meeting of 
the Expert Group , held in Islamabad on 5 July 2015, Nepal was in a position to provide the final 
offers list22, and the authorities stated that Nepal has submitted its final offer to the SAARC 
Secretariat.  
2.3.2.2   Bay of Bengal Initiative for Multi -Sectoral Technical and Economic Cooperation 
(BIMSTEC)  
2.29.   In 2004, Nepal, along with Bhutan, joined the agreement now known as the B ay of Bengal 
Initiative for Multi -Sectoral Technical and Economic Cooperation (BIMSTEC).23 Also in 2004, all 
BIMSTEC members agreed to establish the Framework Agreement on BIMSTEC Free Trade Area. The 
aim of the Framework Agreement is to stimulate trade and  investment among  the parties , and to 
attract trade and investment from outside. A Trade Negotiating Committee (TNC) was set  up to 
negotiate on trade in goods and services, investment, trade facilitation and technical assistance for 
LDCs in BIMSTEC.24 After 20 rounds of the TNC, four agreements were reported to be in the final 
stages of negotiation and three  agreements are under negotiation.  
2.30.   Tariff reductions/elimination are to be implemented under a "fast track" or a "normal track", 
depending on wheth er the country granting the preference is a developing country or an LDC, and 
whether the country getting the preference is a developing country or an LDC ( Table 2.4 ). Due to 
the impact of the 2015 earthquakes and the adoption of the new Constitution, Nepal was granted 
an additional year for both the commencement and the completion of the time -frame.  
Table 2.4 BIMSTEC, fast and normal tracks for trade liberalization  
Countries  India, Sri Lanka, and Thailand  Bangladesh, Bhutan, Myanmar, 
and Nepal  
Fast track:    
India, Sri Lanka, and Thailand  1 July 2016 to 30 June 2019  1 July 2016 to 30 June 2017  
Bangladesh, Bhutan, Myanmar, 
and Nepal  1 July 2016 to 30 June 2021  1 July 2016 to 30 June 2019  
Normal track:    
India, Sri Lanka, and Thailand  1 July 2017 to 30 June 2022  1 July 2017 to 30 June 2020  
Bangladesh, Bhutan, Myanmar, 
and Nepal  1 July 2017 to 30 June 2027  1 July 2017 to 30 June 2025  
Source:  Report of the 20th Meeting of the BIMSTEC TNC.  
                                                
21 SAARC Secretariat (2014), Note by the SAARC Secretariat on Current Status of Economi c and Financial 
Cooperation under the Framework of SAARC ( as o n September 2014) . Viewed at 
http://www.unescap.org/sites/default/files/SAARC%20ROC -TF.pdf  [August 2018].  
22 Afgha nistan, Bangladesh, Bhutan, India and Nepal were ready with their Final Offer Lists in the Expert 
Group meeting held in Islamabad on 5 July 2015. Subsequently, Maldives and Sri Lanka also came up with their 
Final Offer Lists under the SATIS. SAARC online i nformation. Viewed at: http://saarc -
sec.org/areas_of_cooperation/area_detail/economic -trade-and-finance/click -for-details_7  [August 2018].  
23 On 6 June  1997, Bangladesh , India, Sri Lanka and Thailand  founded a regional grouping   named BIST -
EC. Myanmar subsequently joined in 1997, and the organization was renamed BIMST -EC. Nepal and Bhutan 
joined the organization in Feb ruary  2004, and the organization was  renamed BIMSTEC . It is seen to bridge the 
gap between the South and South East Asian countries, as its members participate in different overlapping 
agreements (e.g. SAARC, ASEAN and SASEC). BIMSTEC online information. Viewed at: 
https://bimstec.org/?page_id=189  [August 2018].  
24 BIMSTEC online information. Viewed at : https://bimstec.org/?page_id=205  [August 2018].  WT/TPR/S/ 381 • Nepal  
 
- 29 - 
 
  2.3.2.3   Bilateral agreements  
2.31.   Since its last Review , Nepal's bilateral tr ade agreements remain unchanged, at 17:  
Bangladesh ( signed in 1976); Bulgaria (1980); China (1981); Czechoslovakia (1992); Democratic 
People's Republic of Korea (1970); Egypt (1975); India (1991/2009); Mongolia (1992); Pakistan 
(1982); Poland (1992); Republic of Korea (1971); Romania (1984); Sri Lanka (1979); United 
Kingdom (1965); United States (1947); USSR (1970); and Yugoslavia (1965). These agreements 
cover essentially trade in goods , and provide for  MFN treatment. Some of the agreements have been 
terminated or are no long er in effect.  
2.3.2.3.1   Bilateral agreement between India and Nepal  
2.32.   Nepal and India concluded the bilateral Treaty of Transit, Treaty of Trade , Railways Services 
Agreement,  and Agreement of Cooperation to Control Unauthorized Trade. The Transit Treaty allows 
Nepal to trade with other countries through the Kolkata/Haldia ports  and, since 2016, 
Vishakapatnam .25 The revised Treaty of Trade with India, signed in October 2009 , replaced its 1991 
predecessor. According to Article XII of the Treaty, it is automatically renewed every seven  years , 
unless one of the parties informs the other to the contrary.  
2.33.   Under th e Treaty, Nepal and India accord each other unconditional MFN treatment , and a 
mutually agreed list of primary products are exempt from customs duties and quantitative 
restrictions on a reciprocal basis .26 Industrial products from Nepal are given (non -reciprocal) access 
to the Indian market, free of customs duties and quantita tive restrictions . Exceptions to this 
duty-free access include  vegetable fats, acrylic yarn, zinc oxide, and copper products under 
HS headings 74 and 8544. For these products originating in Nepal, India applies tariff quotas , with 
an in-quota rate of 0% ( see Table  A2.3)  
Chart 2.3 Status of trade between Nepal and India  
 
Source:   UNSD,  Comtrade  database .    
2.3.2.3.2   Other agreements  
2.34.   As of August  2018, Nepal is a beneficiary under the GSP schemes of Australia, Canada, the 
European Union27, the Eurasian Economic Union, Iceland, Japan, Kazak hstan, New Zealand, Norway, 
                                                
25 The latest extension of seven  years until 2020 of the Transit Treaty was done in 2013.  
26 Agriculture, horticulture, floriculture and forest produce; minerals which have not undergone any 
processing; rice, pulses, flour, atta, bran and husk; timber; jaggery (gur and shakar); livestock, poultry and 
fish; bees, bees -wax and honey; raw wool, goat h air, bristles and bones as are used in the manufacture of bone -
meal; milk, homemade products of milk and eggs; ghani -produced oil and oilcakes; herbs, ayurvedic and herbal 
medicines, including essential oils and their extracts; articles produced by village  artisans which  are mainly used 
in villages; akara; yak tail; stone aggregate, boulder, sand and gravel; and any other primary products which 
may be mutually agreed upon.  
27 The E uropean Union provides duty -free and quota -free access to Nepalese exports und er its Everything 
But Arms (E BA) initiative.  
01234567
2012 2013 2014 2015 2016 2017Exports ImportsChart 2.3 Status of trade between Nepal and India
US$ billion
Source:  UNSD, Comtrade database.WT/TPR/S/ 381 • Nepal  
 
- 30 - 
 
  Switzerland, Turkey, and the United States.28 All the unilateral preferential markets available for 
products originating in Nepal are presented in Table  A2.2. Nepal  does not  participate in the Global 
System of Trade Preferences (GSTP) amongst developing countries.  
2.35.   The United States provides duty -free treatment for 7729 products originating in Nepal,  in order 
to promote the expansion of trade and economic development following the social and economic 
consequences of the April 2015 earthquakes and aftershocks, which affected extensive regions of 
Nepal. Out of the total number of tariff lines receiving p references, 56 are "textiles"; 10 are "leather, 
footwear, etc."; 9 are "clothing"; and the remaining 2 are "other manufacturing products". This 
unilateral preferential agreement entered into force on 30 December 2016 and will end on 31 
December 2025.30  
2.36.   In addition, in March 2016, China and Nepal signed a bilateral Agreement on Transit 
Transport, which recognizes the need to facilitate transit transport through their territories. The 
competent authorities of the two countries are to expedite negotiations on the protocol for the 
implementation of the Agreement.31  
2.4  Investment Regime  
2.37.   As set out in the Constitution, the economic objective of the State is to achieve sustainable 
economic growth through the participation and development of the public sector, cooperatives and 
the private sector, while ensuring the equitable distribution of profits. To this end, FDI is recognized 
as one of the most important means. According to the authorities, a number of policy changes have 
been made, including structural and procedural changes, to attract FDI.  
(i) Legal framework and FDI policy objective   
2.38.   The Foreign Investment and Technology Transfer Act (FITTA), 1992 and the Industrial 
Enterprise s Act, 2016, provide the legal basis for regulating, administering, and facilitating FDI. In 
addition, several other laws also affect FDI, including: the Foreig n Investment Policy, 2014; the 
Company Act, 2006 (amended in 2017); the Banks and Financial Institutions Act, 2017; the Labour 
Act, 2017; the Special Economic Zone (SEZ) Authority Act, 2016 (and the SEZ Authority Regulation, 
2017); and the Environment Prot ection Act, 1997 (and the Environment Protection Rules, 1997).32 
To promote investment in national priority projects, FDI is encouraged in the recent enactments and 
amendments of laws in different sectors, and a draft law on foreign investment has been prep ared.33   
2.39.   The FITTA ensures equal treatment for foreign and domestic investors , allowing 100% foreign 
investment except for a negative list of 21 industries34: (i) cottage industries (except industries using 
electricity of more than 5 KW); (ii) personal service s businesses (businesses such as hair cutting, 
tailoring, driver training , etc.); (iii) arms and ammunition industries; (iv) gunpowder and explosives; 
(v) industries related to radioactive materials; (vi) real estate business es (excluding constructi on 
industries); (vii) film industries (national languages and other recogni zed languages of the country); 
(viii) security printing; (ix) bank notes and coins; (x) retail businesses (excluding international chain 
retail businesses with a minimum investment of NR 500 million, operating in at least two countries); 
(xi) bidi (tobacco, excluding more than 90% exportable); (xii) internal courier service s; (xiii) atomic 
energy; (xiv) poultry; (xv) fisheries; (xvi) beekeeping; (xvii) consultancy services such as 
management, accounting, engineering, legal services (maximum 51% foreign investment is 
                                                
28 WTO PTA Database. Viewed at http://ptadb.wto.org/Country.aspx?code=524  [September 2018].  
29 Originally, there were 66 eligible products in the notification of PTAs from the United States. Due to 
changes in the Harmonized Tariff Schedule of the United States (HS2012 to HS2017), the number of tariff lines 
increased to 77.  
30 WTO document WT/COMTD/PTA/3/1 , 13 November 2017.  
31 Ministry of Foreign Affa irs of China (2018), Joint Statement between the People's Republic of China 
and Nepal , Communique, 22 June. Viewed at: 
https://www.fmprc.gov.cn/mfa_eng/wjdt_665385/2649 _665393/t1570977.shtml  [August 2018].  
32 Office of the Investment Board (2018), Nepal Investment Guide 2018 , Kathmandu. Viewed at: 
http://ibn.gov.np/uploads/fil es/repository/Nepal%20Investment%20Guide%202018.pdf  [August 2018].    
33 Ministry of Industry, Commerce and Supplies online information. Viewed at: 
http://www.moi.gov.np/downloadsdetail.php?id= 25 [August 2018].  
34 Office of the Investment Board (2018), Nepal Investment Guide 2018 , Kathmandu. Viewed at: 
http://ibn.gov.np/uploads/files/repository/Nepal% 20Investment%20Guide%202018.pdf  [August 2018].    WT/TPR/S/ 381 • Nepal  
 
- 31 - 
 
  allowed); (xviii) beauty parlour s; (xix) processing of food grains on rent; (xx) local catering services; 
and (xxi) rural tourism .  
2.40.   The other features of the FITTA include  the possibility of technology transfer in all the 
industrial sector s, a guarantee for the  repatriation of foreign currenc ies, business and residential 
visas for foreign investors, and provision s for dispute settlement . If a dispute arises between a 
foreig n investor, national investor, and/or the concerned industry, in the first instance, the 
concerned parties are required to settle the dispute through consultations in the presence of the 
Department of Industry. If it is not settled through consultations, i nternational arbitration is 
available, with the prevailing arbitration rules of the United Nations Commission on International 
Trade Law (UNCITL). The arbitration should be held in Kathmandu, and the laws of Nepal are 
applicable. According to the Procedura l Manual for Foreign Investment in Nepal, 2016: "For 
industries with fixed assets investment of above NR 500 million, disputes may be settled as 
mentioned in the foreign investment agreement"35; there is a similar provision in the Special 
Economic Zone Auth ority Act.  
2.41.   The Company Act, 2006 (as amended in 2017) aims to simplify and make the process of 
establishing, managing and administering companies more convenient and transparent. Some of the 
main provisions in the 2017 amendment include: (i) ensuring the p rotection of the corporate 
name/brand; (ii) allowing a maximum of 101 shareholders in a private company; (iii) not requiring 
the mandatory conversion of private companies into public ones (except for telecommunication 
services providers); and (iv) allowing  the buying and selling of shares/debentures.  
2.42.   The Industrial Enterprises Act is intended to simplify and clarify the procedures for the entry, 
operation and exit of industrial enterprises. Some of the salient features of the Act are: tax 
incentives, conces sion and benefits of VAT and custom duties; facilities to acquire land; provisions 
ensuring no nationalization of industries; the basic concept of "no work – no pay" and restrictions 
on strikes; and the creation of a single window service centre for foreig n investments.  
2.43.   The Banks and Financial Institutions Act allows for the protection and promotion of the rights 
and interests of depositors, which is believed to be the basis for providing quality and reliable banking 
and financial intermediary services thr ough healthy competition. The main provisions designed to 
encourage FDI include: the conversion of promoter shares into public shares after a lock -in period 
of 10 years; and provisions for the registration of banks and other financial institutions (BFIs) a s 
public companies under the Companies Act, with the approval of the NRB.   
2.44.   The Labour Act, 2017, aims to provide foreign and domestic investors with clear guidance on 
the conditions for labour. It also outlines the procedures for hiring and providing wage s and other 
benefits to labour, including provisions for employing foreigners. In acceding to the WTO, Nepal 
made a commitment to allow 15% of technical and managerial post s to be filled by expatriate staff 
by an entity with foreign investment.  
2.45.   The Special Economic Zone (SEZ) Authority Act provides several incentives for investors 
establishing industries in an SEZ, for which a licence is required with the maximum validity period 
of 30 years with the possibility of extension for another 10 years. Some of the incentives granted to 
the industries established in SEZs include: full tax exemption for the first five years; income tax 
rebates; dividend tax exemption; VAT facility; custom duty exemptions (conditions apply). The Act 
also provides that a for eign investor investing in an SEZ using foreign currency is entitled to 
repatriate the amount received from the sale of partial or full shares, dividends, and the principal 
and interest on foreign loans in a foreign currency (Section s 3.3.1 and 4.3).      
2.46.   Nepal is a member of the Multilateral Investment Guarantee Agency (MIGA)  of the World 
Bank, and has ratified the International Convention on the Settlement of Investment Disputes.   
2.47.   Nepal has not signed any new b ilateral and investment protection agreements (BIPAs) since 
2011 with India. The other BIPAs are with Finland, Germany, Mauritius, the United Kingdom, and 
France. It has also signed double taxation avoidance agreements, most recently with India in 2011. 
The others are with Austria;  China;  Korea, Repub lic of; Mauritius;  Norway;  Pakistan;  Qatar;  Sri 
                                                
35 Department of Industry (2016), Procedural Manual for Foreign Investment in Nepal , June. Viewed at: 
http://doind.gov.np/images/fdi/PManual -016.pdf [August 2018].  WT/TPR/S/ 381 • Nepal  
 
- 32 - 
 
  Lanka;  and Thailand . It has a Trade and Investment Framework Agreement with the United States 
since 2011.   
(ii) Approving agencies and the procedure for foreign investment  
2.48.  The Department of Industry (DOI) u nder the Ministry of Industry, Commerce and Supplies is 
the principle entity for the administration and implementation of foreign investment and the 
technology transfer regime in Nepal. In addition, the Investment Board Nepal (IBN) and the 
Industrial and I nvestment Promotion Board (IIPB) are also involved in the process of identification 
and approval of foreign investments. The IBN is chaired by the Prime Minister, while the IIPB is 
chaired by the Minister of Industry, Commerce and Supplies.  
2.49.  All application s for a Foreign Investment Approval Letter (FIAL)  are processed either by the 
IBN or the DOI on the basis of fixed capital (Chart 2.4). For applications made through the DOI, a 
maximum of NR 20,000 (refundable) must be deposited. For applications through t he IBN , a 
performance bond of 0.1% of the estimated total project cost is required prior to signing the project 
development agreement (PDA) or the project investment agreement (PIA). The decision on an 
application for a FIAL to the IBN must be made within 30 days from the date of filing , although the 
deadline may be extended if the Board has reasonable cause. According to the Procedural Manual for 
Foreign Investment in Nepal, d ecisions concerning industrial licen ces, registration s, and duty 
drawbacks are to be made within 30, 21 and 60 days from the date of application, respectively .  
2.50.  If the FIAL is granted, the investor must apply for the registration of the company with the 
Office of the Company Register (OCR). Non-refundable comp any registration fees are applicable , 
ranging from NR 9,500 to NR 16,500 , and the company is registered within seven  days from the filing 
of the application.36   
                                                
36 If the company is not registered within the prescribed time limit, the OCR shall inform the proposed 
company within three days, along with reasons for the rejection.  WT/TPR/S/ 381 • Nepal  
 
- 33 - 
 
  Chart 2.4 Approving agencies and procedure for s tarting a business  
 Initial consultation at IBN or DOI   
   
 
 
 
Fixed capital > NR 10  bn  
(approx. US$100 m)   Fixed capital < NR 10 bn  
   
 
Application to IBN   Application to DOI  
   
Fixed capital > 
NR 2 bn   
Fixed capital  
< NR 2  bn 
 
 
  Approval  by 
IIPB Approval by DG 
of DOI  
Approval by IBN    
   
Issuance of FIAL    
   
Company registration at OCR 
(incorporation of Nepali entity)    
 
   
Tax/PAN registration at the 
Internal Revenue Department    
  If the business is listed under the 
law (EPR, Schedule 1 or 2)  
    
NRB permission  
(prior to 
opening a bank 
account/wire 
transfer)  Industry 
registration at 
DOI  
Environmental assessment as per 
EPR (submission of IEE or EIA)  
 
   
Other registration and licensing 
(visa, trademark, business 
licensing, land acquisition, etc.)    
 
   
PDA/PIA negotiation1   
 
   
Office of the Investment Board, 
Nepal provides required additional 
services and facilities for any 
approval and clearances during 
construction period until 
commercial operation date and 
even thereafter    
1 Project under IBN only.  
Source:  Nepal Investment Guide 2018 . WT/TPR/S/ 381 • Nepal  
 
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  3  TRADE POLICIES AND P RACTICES BY MEASURE  
3.1  Measures Directly Affecting Imports  
3.1.1   Customs procedures, valuation, and requirements  
Customs procedures  
3.1.  The main laws and regulations governing imports and exports have not changed since the 
previous Review. The Customs Act of 2007 and the Customs Regulation of 2007 are the legal 
foundation regulating imports/exports, and they are administered by the Department of Customs 
(DOC) which is under the Ministry of Finance. All companies registered with the Office of the 
Company Registrar, including foreign ones, may import and export goods to and from Nepal. 
Individuals may import, provided they register as sole proprietor undertakings. Importers above a  
threshold of NR 50,000 and exporters above NR 500,000 in the value of trade are now required to 
obtain an Exim code from the DOC. Importing companies registered in Nepal with personal tax 
numbers that provide a bank guarantee of NR  300,000 (no guarantee i s required for exporters) may 
get an Exim code based on the procedures set out in the Exim Code Procedure of 2017 which was 
developed based on the Customs Act.1  
3.2.  As per the law, every physical or legal person importing goods must submit an import customs 
declaration form to the Customs Office, along with the documents in  Table 3.1 . A customs agent 
may be appointed by an importer/exporter who may then submit the custom declaration on behalf 
of the importer/exporter. The Customs Regulation specifies the quali fication requirements to become 
a customs agent. Customs agents must be Nepali citizens who must obtain a licence from the DOC. 
A licence is valid for one year and is renewable.  
Table 3.1 Documents required fo r imports  
Imports  Documents required for imports  
Imports from India  Invoice; packing list; documents required as per the 
prevailing law regarding a recommendation, licence, or 
certificate from any institution  
Import in -bonda Also required: Nepal invoice  (in-bond form), foreign exchange 
control form ( bi.bi.ni. form 4 ), and banking document 
regarding payment procedures  
Import under "duty refundable 
procedure"b Also required: Nepal invoice  
Imports from other countries  Banking document regarding payment procedure; packing 
list; bill of lading or airway bill; country of origin; foreign 
exchange control form; documents required as per the 
prevailing law regarding a recommendation, licence, or 
certificate from any instituti on 
Transit through India  Customs Transit Document (CTD)2 form  
Transit through Bangladesh  Transit Declaration Invoice (TDI)3 
a In-bond means import from India with foreign exchange, as specified in the procedure issued by the 
Nepal Rastra Bank (NRB).  
b "Duty refundable procedure" means the deduction of excise duty paid in India from the chargeable 
customs duty on the import of goods from India, as per the provision in the trade agreement 
between Nepal and India.  
Source:  Customs Regulation 2007.  
                                                
1 The Exim Code Procedure is available from the DOC at: 
https://www.customs.gov.np/en/eximcodeprocedure.html  (Nepali) [August 2018].  
2 As per the Bilateral Transit Agreement between Nepal and India, a CTD form is to be filled in by the 
Nepalese importer or exporter for the goods to be imported from or exported to third countries via land through 
India so that the goods are not deflected in India. For exports from Nepal, this form is issued by the concerned 
customs office of Nepal, and for imports , it is issued at the Kolkata, Haldia, or Fulbari ports of India.  
3 The Nepalese exporters/importers have to complete all the documentation formalities set by the transit 
agreements of both India and Bangladesh. The CTD in India and the TDI in Bangladesh a re processed separately. 
The cargo should cross through Panitanki (India) and Phulbari (India) Customs before entering Bangladesh.  WT/TPR/S/ 381 • Nepal  
 
- 35 - 
 
  3.3.  Since 20 16, Nepal has been using the single administrative document (SAD) for customs 
clearance through the Nepal Customs Automation System (NECAS) ( para 3. 11). The System includes 
risk-based modules for the selection of consignments for inspection. The customs br oker/declarant 
inputs the information from the SAD directly into the NECAS, which then verifies the information 
and registers the SAD. The registered SAD needs to be signed and submitted to a customs officer 
along with all the necessary documents ( Table 3. 1). After verifying the SAD and the attached 
documents, the customs officer assesses it using the System and associated risk management 
criteria, which, in turn, assigns the consignment to a processing lane (green, yellow, and red ) for 
the declaration (alt hough a blue lane for post clearance audit is provided for in the Law, it is not 
used in practice):  
• the red lane indicates that the SAD must be checked against documents, and the shipment 
is subject to physical inspection before the SAD is signed by the Cu stoms Officer;  
• the yellow lane signifies that the SAD must be checked against documents before being 
sent to the green lane and assessed by Customs; and  
• under the green lane, the SAD is automatically assessed and a clearance document is 
issued.  
3.4.  A customs officer may clear goods only upon collecting the applicable duties and taxes and, for 
red lane consignments, after the inspection of documents and physical verification ( Chart  3.1). About 
40% of consignments pass through the green lane, representing about 75% of revenue from goods 
cleared by the DOC.  
Chart 3.1 Red lane import clearance process  
 
Source:  DOC. 
3.5.  As reported in 2012, most consignments are cleared within two hours but, depending on the 
nature of the  goods (e.g. food, plants, plant products, animals, and animal products), a longer 
clearance time may be needed, as these goods require more declaration information and/or 
inspection.4  
                                                
4 WTO document WT/TPR/S/257/Rev.1, 19 April 2012, Section III(1)(i)(a).  
WT/TPR/S/ 381 • Nepal  
 
- 36 - 
 
  3.6.  According to the World Bank's Ease of Doing Business, Nepal is more ef ficient in terms of hours 
and money spent for import procedures compared to the regional averages for South  Asia 
(Table  3.2).  
Table 3.2 Time and cost for imports, 2018  
  Nepal  South Asia  
Time to import (hours)  Border compliance  61 113.8  
 Documentary compliance  48 104.7  
Cost to import (US$)  Border compliance  190 638.0  
 Documentary compliance  80 341.6  
Source:  World Bank Group (2018), Doing Business 2018: Reforming to Create Jobs – Economy Profile - 
Nepal . Viewed at: 
http://www.doingbusiness.org/~/media/WBG/DoingBusiness/Documents/Profiles/Country/NPL.pdf  
[August 2018].  
Trade f acilitation  
3.7.  Nepal r atified the WTO Agreement on Trade Facilitation, and deposited its instrument of 
acceptance on 24 January 2017. It also acceded to the Revised Kyoto Convention (RKC) and ratified 
it on 3 February 2017, becoming the 107th Contracting Party to do so.5 
3.8.  With a  view to enhancing trade facilitation, Nepal has made progress in improving and 
simplifying the custom procedures and harmonizing them with international standards. Efforts have 
been made through Customs Reform and Modernization Strategies and Action Plans  (CRMSAPs), 
which were first launched in 2003. Nepal has finished the implementation of the fourth CRMSAP 
(2013 -2017), and started implementing the fifth in July 2017. The objective of the Plan is to create 
a conducive environment for economic prosperity b y building a responsive customs administration 
which is to be recognized as a modern administration that fulfils the needs of 21st century 
customers.6 According to the A sian Development Bank, the implementation of successive phases of 
the CRMSAP "have prov ided strategic directions to the Government's effort to meet the requirements 
of the WTO TFA and the RKC, and other international standards on trade facilitation".7   
3.9.  The guiding principles of the CRMSAP 2017 -2021 are: "(i) reducing compliance costs and ti me, 
(ii) helping fair operation of the market, (iii) helping export promotion, (iv) enhancing risk 
management based approach, (v) establishing a conducive environment for investment, (vi) right 
taxation for sound fiscal framework, and (vii) coordination."8  
3.10.   In addition, Nepal is a party to the South Asia Subregional Economic Cooperation (SASEC)9 
programme for customs reform and modernization for trade facilitation programmes (2017 -21) 
which, according to the authorities, is based on the TFA.  
3.11.   Implementation  has also started on the E -customs Master Plan, which is intended to initiate  
a paperless system of customs clearance. This initiative is to be implemented using ASYCUDA World 
as the core system and to include other subsystems. The web -based ASYCUDA World system (NECAS 
                                                
5 World Custom Organization online information. Viewe d at 
http://www.wcoomd.org/en/media/newsroom/2017/february/nepal -accedes -to-the-revised -kyoto -convention -
and-becomes -the-107th -contracting -party.aspx  [August 2018].  
6 DOC (2017), Customs Reform and Modernization Strategies and Action Plan (CRMSAP) 2017 -2021, 
Kathmandu, 26 January. Viewed at: 
https://www.customs.gov.np/en/customsreformsandmodernizationstrategiesandactionplan(crmsap)2017 -
2021.html  [August 2018].  
7 ADB (2017), Nepal’s compliance with the World Trade Organization’s Tr ade Facilitation Agreement . 
Viewed at: https://www.adb.org/sites/default/files/linked -documents/50254 -001-ld-sd-06.pdf  [August 2018].  
8 DOC (2017), Customs Refo rm and Modernization Strategies and Action Plan (CRMSAP) 2017 -2021, 
Kathmandu, 26 January, pg. vi. Viewed at: 
https://www.customs.gov. np/en/customsreformsandmodernizationstrategiesandactionplan(crmsap)2017 -
2021.html  [August 2018].  
9 The SASEC programme "brings together Bangladesh, Bhutan, India, Maldives, Myanmar, Nepal, and 
Sri Lanka in a project -based partnership that aims to promote r egional prosperity, improve economic 
opportunities, and build a better quality of life for the people of the sub -region". Viewed at: 
(https://www.sasec.asia/index.php?page=what -is-sasec ) [August 2018].  WT/TPR/S/ 381 • Nepal  
 
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  in Nepal (paragraph 3.3)) has been implemented in 12 customs offices which cover 95% of the total 
trade of Nepal.  
3.12.   Other measures being taken by the authorities relating to improving customs procedures 
include: the development of the Nepal Nat ional Single Window (NNSW), which should be 
implemented by 2019; the establishment of client service centres in the DOC, with client service 
desks in six customs offices; and the establishment of a trade facilitation committee by the DOC and 
customs office s. 
3.13.   Nepal has notified its category A, B, and C commitments under the TFA to the WTO. According 
to these, two measures are under Category A as implemented, eight measures under Category B 
are to be implemented by December 2020 without capacity -building supp ort, and 26 measures under 
Category C are to be implemented upon receipt of capacity -building support.10  
Customs valuation  
3.14.   The legal basis for customs valuation is the Customs Act, the Customs Regulation, the 
Customs Valuation Directive, and the annual fiscal acts. The Customs Act, Article 13, states that: 
"the rules on customs valuation, annexes and interpretative notes set f orth in the Agreement on the 
Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 shall be pursued 
in determining the customs value of imported goods".11, 12  
3.15.   Under Article 13 of the Customs Act, the customs value of imported good s is determined in 
accordance with the following rules, in order of priority:  
a. transaction value including freight, insurance, and other related expenses;  
b. transaction value of identical goods already imported into Nepal;  
c. transaction value of similar goods already imported into Nepal;  
d. deducted value method13;  
e. computed value method14 (the importer may request that the deducted value and 
computed value methods be used in reverse sequence); and  
f. reasonable basis method.  
3.16.   If the transaction value declared by an im porter is less than the value determined by the 
customs officer, the customs officer may: (i) clear the goods by collecting 50% additional customs 
duty on the difference in value; or (ii) purchase the goods by paying an amount equalling the 
declared transa ction value, plus 5% ( since May 2018, this option no longer requires the prior 
approval of the Director of the Department of Customs ).  
3.17.   If currency conversion is required, the conversion of foreign currency into Nepali rupees must 
be made according to the exchange rate determined by the NRB for the day in which the declaration 
form is registered or received in the Customs Office. This currency conversion is made through the 
computerized customs system.  
3.18.   In cases where an importer is not satisfied with the va lue determined by Customs, s/he has 
the right, under the Customs Act (Article 61), to file an application to the Valuation Review 
Committee no later than 30 days after the decision or order. The Committee is required to provide 
clear justifications for a d ecision to approve or void a valuation. The final decision of the Committee 
should be taken within 90 days from the date of registration of the application, and such decision 
                                                
10 WTO documents: G/TFA/N/NPL/1, 16 February 2018; and WT/PCTF/N/NPL/1, 27 October 2015. WTO 
online information from the TFA Database. Viewed at: https://www.tfada tabase.org/members/nepal/measure -
breakdown  [August 2018].  
11 The Customs Act, the Customs Regulation, and other legislation are available from the DOC. Viewed 
at: https://www.customs.gov.np/en/l egislation.html  [August 2018].  
12 WTO document G/VAL/N/1/NPL/1, 30 June 2015.  
13 Deducting tax, duty, and other costs incurred in Nepal on the selling price of each unit of the goods.  
14 Calculating the costs incurred in the production or manufacture of such goods and profits made or 
likely to be made by the seller while selling such goods to the importer.  WT/TPR/S/ 381 • Nepal  
 
- 38 - 
 
  should be communicated to the applicant within 7 days. Data were not available on  the number of 
appeals, or the results of such appeals.  
Pre-shipment inspection  
3.19.   As notified to the WTO, Nepal has no laws or regulations on pre -shipment inspection.15  
3.1.2   Rules of origin  
3.20.   Nepal has notified to the WTO that it does not employ non -preferential rules of origin, and 
applies preferential rules of origin under the SAFTA and the Nepal -India bilateral trade treaty.16  
3.21.   SAFTA Rules of Origin are contained in Annex IV of the Agreement17. According to Rule 5 of 
the Annex, products wholly produced or obtaine d in the exporting country are considered to have 
originated in that country.18 Besides the wholly -produced criteria, the Rules also contain Single 
Contracting State Content criteria, including: the final product is classified in a HS heading at the 
four-digit level different from those in which all the non -originating materials used in its manufacture 
are classified; the foreign content of the product does not exceed 60% (50% for a least -developed 
Contracting State and 55% for Sri Lanka) of the f.o.b. value  of the final product; and the final process 
of manufacturing is performed within the territory of the exporting Contracting State.  
3.22.   Regional cumulation is allowed, based on the following requirements:  
• the aggregate content (value of such inputs plus domestic value addition in further 
manufacture) is not less than 50% of the f.o.b. value;  
• the domestic value content (value of inputs originating in the exporting Contracting State 
plus domestic value additi on in further manufacture in the exporting Contracting State) is 
not less than 20% of the f.o.b. value; and  
• the final product results in a change in the HS classification at four - or six -digit level, 
depending on the product -specific rules.  
3.23.   The rules of origin for preferential access for exports from Nepal to India under the Nepal -
India Trade Treaty have changed over time: the value addition requirement was 90% in the 1960 
Treaty; this was reduced to 50% and then to 40% of the ex -factory price in 1996; an d it has been 
30% since 2002, when the provision for changes in the four -digit HS heading was also introduced.19 
For imports from India, duty -free access is for primary products – which are, therefore, wholly 
obtained in India.  
3.24.   The Bay of Bengal Initiative for Multi -Sectoral Technical and Economic Cooperation  (BIMSTEC) 
Agreement has no provisions regarding preferential rules of origin. However, a draft proposal of the 
                                                
15 WTO documents: G/VAL/N/1/NPL/1, 30 June 2015; and WT/PCTF/N/NPL/1, 27 October 2015.  
16 WTO document G/RO/N/165, 3 April 2018.  
17 Government of Sri Lanka online information. Viewed at: 
http://www.doc.gov.lk/images/pdf/our_services/safta/safta_roo.pdf  [August 2018].  
18 Products considered to be wholly pr oduced in or obtained from the contracting states are: "(a) raw or 
mineral products extracted from its soil, its water extending up to its Exclusive Economic Zone (EEZ), or its sea 
bed extending up to its seabed or continental shelf; (b) agriculture, veget able and forestry products harvested 
there; (c) animals born and raised; (d) products obtained from animals referred to in clause (c); (e) products 
obtained by hunting or fishing conducted; (f) products of sea fishing and other marine products from the hig h 
seas by its vessels; (g) products processed and/or made on board its factory ships exclusively from products 
referred to in (f); (h) raw materials recovered from used articles collected there; (i) waste and scrap resulting 
from manufacturing operations c onducted there; (j) products taken from the seabed, ocean floor or subsoil 
thereof beyond the limits of national jurisdiction, provided it has the exclusive rights to exploit that sea bed, 
ocean floor or subsoil thereof; and (k) goods produced there exclus ively from the products referred to in clauses 
(a) to (j) above."  
19 Raihan, S. (2008), Rules of Origin and Sensitive List under SAFTA and Bilateral FTAs Amongst South 
Asian Countries: Quantitative Assessments of Potential Implications for Nepal , paper prep ared for the Nepal 
Residence Mission of the Asian Development Bank. Viewed at: https://mpra.ub.uni -
muenchen.de/37893/1/MPRA_paper_37893.pdf  [August 2018].  WT/TPR/S/ 381 • Nepal  
 
- 39 - 
 
  BIMSTEC Rules of Origin was submitted during the Burma Round of talks in April 2006.20 Nepal  and 
other parties are negotiating preferential rules of origin under this Agreement, and the 20th meeting 
of the Trade Negotiating Committee (TNC) of BIMSTEC, on 7 September 2015, continued discussions 
concurrently with a TNC working group.  
3.1.3   Tariffs  
3.1.3.1   Structure  
3.25.   In FY 2018 -19, the applied MFN tariff is similar to the applied rate at the time of the last 
Review, apart from the introduction of a new tariff band of 1%. Therefore, there are now eight 
bands: duty -free; 1%; 5%; 10%; 15%; 20%; 30%; and 80%. In addition, specific duties are applied 
to 51 tariff lines (compared with 38 tariff lines in 2011 -12). The 2018 -19 tariff has 5,572 tariff lines 
at the eight -digit level based on the HS2017 nomenclature, an increase from 5,168  lines in 2011 -
12, which was bas ed on the HS2007 nomenclature ( Table  3.3). The change in the number of lines 
was mainly attributed to the change in HS nomenclature.  
Table 3.3 Tariff structure, FY 2011 -12 and FY 2018 -19 
(% unless otherwise in dicated)  
  
  MFN applied  Final 
bounda 
FY 2011 -12 
excl. AVEs  FY 2018 -19 FY 2018 -19 
 excl. AVEs  incl. AVEs  
Simple average rate (%)  12.2 12.0 12.4 26.6 
   HS 01 -24 12.5 12.5 14.5 39.6 
   HS 25 -97 12.1 11.9 11.9 23.8 
   WTO agricultural products  12.4 12.6 15.0 42.9 
   WTO non -agricultural products  12.1 11.9 11.9 23.9 
Duty-free tariff lines (% of all tariff lines)  2.6 3.6 3.6 2.3 
Simple average of dutiable lines only  12.5 12.4 12.8 27.2 
Tariff quotas (% of all tariff lines)  0.0 0.0 0.0 0.0 
Non-ad valorem  tariffs (% of all tariff lines)  0.7 0.9 0.9 0.0 
Domestic tariff "peaks" (% of all tariff lines)b 0.6 0.7 1.0 0.8 
International tariff "peaks" (% of all tariff lines)c 14.6 14.5 15.0 87.3 
Nuisance applied rates (% of all tariff lines)d 0.0 1.9 1.9 0.00 
Standard deviation of rates  8.6 8.9 11.5 14.1 
Total number of tariff lines  5,168  5,572  5,572  
    Ad valorem  rates  5,130  5,520  5,518  
          Duty-free rates  135 201 127 
    Specific rates  38 51 n.a. 
    Other/unbound ratese 0 1 54 
n.a. Not applicable, there are no specific rates in Nepal's Schedule CLVII.  
a Based on the 2018 -19 tariff schedule in the HS17 nomenclature.  
b Domestic tariff peaks are defined as those exceeding three times the overall simple average applied 
rate. 
c International tariff peaks are defined as those exceeding 15%.  
d Nuisance rates are those greater than zero, but less than or equal to 2%.  
e In 2018 -19, for one tariff line (worn clothing and other worn articles, HS code 6309.00.00), the 
applied tariff rat e is equal to the rate of duty as for the corresponding new article. Final bound 
calculations exclude 54 unbound tariff lines.  
Note:  The 2011 -12 tariff is based on HS2007, and the 2017 -18 tariff is based on the HS2017 
nomenclature.  
Source:  WTO Secretariat calculations, based on data provided by the authorities.  
                                                
20 Raihan, S. (2008), Rules of Origin and Sensitive List under SAFTA and Bilateral FTAs Amongst South 
Asian Countries: Quantitative Assessments of Potential Implications for Nepal , paper prepared for the Nepal 
Residence Mission of the Asian Development Bank. Viewed at: https://mpra.ub.uni -
muenchen.de/37893/1/MPRA_paper_37893.pdf  [August 2018].  WT/TPR/S/ 381 • Nepal  
 
- 40 - 
 
  3.1.3.2   Applied tariff  
3.26.   The simple average applied MFN tariff (excluding ad valorem  equivalents (AVEs) for specific 
duties) decreased slightly from 12.2% in 2011 -12 to 12% in 2018 -19, mainly due to the change s in 
nomenclature ( Table  3.3). If AVEs for specific duties are included, the simple average applied MFN 
tariff in 2018 -19 is 12.4%.21 
3.27.   Nearly 85% of applied tariffs range from zero to 15%, while the modal (or most common) 
rate is 10%, and 3.6% of tariff line s are duty free, which is a slight increase since its last Review 
(Chart  3.2). 
Chart 3.2 Frequency distribution of MFN tariff rates, FY 2018 -19 
Number of tariff lines  
 
Note:   The 2011 -12 tariff was based on the HS2007 nomenclature; the 2018 -19 tariff is based on HS2017. 
Figures in brackets refer to the percentage of total lines. Not including AVEs.  
Source:   WTO Secretariat calculations, based on online data provided by the authorities.  
3.28.   During the review period, the average applied MFN tariff on agricultural tariff lines (WTO 
definition) increased slightly, from 12.4% in FY 2011 -12 to 12.6% in FY 2018 -19. Including AVEs, 
the average applied tariff on agricultural tariff lines is 15%. The average for non -agricultural tariff 
lines fell from 12.1% to 11.9% ( Table  3.3). 
3.29.   In FY 2018 -19, 1.5% of agricultural products and 4% of non -agricultural tariff lines are duty 
free (Table A3.1). The highest ad valorem  rate of 80% applies to, inter alia , two tariff line s related 
to tobacco, along with some motor vehicles, and arms and ammunition products. Specific duties are 
applied to some alcohol, tobacco, cement, and petroleum tariff lines , amongst others . In general, 
tariff protection is particularly high for arms and ammun ition and, to a much lesser extent, prepared 
foods and transport equipment (Chart 3.3)  
3.30.   The dispersion of the rates in Nepal's applied MFN tariff in FY 2018 -19 remains largely the 
same as at the last Review. The standard deviation is 8.9 percentage points f or FY 2018 -19, nearly 
the same as in FY 2011 -12 (8.6 percentage points), since there is no significant change in the 
proportion of tariff lines having domestic and international peaks in rates ( Table  3.3 and Chart  3.3).  
                                                
21 Of 51 tariff lines subject to specific duties, 37 were included in the AVE calculation, and 14 were 
excluded due to lack of data. AVEs were calculated based on the import unit value, on the basis of the 2016 -17 
import value and the quantity sourced from Nepal Foreign Trade Statistics, Ministry of Finance . 
(2.6%)(25.7%)(31.0%)
(25.3%) 
(8.2%)
(5.8%)
(0.6%) (0.7%)(3.6%) 
(1.9%)(22.2%)(33.5%)
(23.4%)
(7.7%)
(6.1%)
(0.7%) (0.9%) 
02004006008001,0001,2001,4001,6001,8002,000
Duty free 1% 5% 10% 15% 20% 30% 80% Specific ratesNumber of tariff lines
MFN 2011/12
Total number of lines:  5,168
MFN 2018/19
Total number of lines: 5,572
Note:  2011/12 tariff is based on HS07 nomenclature; 2018/19 tariff is based on HS17.  Figures in brackets refer to the perce ntage of 
total lines.  Not including AVEs.
Source:  WTO Secretariat calculations, based on online data provided by the authorities.WT/TPR/S/ 381 • Nepal  
 
- 41 - 
 
  Chart 3.3 Average applied MFN and bound tariff rates, by HS section, FY 2018 -19 
 
Note:  Calculations include AVEs for specific rates. HS sections 05, 11, and 17 are not fully bound. HS 
section 19 is fully unbound.  
Source:  WTO Secretariat calcul ations, based on data provided by the authorities.  
3.31.   Overall, tariffs show positive escalation, with an average tariff of 9.3% on raw materials (first 
stage of processing), 11.4% on intermediate goods, and 13.8% on finished goods (Table A3.1).  
However, some sectors (paper, printing and publishing, non -metallic minerals, base metals and 
fabricated metals, and machinery products) show mixed escalation ( Chart  3.4).  
Chart 3.4 Tariff escalations by 2 -digit ISIC industry, FY 2018 -19 
 
n.a. Not applicable.  
Source:   WTO Secretariat calculations, based on data provided by the authorities.  
0%10%20%30%40%50%60%70%80%
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
Calculations include AVEs for specific rates rates.   HS sections 05, 11, and 17 are not fully bound.  
HS section 19 is fully unbound.
WTO Secretariat calculations, based on data provided by the authorities.Chart 3.1         Average applied MFN and bound tariff rates, by HS section, 2017/18
Note:
Source:01   Live animals & products        
02   Vegetable products
03   Fats & oils      
04   Prepared food, etc.
05   Mineral products
06   Chemicals & products07   Plastic & rubber
08   Hides & skins
09   Wood & articles
10   Pulp, paper, etc.
11   Textiles & articles
12   Footwear, headgear13   Articles of stones
14   Precious stones, etc.
15   Base metals & products
16   Machinery
17   Transport equipment
18   Precision instrument19   Arms & ammunition
20   Miscellaneous manufacturing
21   Works of art, etc.Average MFN applied rate 
2018/19 (12.4%)Average bound rate
(26.6%)MFN applied 2017/18 Bound rates
n.a.n.a.
0%2%4%6%8%10%12%14%16%18%20%22%
31 32 33 34 35 36 37 38 39 Total
manuf.Chart 3.[] Tariff escalation by 2 -digit ISIC industry, 2018/19
Average applied rate
in manufacturing
(12.6%)
First stage of processing
Semi -processed
Fully processed
n.a.       Not applicable.31   Food , beverages and tobacco      
32   Textiles and leather  
33   Wood and furniture      37   Basic metals
38   Fabricated metal products and machinery
39   O ther manufacturing34   Paper, printing and publishing
35   C hemicals
36   Non -metallic mineral products
Source:  WTO Secretariat calculations, based on data provided by the authorities.WT/TPR/S/ 381 • Nepal  
 
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  3.1.3.3   Tariff bindings  
3.32.   In acceding to the WTO, Nepal bound all but 54 tariff lines at the HS eight -digit level. The 54 
unbound tariff li nes22 are mainly for petroleum products, worn clothing, arms and ammunition, 
cement, and some parts and components of automobiles including golf cars. All bound rates are 
ad valorem, ranging from zero to 200%. The overall average bound tariff is 26.6%. The average 
bound tariff for agricultural products (WTO definition) is 42.9%, while the average bound rate for 
non-agricultural products is 23.9%.  
3.33.   Overall, applied tariffs are significantly lower than bound tariffs, with a 14.6 percentage point 
difference bet ween the average MFN applied rate and the average bound rate. Although applied 
tariffs are lower than bound tariffs for all sectors, the difference varies from one sector to another: 
for vegetable products, the average applied MFN tariff is 29.6 percentage  points lower; while for 
mineral products, it is 7.1 percentage points lower ( Chart  3.3).  
3.34.   While nearly all applied tariffs are lower than bound tariffs, in FY 2018 -19, for 38 tariff lines, 
the applied rate exceeds the bound rates. In addition, for 8 tarif f lines, the applied rates exceed the 
rates which were bound for a more general group of products which were subsequently divided into 
more lines. Plus, 12 tariff lines are subject to applied specific duties which could exceed the bound 
ad valorem  rates ( Table 3.4 ). The products affected are mainly chemical products, and some 
machinery including motor vehicles. According to the authorities, tariffs in excess of bindings were 
the unintended result of regular revisions of tariff rates which may not always hav e taken changes 
in nomenclature into account, while AVEs for specific duties depend on unit values of imports, which 
may change.  
Table 3.4 Tariff lines where MFN applied exceeds bound rate, 2018 -19 
HS codes    MFN applied  Bound  
Fully breaching (38 tariff lines)    
38247400  Mixtures containing halogenated derivatives 
of methane, ethane or propane  10% 5% 
38247500  10% 5% 
38247600  10% 5% 
38247800  10% 5% 
38248100  Chemical products  10% 5% 
38248200  Chemical products  10% 5% 
38248300  Chemical products  10% 5% 
38260000  Biodiesel  30% 20% or 5%a 
39169000  Monofilaments of plastic  30% 25% 
39261000  Office or school supplies of plastic  30% 25% 
39269030  Laboratory equipment of plastic  30% 25% 
69049000  Ceramic tiles 30% 25% 
73089000  Structures of iron and steel  20% 15% 
84137019  Centrifugal pumps  15% 10% 
84137090  Centrifugal pumps  15% 10% 
84564000  Machines operated by plasma arc processes  5% 0% 
84565000  Water -jet cutting machines  5% 0% 
84569000  Other laser machines  5% 0% 
85075000  Electric accumulators  20% 15% 
85076000  Electric accumulators  20% 15% 
85086000  Vacuum cleaners  15% 0% 
87021040  Motor vehicles  80% 60% 
87022040  Motor vehicles  80% 60% 
87023040  Motor vehicles  80% 60% 
87029040  Motor vehicles  80% 60% 
87031010  Motor vehicles  30% 20% 
87032190  Motor vehicles  80% 40% 
87032200  Motor vehicles  80% 40% 
87032300  Motor vehicles  80% 40% 
87032400  Motor vehicles  80% 60% 
87033100  Motor vehicles  80% 60% 
                                                
 22 Five tariff lines: Cement (HS heading 2523); 20 tariff lines: Petroleum oils other than crude 
(HS heading 2710); 1 tariff line: Worn clothing and other worn articles (HS heading 6309); 1 tariff line: Golf cars 
and similar vehicles (HS code 87031090); 9 tariff lines: Chassis fitted with engines for motor vehicl es 
(HS heading 8706); and 18 tariff lines: Arms and ammunition (HS Chapter 93).  
 WT/TPR/S/ 381 • Nepal  
 
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  HS codes    MFN applied  Bound  
87033200  Motor vehicles  80% 40% 
87033300  Motor vehicles  80% 40% 
87034000  Motor vehicles  80% 40%, 60%  
87035000  Motor vehicles  80% 40%, 60%  
87036000  Motor vehicles  80% 40%, 60%  
87037000  Motor vehicles  80% 40%, 60%  
87039000  Motor vehicles  80% 60% 
Breaching parts of the national tariff line level (8 tariff lines)  
38247190  Mixtures containing halogenated derivatives 
of methane, ethane or propane  10% 5% 
38247290  10% 5% 
38247390  10% 5% 
38247790  10% 5% 
38247990  10% 5% 
85081990  Vacuum cleaners  15% 0% 
85087010  Parts of vacuum cleaners  15% 10% 
85489010  Electric parts of machines, n.e.s.  15% 0% 
Comparing specific MFN with ad valorem  bound (12 tariff lines)   
08028000  Areca nuts  NR 45/kg (AVE=34.9%)  30% 
08029000  Other nuts  NR 45/kg (AVE=33.3%)  30% 
22083090  Whiskies  NR 1,600/litre (AVE=100.4%)  100%  
22084090  Rum NR 1,600/litre (AVE=189.9%)  100%  
22085010  Gin and Geneva  NR 900/litre (AVE=167.5%)  100%  
22085090  Gin and Geneva  NR 1,600/litre (AVE=166.8%)  100%  
22086090  Vodka  NR 1,600/litre (AVE=207%)  100%  
22087090  Other alcoholic beverages  NR 1,600/litre (AVE=127.6%)  100%  
22089090  Other alcoholic beverages  NR 1,600/litre (AVE=151%)  100%  
24022000  Cigars, cigarettes, containing tobacco  NR 4,500/'000 sticks  
(AVE=356.5%)  200%  
26211000  Ash from the incineration of municipal waste  NR 1,000/MT (AVE=28.6%)  15% 
26219000  Other slag and ash  NR 1,000/MT (AVE=33.3%)  15% 
a      Due to a change in nomenclature, it is not clear whether the current bound rate is at 5% or 20%. 
However, the applied MFN tariff is higher than either.    
Source:  WTO, based on  data received by the authorities.  
3.1.3.4   Tariff preferences  
3.35.   Under SAFTA, Nepal applies preferential rates to other SAARC parties for 2,837 tariff lines, 
plus an additional 37 tariff lines for other LDC parties (Section 2.3.2.1). In FY 2018 -19, the simple 
average  applied tariff rate for SAARC members is 9.5%; for agricultural products (WTO definition), 
the average preference margin is 2.2 percentage points compared to the applied MFN tariffs, and, 
for non -agricultural products, the preference margin is 2.9 percent age points (3 percentage points 
for LDCs) ( Table  3.5).  
3.36.   In addition, under the Nepal -India Trade Treaty, Nepal and India agreed, on a reciprocal basis, 
to exempt imports of primary products from customs tariffs and qua ntitative restrictions 
(Section  2.3.2) . Furthermore, goods produced in and imported from India into Nepal using a letter 
of credit ( L/C) are granted a tariff rebate of 5% for tariff rates of up to 30%, and 3% for tariff rates 
above 30%. These rebates do not apply to goods subject to specific d uties.  
Table 3.5 Summary analysis of the preferential tariff under SAFTA, 2018 -19 
 MFN applied  SAFTAa 
 Average 
(%) Range (%)  Average 
(%) Range (%)  
Total  12.4 0-356.5  9.5 0-356.5  
WTO agricultural products  15.0 0-356.5  12.8 0-356.5  
   Animals and products thereof  10.5 10-15 7.0 6-10 
   Dairy products  19.8 10-30 19.1 9-30 
   Fruit, vegetables, and plants  11.5 5-34.9 9.3 5-34.9 
   Coffee and tea  24.2 10-30 20.0 6-30 
   Cereals and preparations  14.1 5-30 11.6 5-30 
   Oil seeds, fats, oil and their products  10.1 5-15 7.4 5-15 
   Sugars and confectionary  21.4 10-30 18.8 6-30 WT/TPR/S/ 381 • Nepal  
 
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   MFN applied  SAFTAa 
 Average 
(%) Range (%)  Average 
(%) Range (%)  
   Beverages, spirits and tobacco  58.0 8.5-356.5  58.0 8.5-356.5  
   Cotton  0.0 0-0 0.0 0-0 
   Other agricultural products, n.e.s.  8.2 0-20 6.0 0-20 
WTO non -agricultural products  11.9 0-80 9.0 (8.9)  0-80 
   Fish and fishery products  10.6 5-15 7.5 5-11.3 
   Minerals and metals  12.0 0-46.5 8.8 (8.3)  0-46.5 
   Chemicals and photographic supplies  11.3 0-30 8.0 0-30 
   Wood, pulp, paper and furniture  13.4 0-30 8.6 0-30 
   Textiles  12.4 1-30 10.1 1-30 
   Clothing  19.9 15-20 19.8 7.3-20 
   Leather, rubber, footwear and travel goods  11.5 0-20 9.7 0-20 
   Non-electric machinery  6.5 0-30 5.3 0-30 
   Electric machinery  10.5 0-30 7.6 0-30 
   Transport equipment  22.7 0-80 20.2 0-80 
   Non-agricultural products, n.e.s.  11.4 0-80 5.9 0-30 
   Petroleum  18.5 3.9-30.8  16.3 3.9-30.8  
a Figures in brackets refer to averages for SAARC LDCs (Afghanistan, Bangladesh, Bhutan, and the 
Maldives).  
Note:  Including AVEs, as available.  
Source:  WTO Secretariat calculations, based on data received by the authorities.  
3.1.3.5   Tariff exemptions  
3.37.   Nepal provides tariff exemptions for certain products as in  Table 3.6 . 
Table 3.6 Customs duty exemptions  
Items  
1 PET chips of subheading 3907.61.00 and 3907.69.00 to be imported by industry producing partially 
oriented yarn (POY), on the basis of standards as fixed by the Department of Industry on the utilization 
ratio of raw materials, ratio of domestic consumption and export of finished products.  
2 Raw jute of subheadings 5303.10.00 and 5303.90.00 to be imported by jute industries.  
3 Postage stamps, aerograms, passports and excise stamps falling und er subheading 4907.00.00 and 
post cards of subheading 4909.00.00 to be imported by the Government of Nepal.  
4 The transfer of the ownership of vehicles in the name of the legal spouse (husband or wife) of an 
expired person, who imported the vehicles on pa rtial customs duty privilege for personal use.  
5 Crude petroleum oil of subheading 2709.00.00 and crude oil obtained from bituminous minerals 
produced in and imported from India.  
6 Goods of the following subheadings produced in and imported from India:  
25020000, 25041000, 25049000, 25101000, 25111000, 25112000, 25131000, 25132000, 25199000, 
25210000, 25251000, 25280000, 26011100, 26011200, 26012000, 26020000, 26030000, 26040000, 
26050000, 26060000, 26070000, 26080000, 26090000, 26100000, 26110000, 261210 00, 26122000, 
26131000, 26139000, 26140000, 26151000, 26159000, 26161000, 26169000, 26171000, 26179000, 
44011100, 44011900, 44012100, 44012200, 44013100, 44013900, 44021000, 44029000, 44031100, 
44031200, 44032100, 44032200, 44032300, 44032400, 44032500, 44 032600, 44034100, 44034900  
7 Partially oriented yarn (POY) of subheading 5402.46.00 and man -made staple fibres of subheadings 
55031100, 55031900, 55032000, 55033000, 55034000, 55039000, 55041000, 55049000, 55061000, 
55062000, 55063000, 55064000, 55069000 and 55070000 imported by the yarn manufacturing 
industry registered for VAT.  
8 Chassis of subheadings 87060040 and 87060050, motors of subheadings 85011000, 85012000, 
85013100, 85013200, 85013300, 85013400, 85014000, 85015100, 85015200, 85015300, 8506100,  
8506200, 8506300, 8506400 and battery chargers of subheading 85044000, imported by the registered 
industry which produces only electric, solar or battery operated three -wheeled or four -wheeled vehicles 
or transport vehicles to be used for their products.  
9 Blood preserving bags of plastics and transfusion sets of subheading 90179000, testing kits of 
subheading 30029010, and reagents of subheading 38220000 imported by the Nepal Red Cross Society 
needed for the blood circulation service.  WT/TPR/S/ 381 • Nepal  
 
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  Items  
10 Slate styluses of subheading 84719000, Braille note takers of subheadings 84713000 and 84719000, 
Braille printers of subheadings 84433200 and 84433900, water indicators, light indicators and colour 
indicative machineries of subheading 85318000, speaking thermometers of s ubheading 90251900, 
Braille typewriters of subheading 84729000, Braille watches of subheading 91029900, abacuses of 
subheading 90172000, magnifying glasses of subheading 90138000, Braille compasses of subheading 
90141000, Braille books of subheadings 49019 100 and 49019900, Braille embossers of subheading 
84433900, Braille stencil machines of subheading 84721000 to be used by blind people.  
11 Commode chairs of subheading 94018000, walkers of subheading 94037000, tri -cycles of subheading 
87120000 and crutche s of subheading 90219000 to be used by physically disabled persons.  
12 Coins, gold, silver; paper, metal, and chemicals for the purpose of minting; cheque books and 
miscellaneous goods needed for the bank, imported in the name of the NRB.  
Source:  Custom Tariffs Schedule, Department of Customs.  
3.1.4   Other duties and charges affecting imports  
3.38.   Nepal had committed to fully eliminate other duties and charges (ODCs) before acceding to 
the WTO, with a transition period of 10 years which ended in 2013. It also agreed not to introduce 
any new ODCs in the future. According to the authorities, no ODCs are applied, with the exception 
of:  
• an agriculture reform fee of 5% (or 8% on a small number of products) which is currently 
levied on selected agriculture products importe d from India and the Tibet Autonomous 
Region of China where no custom duty is applied; and  
• a road maintenance and reform fee, charged as NR 4 per litre for imports of petrol and 
NR 2 per litre for diesel.  
3.39.   The authorities also stated that a customs service fee of NR 565 per declaration is charged 
on import consignments with a value above NR 5,000.    
3.40.   In addition to customs tariffs, the Department of Customs also collects VAT and excise duties 
at the customs border, which represent a large part of Nepal's revenue collection ( Table  3.7 and 
Section 3.3.1 ).  
Table 3.7 Revenue collected at the customs border, FY 2012 -13 to 2017 -18 
(NR million and % of total revenue)   
2012 -13 2013 -14 2014 -15 2015 -16 2016 -17 2017 -18 
Total revenue (NR million)  327,375  396,316  450,023  524,783  731,786  764,514  
 VAT on imports (%)  16.8 16.7 16.2 13.9 13.7 16.0 
 Excise duties on imports 
(%) 4.5 4.5 5.0 5.6 5.1 6.1 
 Import duties (%)  15.5 15.8 15.7 14.8 13.4 15.2 
 Exports duties (%) 0.1 0.3 0.1 0.0 0.0 0.0 
 Agriculture service cha rge 
on impo rts (%)  0.5 0.6 0.8 0.7 0.6 0.6 
Note:  0.0% means less than 0.05% but greater than 0%.  
Source:  Budget Speeches for FY 2014 -15 to 2018 -19, viewed at: http://mof.gov.np/en/archive -
documents/budget -speech -17.html  [August 2018], and NRB (2017), A Handbook of Government 
Finance Statistics , Table 17.  
3.1.5   Import prohibitions, restrictions, and licensing  
3.41.   According to the Export and Import Control Act 1957, Nepal may prohibit or restrict imports 
of certain goods on the grounds of: protection of national security; protection of public dec ency, 
order or morals; protection of life or health of humans, animals or plants; protection of national 
treasures of artistic, historic or archaeological value; conservation of natural resources; compliance 
with the provisions of any legislation of the Go vernment; ensuring the availability of raw materials 
essential for domestic processing industries with potential for competitive capacity; and the 
fulfilment of obligations under the UN Charter and any multilateral conventions or bilateral 
agreement to whi ch Nepal is a party. Accordingly, the products as outlined in Table  3.8 are subject WT/TPR/S/ 381 • Nepal  
 
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  to import prohibitions in Nepal. Importations of used automobiles are also prohibited except when 
imported by diplomats.       
Table 3.8 Products subject to import prohibitions  
 Product description  
1 Health hazardable narcotic intoxicating goods such as hashish, heroin, opium, etc.   
2 Beef  
3 Hazardous ouzo dyes as specified by the Government, by publishing a notice in the Nepal Gazette  
4 Plastics scrap and bags and sheets of plastics below 20 micron thickness  
5 High carbon disposing incandescent light bulbs  
6 Goods prohibited/banned by other existing laws  
7 "Stacklector" or combine harvester with baler  
Source:  Ministry of Industry, Commerce and Supplies online information. Viewed at: 
http://www.nepaltradeportal.gov.np/index.php?r=site/display&id=5  [August 2018] .  
3.42.   As per notifications made to the WTO, Nepal requires import licences or permits for certain 
items: arms and ammunition; tobacco; specific communications equipment; ozone deple ting 
substances (ODS); poppy seeds; and furnace oil and petroleum products including LPG. The system 
is applied in the same manner to goods originating in all countries. For imports of arms and 
ammunition, and specified telecommunication equipment, the Dep artment of Commerce, Supply 
and Consumer Protection in the Ministry of Industry, Commerce and Supplies issues licences 
automatically under the recommendation of the Ministry of Home Affairs and the Ministry of 
Communication and Information Technology, resp ectively. No recommendation is required to issue 
import licences for tobacco. An import licence is also compulsory for goods imported without a 
banking channel, or goods imported on donation or free of charge. Nepal's most recent notification 
under Article  7.3 of the Agreement on Import Licensing Procedures was in 2015.23  
3.43.   The import licensing regime is regulated by the Export and Import Control Act 1957 and the 
Import Regulation 1978, and is administered by the Department of Commerce, Supplies and 
Consumer Protection. As per the Act, the Government has the authority to suspend or impose 
licensing requirements, provided that such actions are published in the Nepal Gazette .  
3.44.   Non-automatic import licensing is required for the products in  Table  3.9. Individuals importing 
for personal use, registered companies, and government owned enterprises are eligible to apply for 
import licences. An application for a licence is processed the same day or the following day, and the 
licence is generally issued for a period of s ix months, with the possibility of an extension for an 
additional six months. Depending on the value of the imports, an import licence fee ranging from 
NR 5,000 to NR 10,000 is charged.24 There is no penalty for non -utilization or under -utilization of a 
licence.      
Table 3.9 Imports requiring a licence or permit  
 Items  
1. Narcotic and psychotropic medicines and raw chemicals for those medicines, on the recommendation of 
the Ministry of Home Affairs.   
2. Arms and ammunitions, explosive substances, materials required to produce explosive substances, guns 
and bullets for gun caps except paper  and other explosive substances, arms and ammunition, on the 
recommendation of the Ministry of Home Affairs.   
3. Radio equipment, such as wirelesses, walkie -talkies, transmission receivers, link radio equipment , etc., 
and similar kinds of radio equipment such as for the transmission of words, dialogue, scenes and 
statistics, on the recommendation of the Ministry of C ommunication and Information Technology.  
Source:  Ministry of Industry, Commerce and Supplies online information. Viewed at: 
http://www.nepaltradeportal.gov.np/index.php?r=si te/display&id=5  [August 2018] .  
3.45.   The authorities stated that there are no tariff quotas, although there is a quantitative 
restriction for the import of poppy seeds for health reasons.  
                                                
23 WTO document G/LIC/N/3/NPL/2, 14 April 2015.  
24 There is no deposit or advance payment requirement associated with the issuance of licence.  WT/TPR/S/ 381 • Nepal  
 
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  3.46.   For imports of iodized salt and petroleum products (petrol, diesel, kero sene, aviation fuel and 
LPG), only the Salt Trading Corporation Ltd. and the Nepal Oil Corporation Ltd., respectively, are 
authorized to import these products ( Section 3.3.4.2 ).  
3.47.   According to the authorities, Nepal has  a "de -licensing" system, i.e. there i s no need for a 
licence to import, except for restricted goods (non -automatic import licensing). The only condition 
to import is that business firms and companies are registered either with the Department of 
Commerce, Supply and Consumer Protection, or wit h the Office of the Company Registrar . As 
licences are not required, a registered importer must open an L/C (Section 3.2.1) from commercial 
banks for imports. This L/C and supporting papers must be presented at the Customs Office.   
3.48.   Goods in transit through  India to Nepal require a letter of undertaking from the Consulate 
General in Kolkata, to ensure that the transit of goods does not violate Articles 8 and 9 of the Transit 
Treaty.25   
3.1.6   Anti-dumping, countervailing, and safeguard measures  
3.49.   According to the authorities, Nepal does not have any anti -dumping, countervailing or 
safeguard legislation, and it has notified this to the WTO.26 In the last Review, it was stated that a 
bill on anti -dumping and safeguards was being drafted.27 According to the authorities,  the draft 
Safeguard, Anti -dumping and Countervailing Act is still being prepared, and is based on WTO rules, 
and legislation in other countries.   
3.1.7   Other measures affecting imports  
3.50.   According to the Custom Regulation of 2007, demurrage is charged for goods not cleared 
from the customs office within seven days. Currently, demurrage has been charged as in  Table  3.10.  
Table 3.10 Demurrage for warehouses in customs  
Duration  Charge per day/kg  
Tribhuwan International 
Airport  Other customs offices  
Up to 30 days  NR 0.60  NR 0.40  
30 to 60 days  NR 1.00  NR 0.60  
More than 60 days  NR 1.40  NR 0.80  
Source:  DOC.  
3.2  Measures Directly Affecting Exports  
3.2.1   Customs procedures and requirements  
3.51.   The main laws and regulations governing exports are the same as for imports. The Customs 
Act 2007 and its Regulation are the legal basis for regulating exports, and are administered by the 
DOC. The customs clearance process follows the same procedure a s that for imports (se e 
Section  3.1.1). Once the customs declaration has been processed and export duties (if applicable) 
have been paid, the goods are released for export. As for imports, the necessary documents for 
exports differ for exports to India and to other countries. The documents, therefore, are largely the 
same as in  Table  3.1. For exports of handicrafts, a commercial invoice certified by the Federation of 
Handicrafts Associations of Nepal is required.  
3.52.   According to the Foreign Exchange Act (1962) and Rules (1963), ex ports are permitted only 
against advance payment or a letter of credit (L/C). This provision is to ensure that the payment for 
the goods is received by the exporter in Nepal. Thus, at the time of export, the exporter is required 
to declare that the export earnings will be repatriated to Nepal within six months in the case of 
transactions under L/C. There is no limit on advance payment but the buyer must remit the foreign 
exchange through a bank, or exchange the foreign currency with a bank in Nepal. The ban k issues 
                                                
25 WTO document WT/ACC/NPL/16, 28  August 2003, p. 15.  
26 WTO documents: G/ADP/N/1/NPL/1, 8 August 2012; G/SG/N/1/NPL/1 , 7 August 2012; and 
G/SCM/N/202/NPL, 8 August 2012  
27 WTO document WT/TPR/S/257/Rev.1, 19 April 2012, Section III(1)(v)(a).  WT/TPR/S/ 381 • Nepal  
 
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  a certificate of advance payment to the exporter, which needs to be produced at Customs at the 
time of export.28 
3.53.   Legislation provides that exporters may, if they have valid reasons, ask Customs to inspect 
and release the goods from the product site  or warehouse for the purpose of export. In this case, 
the exporter must first submit an application with the customs declaration form, including a fee of 
NR 1,000, to the Customs Office.     
3.54.   The Federation of Nepalese Chambers of Commerce and Industry (FNC CI) and the 
Confederation of Nepalese Industry (CNI) have been designated by the Government to issue 
certificates of origin. For preferential exports to India, the FNCCI provides the certificate, while both 
the CNI and the FNCCI may provide certificates to  other destinations. For exports that qualify for 
GSP treatment in the destination , the Form A , required for proof  of origin, is provided by the Trade 
and Export Promotion Centre.29  
3.55.   According to the World Bank's Ease of Doing Business reports, exports from  Nepal are more 
efficient in terms of hours and money spent than the regional average for South Asia ( Table  3.11).  
Table 3.11 Time and cost for exports, 2018  
  Nepal  South Asia  
Time to export (hours)  Border  compliance  56 59.4 
 Documentary compliance  43 77 
Cost to export (US$)  Border compliance  288 369.8  
 Documentary compliance  110 179.5  
Source:  World Bank Group (2018), Doing Business 2018: Reforming to Create Jobs – Economy Profile - 
Nepal . Viewed at: 
http://www.doingbusiness.org/~/media/WBG/DoingBusiness/Documents/Profiles/Country/NPL.pdf  
[August 2018].  
3.2.2   Taxes, charges, and levies  
3.56.   According to the authorities, export duties are applied to some products to protect the 
environment, ensure food security, and discourage trade diversion to neighbouring countries. About 
100 products are subject to export duties in FY 2017 -18 (Table A3. 2), mainly  vegetable s; maize; 
rice; wheat; oil cake; sand, stone and pebbles; and some woods. Specific rates are applied for 55 
tariff lines, and ad valorem  for 45 tariff lines.   
3.57.   Exports are zero -rated for VAT and exempt from excise duties ( Section 3.3.1 ). A customs 
service fee of NP 113 per declaration is charged for export consignments with a value above NP 
5,000.    
3.2.3   Export prohibitions, restrictions, and licensing  
3.58.   In order to achieve various policy objectives, Nepal prohibits the export of certain goods 
(Table  3.12).  
Table 3.12 List of products banned from exportation  
Name of product  Rationale for export ban  
Articles of archaeological, historical, and religious 
importance  
a. Foreign or Nepalese coins  
b. Idols of gods and goddesses,  palm leaf inscriptions (Tad 
Patra), plant leaf inscriptions (Bhoj Patra)  
c. Pauva (Thanka or traditional cloth paintings) of historical 
importance  Cultural and religious reasons  
                                                
28 Nepal Trade Information Portal online informa tion. Viewed at  
http://www.nepaltradeportal.gov.np/  [August 2018].  
29 Trade and Export Promotion Centre (TEPC) online information. Viewed at: 
http://www.tepc.gov.np/pages/exports -transit -procedure  [August 2018].  WT/TPR/S/ 381 • Nepal  
 
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  Name of product  Rationale for export ban  
Protected wildlife, protected body parts of wildlife, and 
endangered wildlife  
a. Untreated skin (including dry salted)  
b. Unprocessed wool and hair (fur) of wild animals  
c. Wild animals  
d. Bile and any  part of wild animals  Protection of wildlife  
Narcotic substances  
a. Intoxicating and narcotic drugs such as marijuana, opium, 
hashish (as defined  in the Single Convention of Narcotics 
1961, and the UN Convention Against Illicit Traffic in 
Narcotic Substances and Psychotropic Substance 1988)  Human health  
Explosive materials and ammunitions  
a. Explosive materials and fuses or materials needed therefor  
b. Materials used in the production of arms and ammunition  Public security  
Industrial machines, spare parts, and raw materials  
a. Industrial mills, machinery and spare parts thereof  To promote the development of 
small cottage industries  
Forest resources related to biodiversity and environment 
conservation  
a. Dactylorhiza hatagirea  and Juglans regia  
b. Non-processed valeriana jatamansi , Rock Exudat , Parmelia 
sps and other ( Lichen sps ), Abies spectabil is, Cinnamomum 
glaucescens  To conserve biodiversity and the 
environment  
Petrol and petroleum products  
a. Petrol  
b. Diesel  
c. Kerosene oil  
d. LPG  
e. Air fuel (except for international flights)  All these are imported products. 
The export ban is to maintain the 
regular supply and distribution in 
Nepal  
Other products  
a. Mamira  (a medicinal herb)  
b. Logs and timber from naturally grown plants  Exhaustible natural resources: 
most are from naturally grown 
plants. Their exportation is 
banned, and their domestic 
consumption restricted  
Source:  Information received from the authorities.  
3.59.   According to the authorities, Nepal does not apply quantitative restrictions on exports.  
3.2.4   Export support and promotion  
3.60.   The authorities stated that Nepal does not provide export subsidies. Furthermore, according 
to the most recent notification to the WTO, Nepal provided no export subsidies for agricultural 
products in 2011.30 However, exports of some agricultural products to destinations other than India 
may qualify for support under the Cash Incentive Scheme for Exports (CISE) (S ection 4.1 and 
Table  4.4), a lthough the authorities noted that the budget allocation for the Scheme was very small.    
3.61.   During the review period, the trade promotion regime remained largely the same. The Ministry 
of Industry, Commerce and Supplies is the leading agency promoting expor ts. The Trade and Export 
Promotion Centre (TEPC), which is under this Ministry, conducts export promotion activities, such as 
participating in international trade fairs.31  
3.62.   Since the implementation of National Trade Integration Strategy ( NTIS) 2010 and its update 
in 2016, Nepal has started focusing on the specific products identified with export potential (see 
Section 2.2). In addition to the main products identified in Table 2.2, other products such as fruit 
and vegetable juices; all fabricated steel and me tals; lentils; silver jewellery; instant noodles; paper 
products; wool products; honey; ready -made garments; coffee; semi -precious stones; and hydro -
electricity are also considered as priority products for export promotion.  
                                                
30 WTO document G/AG/N/NPL/3, 2 October 2012.  
31 Regmi, S., K. (2014), Export Promotion in Nepal , Nepalese Journal of Public Administration 124, 
pp. 166-176. WT/TPR/S/ 381 • Nepal  
 
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  Duty Drawbacks  
3.63.   Nepal continues the Duty Drawbacks system in its new Industrial Enterprises Act 2016 
(replacing the 1997 Act), which stipulates that any customs duty, VAT, or excise duty levied for 
items to be exported should be reimbursed. Exporters submit documents to the Single Window  
Committee in the Department of Industry in the Ministry of Industry, Commerce and Supplies, which 
examines and approves the duty refund.  
3.64.   According to the Customs Regulation 2007, industries in bonded warehouses are allowed to 
import raw materials and auxi liary raw materials, such as packing materials not manufactured in 
Nepal, under bank guarantee. If the raw materials are incorporated into exports, and exported within 
11 months of import, and the value -added over the imported raw materials is at least 10% , the 
bank guarantee is released by Customs within one month of submission of the application. Industries 
outside bonded warehouses that import raw materials (and auxiliary materials), may pay a cash 
duty deposit at the Customs Office. If the raw materials  are incorporated into exports and exported 
within 12 months, and if the value -added is over 10%, the cash deposit is released by Customs 
within one month of submission of the documents.  
Special Economic Zones (SEZs)  
3.65.   Nepal provides specific facilities and incentives to exporting industries which are run in the 
SEZs (Section 3.3.1, Section 4.3 and Table 4 .12 for details).  
3.2.5   Export finance, insurance, and guarantees  
3.66.   According to the authorities, Nepal does not have any official supported schemes or 
programmes for export finance, insurance, or guarantees.  
3.3  Measures Affecting Production and Trade  
3.3.1   Taxes and incentives  
3.67.   Out of total government revenue of NR 802 billion in FY 2017 -18, 83% was from taxes, the 
most important of which was VAT, followed by import duties, and excise duties. Although applied 
equally to imports and to domestic production, VAT collected at the border is about two thirds of 
total VAT, and excise duties collected at the border are about 45% of total excise duties ( Table  3.13).  
Table 3.13 Tax revenue FY 2012 -13 to FY 2017 -18 
(NR million)  
Fiscal Year  2012 -
13 2013 -
14 2014 -
15 2015 -
16 2016 -
17 2017 -
18 
Total revenue  327,375  396,316  450,023  524,783  731,786  764,514  
Tax revenue  259,144  312,441  355,955  421,097  553,867  657,752  
Taxes on income, profits and capital gains  64,178  75,609  86,165  114,138  144,846  165,861  
  of which      
  
    Individuals and sole traders  15,533  19,433  22,558  29,965  34,855  38,790  
    Enterprises and corporations  37,070  45,430  52,034  70,967  92,649  103,108  
    Investment and other income  11,576  10,746  11,574  13,204  17,343  23,963  
Payroll and workforce  1,881  2,449  2,926  3,270  4,137  4,604  
Taxes on property  5,323  6,671  9,399  13,149  18,294  15,911  
Taxes on goods and services  177,206  215,376  180,025  205,669  278,569  343,122  
  of which      
  
    VAT 83,391  101,111  112,522  122,412  161,068  197,509  
      of which VAT on imports  55,013  66,321  72,985  72,891  99,915  122,395  
    Excise  36,244  45,411  53,538  65,776  84,805  105,537  
      of which excise on imports  14,597  18,013  22,482  29,554  37,545  46,281  
Taxes on international trade and 
transactions  39,709  66,312  74,841  82,159  103,059  121,338  
  of which        WT/TPR/S/ 381 • Nepal  
 
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  Fiscal Year  2012 -
13 2013 -
14 2014 -
15 2015 -
16 2016 -
17 2017 -
18 
    Import duties  50,841  62,453  70,525  77,817  98,409  115,878  
    Export duties  419  1,065  311  111  125 109 
    Agriculture service cha rge on imports  1,725  2,328  3,377  3,412  4,112  4,783  
Source:  Budget Speeches for FY 2014 -15 to 2018 -19, viewed at:   
 http://mof.gov.np/en/archive -documents/budget -speech -17.html  
 [August 2018], and NRB (2017), A Handbook of Government Finance Statistics , Table 17.  
Income tax, corporation tax and SEZs  
3.68.   Nepal has a progressive system of income tax, with a top rate of 36% on income over 
NR 2 million, with reductions in some cases, such as for those working in rural areas, those with 
pension income, and those taking out life and/or health insurance. A different system applies to non -
residents, with a flat tax rate of 25% on income ( Table 3.14 ).  
Table 3.14 Income tax rates in 2017 -18 
Residents  Non-residents  
Individual  
NR Couple  
NR Tax rate Income type  Tax rate  
Up to 350,000  Up to 400,000  1% Income from normal transactions  25% 
350,000 -450,000  400,000 -500,000  10%   
450,000 –650,000  500,000 -700,000  20%   
650,000 -2,000,000  700,000 -2,000,000  30%   
2,000,000 upwards  2,000,000 upwards  36%   
Source:  Information provided by the authorities.  
3.69.   The standard rates of corporation tax are 20%, 25% or 30%, depending on the activity, with 
a range of exemptions or reductions as incentives. These exemptions or reductions apply to different 
activities,  including: exports of goods; employment of Nepalese citizens; industries in undeveloped 
areas; and enterprises in SEZs ( Table 3.15 ). Presumptive taxes apply to some activities carried out 
by natural persons, such as those engaged in providing public trans port, and small businesses. In 
some cases, presumptive taxes are an annual charge and, in other cases, they are based on revenue.  
Table 3.15 Corporation  taxes, reductions and exemptions in 2018 -19 
Activity  Tax rate  
Normal tax rate  25% 
Telecoms; Internet; money transfer; capital mark ets; finance and insurance; petroleum; 
cigarettes; alcoholic beverages  30% 
Special industries (most manufacturing, agriculture and mining);  
Construction and operation of road transport infrastructure;  
Projects to build, own, operate and transfer to the Government public infrastructure for 
power generation, transmission, or distribution;  
Exporting entities;  
Cooperative institutions registered under the Cooperative Act 1992.  20% 
Income of mutual funds.  0 
Reductions and exemptions for SEZs   
Industries in SEZs in mountainous and hilly districts:  
- first 10 years;  
- thereafter.   
Exempt  
50% of applicable rate  
Industries in SEZs in other areas:  
- first 5 years;  
- thereafter.   
Exempt  
50% of applicable rate  
Royalties of foreign investor s in SEZ s. 50% of applicable rate  
Dividends from an industry established in an SEZ : 
- first 5 years  
-  next 3 years.   
Exempt  
50% rebate  
Other exemptions and reductions   
Income from foreign technology and management service fee s; 
Income of IT industry established in an IT park, biotech park, or technology park , as 
specified in the official gazette;  
Income earned from the disposal of intellectual assets;  
Tea, textile and dairy industries.  50% of applicable rate  
Brandy base d on fruit, cider, and wine manufacturers in undeveloped areas (10 years).  40% rebate  WT/TPR/S/ 381 • Nepal  
 
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  Activity  Tax rate  
Entities listed in the securities market (manufacturing; tourism; hydroelectricity 
production, distribution and transmission);  
IT industry established in an IT park, biotech park and technology park as specified in 
the Gazette.  85% rebate  
Persons involved in petroleum exploration and extraction, mining, natural gas by 13 
April 2019 (BS end Chaitra 2075);  
Persons having licences to generate, transmit and distribute electricity if the commercial 
operations commence before 12 April 2024 (BS end -Chaitra 2080):  
- first 7 years;  
- next 3 years.   
 
 
 
Exempt  
50% of applicable rate  
Income from export sales for manufacturing industries;  
Royalty income from exports of intellectual assets by a person.  75% of applicable rate  
Income from construction and operation of roads, bridges, airports and tunnels or 
income investment in trams and trolley buses.  60% of applicable rate  
Special industry  with direct employment of Nepal ese citizens:  
- more than 100;  
- more than 300;  
- more than 500;  
- more than 1000;  
- more than 100 , of which at least one  third are women, Dalit, and/or disabled.  Of applicable rate  
90% 
80% 
75% 
70% 
Additional rebate of 10%  
Special industry, first 10 years, in following areas as defined by the Industrial 
Enterprises Act:  
- very underdeveloped regions;  
- undeveloped regions;  
- partly developed regions.   
Of applicable rate  
10%  
20%  
30%  
Hydropower projects, solar energy proje cts, waste -to-energy, and wind turbine projects 
commercially starting generation of electricity by 12 April 2024 (BS end -Chaitra 2080):  
-  first 10 years;  
-  next 5 years.   
 
Exempt  
50% of applicable rate  
New special industry with capital investment of NR 1 billion, direct employment of 500 
people;  
New tourism industry or international airline operators with capital investment of NR 2 
billion and operators increasing present capacity by 25% with new investment to 
increase  capital investment to NR 2 billion;  
Special industry increasing installed capacity by 25% with new investment to reach 
capital investment of NR 1 billion and employ 500 people:  
- first 5 years;  
- next 3 years.   
 
 
 
 
 
Exempt  
50% of applicable rate  
Special industry, and agriculture or tourism  industries employing at least 100 Nepal ese 
nationals.  30% rebate  
Dividends on special industries, and agriculture or tourism industries.  Exempt  
Transfer of a private limited company with capital of NR 500 million or more into a public 
limited company for the first 3 years after conversion . 10% rebate  
Community hospitals.  20% rebate  
Small scale industry with paid up capital of up to NR 50,000 (excluding land and 
buildings), annual turnover of less than NR  500,000, and up to 9 employees (including 
owner).  
- first 5 years (7 years if operated by a woman)  
 
Exempt  
Source:  BRSS & Associates Chartered Accountants (2018), Nepal Fiscal Budget Synopsis FY 2075/2076 (FY 
2018/19) , NBSM & Associates (2018),  Nepal Budget 2075/76 (2018/19) – Highlights from T ax 
Perspective , Kathmandu; Upadhya & Co. (2016), Nepal Taxation – 2016 Edition , Kathmandu, Budget 
Speech 2018 -19. 
3.70.   Under the Special Economic Zone (SEZ) Authority Act, 2016 ( Section 2.4 ), the Government 
may, based on a recommendation from the SEZ Authority,  create an SEZ as:  
• an Export Processing Area for export -oriented industries;  
• a Special Business Area to collect goods for export, through import or collection within the 
country, for s torage, classification, packaging and assembly; or  
• a Tourism or Entertainment Area for industries related to tourism and entertainment.  
3.71.   In addition to the corporation tax incentives in  Table  3.15, other incentives include: discounts 
on the lease or rent of land and buildings; exemptions from VAT, excise dut ies, customs duties, and 
local taxes; sales into an SEZ are treated as exports; the right to repatriate foreign investments; 
relaxed visa provisions; and the use of bonded warehouses (Section 4.3).    WT/TPR/S/ 381 • Nepal  
 
- 53 - 
 
  3.72.   At end -May 2018, there was one SEZ in operation, the Bh airahawa SEZ, near the border with 
India, with 13 companies operating on 38 plots having been granted permission to operate within 
the zone. A further 13 zones are at various stages of development.32 
Value added tax and excise duties  
3.73.   VAT is applied under the Value Added Tax Act of 1996 and Regulations of 1997. The standard 
rate for VAT is 13%, while some goods and services are exempt or zero -rated. Exempt goods and 
services include: basic necessities and/or agricultural products (e.g. rice, pulses flour, f resh fish, 
meat, eggs, fruit, flowers, edible oil, piped water, wood fuel); inputs for agricultural production; 
medical, veterinary and educational services, and associated goods; air transport; and financial and 
insurance services. Exports are zero -rated,  while VAT is charged on imports at the point of entry 
based on the c.i.f. price plus any duty or other taxes payable. The threshold for compulsory 
registration is NR 2 million annual taxable turnover for services and NR 5 million for goods.  
3.74.   Under the Exci se Act of 2002 and the Regulation of 2003, the Liquor Act of 1974 and 
Regulation of 1976, and the annual budget, excise duties are applied to 605 products at the national 
tariff line level, including alcohol and tobacco products (where they are specific du ties), and motor 
vehicles (where they are applied up to the level of a percentage of the price) (Table A3.3). In some 
years, duties on some domestic products was lower than on imported goods. In FY 2018 -19:  
• the excise duty on wine of up to 12% alcohol mad e from local ingredients (HS 2204.29.40) 
is NR 120 per litre, and the duty on imported wine of up to 12% alcohol (HS 2204.29.10) is 
NR 335 per litre; and  
• the excise duty for local cider (HS 2206.00.30) is NR 160 per litre compared to the duty on 
imported c ider (HS 2206.00.20) of NR 390 per litre.  
3.3.2   Standards and other technical requirements  
3.75.   The legal framework for standards and technical requirements has not changed since the last 
Review, and remains the Nepal Standards (Certification Mark) Act, 1980, and, fo r metrology, the 
Standards, Weights and Measures Act, 1969. According to the authorities, new legislation on 
standards and on accreditation is in the process of being prepared. However, this was also the 
situation in 2012.33 Other legislation relating to st andards and technical regulations includes: the 
Food Act, 1967; the Drug Act, 1978; the Consumer Protection Act, 1998; and the Environmental 
Act, 1997.  
3.3.2.1   Standards and technical regulations  
3.76.   The Nepal Council for Standards (NCS) is responsible for approving s tandards, while the Nepal 
Bureau of Standards and Metrology (NBSM) is the main agency responsible for preparing them. The 
NBSM also provides product and system certification services and testing and calibration services, 
and it is the enquiry point and not ification authority for TBT matters in the WTO. The NBSM is a 
member of the International Organization for Standardization (ISO), the South Asian Regional 
Standards Organization (SARSO), and the Asia Pacific Metrology Programme (APMP). It is also a 
corresp onding member of the International Organization for Legal Metrology (OIML), and an affiliate 
country for the International Electrotechnical Committee (IEC). According to the authorities, the 
NBSM is in the process of adopting the Code of Good Practice for the Preparation, Adoption and 
Application of Standards in Annex 3 to the TBT Agreement.  
3.77.   In addition to international and regional affiliations, NBSM has a number of bilateral 
arrangements, including the:  
• Agreement on Cooperation for Industrial Product Insp ection with the General Administration 
of Quality Supervision, Inspection and Quarantine (AQSIQ) of China, 2005;  
                                                
32 Information provide d by the authorities, and SEZ Authority online information. Viewed at: 
http://www.seznepal.gov.np/index.php  [August 2018].  
33 WTO document WT/TPR/S/257/Rev.1, 19 April 2012, Section III(3)( v). WT/TPR/S/ 381 • Nepal  
 
- 54 - 
 
  • Memorandum of Understanding (MoU) with the National Accreditation Board for Certification 
Bodies (NABCB) of India as a National Accreditation F ocal Point (NAFP), 2014;  
• MoU with the National Accreditation Board for Testing and Calibration Laboratories (NABL) 
of India as an NAFP, 2015;  
• MoU with the Bangladesh Standards and Testing Institution (BSTI), 2016; and  
• Bilateral Cooperation Agreement on S tandardization and Conformity Assessment with the  
Bureau of Indian Standards (BIS), 2017.34 
3.78.   Draft standards and technical regulations relating to goods and services, except for food and 
pharmaceuticals, are prepared by the NBSM. A working draft is first pre pared by a subcommittee of 
one of  the NBSM's technical committees. Once approved by the technical committee , the draft is 
circulated , with two months for comments. At the end of the comment period, the draft is reviewed 
and, if necessary, amended by the re levant technical committee and/or subcommittee. When 
finalized, the draft is sent to the N CS, which is chaired by the Minister for Industry, Commerce and 
Supplies, for approval and , once approved , it is published as a Nepal Standard and is available from 
the Department of Printing. All committees, including the NCS, include representatives from 
stakeholders including the private sector, consumers, and academia. The NBSM intends to publish 
its work programme on its website.  Once approved, the Government may make standards 
mandatory, in which case they are published in the Nepal Gazette . 
3.79.   At end -July 2018, the NBSM had developed 904 national standards (51 since 2012), covering 
products, processes, test methods and management systems. Eleven standa rds for products are 
mandatory and, therefore, technical regulations, of these four became technical regulations since 
2012 ( PVC Cable, LPG Regulators, LPG Valve s, and composite materials cylinders ). The other seven 
are for different types of cement, LPG c ylinders, dry cell batteries, iron bars, and galvanized iron 
wire. In addition, there is one mandatory process for LPG bottling operations. A list of standards and 
technical regulations prepared by the NBSM is available from the official government website .35 
3.80.   In general, standards are based on international standards, such as those of the ISO , the IEC, 
and the Codex Alimentarius , or on well -known national standards such as the British Standard 
Institut ion, and the B IS. Where comparable international standard s are not available , the NBSM 
generally drafts  standards based on national requirements. According to the authorities, out of the 
904 national standards, 106 were ISO standards.  
3.81.   The NBSM represents Nepal in SARSO, which is based in Dhaka in Bangladesh and sets 
harmonized standards for the members of the South Asian Association for Regional Cooperation 
(SAARC).36 There are six sectoral technical committees in SARSO responsible for preparing draft 
standards for: food and agricultural products; jute, textile an d leather; building materials; electrical, 
electronics, telecommunications, and information technology; chemicals and chemical products; and 
conformity assessment. SAARC standards, once adopted, replace national ones where they exist. At 
6 August 2018, 11 SAARC standards had been published.37  
3.82.   Standards relating to  the environment, food, and drugs are developed by  the relevant 
ministries  under legislation for each area . For example, the Department of Drug Administration in 
the Ministry of Health and Populati on is responsible for standards relating to pharmaceuticals, and 
the Department of Food Technology and Quality Control (DFTQC) in the Ministry of Agriculture and 
Livestock Development is responsible for standards relating to food and feed. At end -July 2018, 
there were 121 food commodity standards, some of which were based on Codex Alimentarius 
measures or, in the absence of Codex standards, Indian standards. All of these 121 standards relate 
to sanitary and phytosanitary measures and, therefore, they are co mpulsory.  
                                                
34 Nepal Bureau of Standards and Metrology online information. Viewed at: 
http://nbsm.gov.np/content.php?id=62  [May 2018].  
35 Official Portal of the Government of Nepal. Viewed at: https://nepal.gov.np/NationalPortal/view -
page?id=177  [August 2018].  
36 Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.  
37 SARSO online information. Viewed at: http://www.sarso.org.bd/#  [August 2018].  WT/TPR/S/ 381 • Nepal  
 
- 55 - 
 
  Testing and certification  
3.83.   The NBSM is responsible for the Nepal Standards certification mark (NS) system which may 
be used for products where standards or technical regulations exist. U nder the Nepal Standards 
(Certification Mark) Act, the certification mark is compulsory for a product to be placed on the market  
if the relevant standard is compulsory, while it is voluntary in other cases . Authorization to use the 
mark requires an audit from the NBSM , which includes testing and assessment of the requesting 
company , as required by the certification mark scheme and, after authorization, inspections and 
testing are carried out to ensure continued compliance with the standards and/or technical 
regulations .  
3.84.   For product certification, in June 2014, the NBSM was accredited (ISO 17065) by the NABCB 
of India for 13 products, including galvani zed iron wire, galvanized iron pipe, iron bars, PVC and 
HDPE pipes, three  types of Portland cement, and food and feed products . The NBSM has issued 320 
licences to use the NS mark for 60 different products. For certification of management systems, the 
NBSM has been accredited (ISO 17021) by the NABCB for quality management systems based on 
ISO 9001.  
WTO Technical Barriers to  Trade  
3.85.   Nepal made four notifications to the WTO, all in March 2013, relating to four mandatory 
standards on PVC Cable, LPG Regulators, LPG Valves, and composite materials cylinders .38 One 
specific trade concern was raised by other Members about Nepal's Nati onal Alcohol Regulation and 
Control Policy and graphic warnings and statements for alcoholic beverages.39 
3.3.3   Sanitary and phytosanitary requirements  
3.86.   Sanitary and phytosanitary (SPS) issues are important for Nepal, both from import and export 
perspectives, as a gricultural and food products are seen as having good export potential. However, 
according to the authorities, meeting SPS requirements in export markets has been difficult.  
3.87.   A number of government agencies are responsible for the policy, regulation and 
implementation of SPS measures, all in the Ministry of Agriculture  and Livestock Development:  
• The DFTQC is responsible for food products, feed stuffs, and food quality certification. The 
Central Food Laboratory is part of the DFTQC and it was accredited by th e NABL of India 
(ISO 17025) in 2012, with the scope of accreditation extended in 2017;  
• The National Plant Quarantine Program in the Department of Agriculture is responsible for 
issuing permits for imports of plant materials, quarantine inspections and phyt osanitary 
certificates for exports of plant products;  
• The National Animal Quarantine Office of the Department of Livestock Servi ces is responsible 
for issuing permits for imports of animal products, animal quarantine inspections and 
sanitary certificates f or exports of animal products;  
• The Seed Quality Control Centre (SQCC) is responsible for seed variety registration, seed 
quality inspection and certification; and  
• The Plant Protection Directorate is responsible for control of pesticides, herbicides, and o ther 
chemicals used on crops.  
3.88.   The legislation  on SPS measures has changed little since the last Review, and remains: the 
Plant Protection Act , 2007 and the Plant Protection Rule , 2010; the Contagious or Infectious Disease 
Act, 1963; the Animal Health and L ivestock Services Act , 1998; the Food Act 1967  and the Food 
Rules 1970 ; the Pesticides Act , 1991 and the Pesticides Rules , 1993; the Drug Act 1978  and the 
Drug Registration Regulation 1981 ; and the Directives on Export Import Inspection and Quality 
                                                
38 WTO documents G/TBT/N/NPL/1 to 4, 27 March 2013.  
39 TBT Information Management System, IMS ID 541.  WT/TPR/S/ 381 • Nepal  
 
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  Certification System , 2006.40 However, in 2013, the National Standards for Phytosanitary Measures 
were introduced, setting out a framework and details for pest risk analysis.  
3.89.   Under the Agriculture Development Strategy (ADS), the authorities intend to prepar e a new 
Food Act, as well as legislation on the accreditation of standards certification bodies and national 
laboratories for food safety and quality. In addition, under the ADS, an independent Food Authority 
is to be established, while the capacity of the  DFTQC, the Department of Agriculture, and the 
Department of Livestock are to be improved, along with improvements in inter -departmental 
coordination.  
3.90.   Nepal is a member of the World Organisation for Animal Health (OIE) and the Codex 
Alimentarius, a contra cting party to the International Plant Protection Convention, and has acceded 
to the Pesticides and Industrial Chemicals Convention (the Rotterdam Convention).  
3.91.   Under the Directives on Export Import Inspection and Quality Certification System , the DFTQC 
can, on a voluntary basis, provide export certificates. The DFTQC may also authorize other 
organizations to provide export certificates. However, as the Central Food Laboratory of the DFTQC 
is accredited by the NABL, only for some products and some tests, it s main role in assisting exports 
is issuing export certificates where the importing country requires them from the national food 
authority.  
3.92.   Import certificates are required for imports of food products, plants, plant products, live 
animals, livestock prod ucts, and inputs for livestock. According to the Directives: "The import 
certification will not discriminate among the trading partners having the consignments with the same 
level of risk. In other words, it shall be ensured that there will be no arbitrary  or unjustifiable 
discriminations among the consignments originating from different trading partners". Each 
application must be accompanied by supporting information, including: a description of the product; 
the name of the exporting country; the GMP/HACCP /ISO 9000 certification of the processing unit; a 
copy of the export certificate and quality certificate from the accredited national authority of the 
exporting country; and a sample of the product or an analysis report. Upon arrival of the 
consignment in Nepal, samples may be taken and checked for compliance with the import 
certificate.41 
WTO Sanitary and Phytosanitary Measures  
3.93.   In the WTO, t he enquiry point for SPS measures is the DFTQC , and the notification authority 
is listed as the Agribusinesses Promoti on and Statistics Division  in the Ministry of Agriculture, Land 
Management and Cooperatives  (which is now the Food Security, Agribusiness Promotion and 
Environment Division in the Ministry of Agriculture and Livestock Development) . Nepal has made a 
total o f 32 notifications on SPS measures to the WTO, including 3 addenda. Since 1 January 2012, 
it has made 13 regular notifications, including the Framework for Pest Risk Analysis, and a quarantine 
list of pests for apples, citrus, potatoes, ginger, garlic, ban anas, and coffee.42 No specific trade 
concerns were raised by other Members on SPS measures taken by Nepal, and Nepal has not raised 
any specific trade concerns relating to measures taken by other Members.43  
3.3.4   Competition policy and price controls  
3.3.4.1   Competition  policy  
3.94.   Competition policy development is the responsibility of the Ministry of Industry, Commerce 
and Supplies. The competition law is the Competition Promotion and Market Protection Act, 2007 
and its Implementing Regulation, 2010. Under the Act, the comp etition authority is the Competition 
Promotion and Market Protection Board, made up of representatives from: the Ministry of Industry, 
                                                
40 WTO document WT/TPR/S/257/Rev.1, 19 April 2012, Section III(3)(v) (c). 
41 Directives on Export Import Inspection and Quality Certification System in Nepal, 2006. Viewed at: 
http://www.spsenquiry.gov.np/ uploads/files/Text%20of%20Notification%20NNPL5%20Exp%20Imp%20Dir%2
0for%20Food.pdf  [May 2018].  
42 WTO documents G /SPS/N/NPL/15 to NPL/27 , 18 September 2012 to 28 June 2017.  
43 WTO Sanitary and Phytosanitary Information Management System online database. Viewe d at: 
http://spsims.wto.org/  [May 2018].  WT/TPR/S/ 381 • Nepal  
 
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  Commerce and Supplies; the Ministry of Finance; the Ministry of Law, Justice and Parliamentary 
Affairs; and the Ministry of Agriculture and Livestock Development.44  
3.95.   The Act does not apply to export business es, small business es and farms,  collective 
bargaining , research and development , management collaboration , or collaboration for 
organizational and procedural improvements meant to improve  trade capacity . In addition, the Act 
exempts actions relating to the exercise of intellectual property rights and actions taken to improve 
the quality of goods and services that result in improvements in the interests of consumers.  
3.96.   Further more, some sectors are regulated under sector -specific laws, including: the financial 
and banking sector, which is regulated by the NRB; the securities market, which is regulated by the 
Securities Board; and the telecommunications sector, which is regulate d by the Nepal 
Telecommunications Authority.  
3.97.   The Competition Promotion and Market Protection Act prohibits:  
• anti-competitive agreements: According to the Law, agreements which are intended to limit 
or control competition for like or similar goods or services are prohibited, including price 
setting, production or distribution controls, limits to supply, restraints of sale or purchase, 
market allocation, and bid -rigging;  
• abuse of dominant position: Although dominant position, per se , is not prohibited, abuse of 
that position is prohibited. Dominant position is defined as an enterprise or group of 
enterprises with at least a 40% market share, or which are in a position where they may 
affect the relevant market;  
• mergers and amalgamations: Mergers or amalg amations, including taking a controlling 
interest in another enterprise, with the intent of maintaining a monopoly or restricting trade, 
are prohibited. This prohibition applies whenever the merger or amalgamation would result 
in a market share of more tha n 40%;  
• bid-rigging: A bidder for a public procurement contract may not enter into agreements with 
other potential bidders to restrict or manage bids or share information with them; and  
• other activities including e xclusive dealing, market restriction s, tied selling, and misleading 
advertisement s. 
3.98.   Any person or enterprise with information relating to restrictions on competition may make a 
complaint to the Com petition Promotion and Market Protection Board  or to a designated market 
protection officer. Market pr otection officers are responsible for investigations into restrictions on 
competition and, upon completion of an investigation, may file a complaint in the commercial bench 
of the Appellate Courts. Punishment for breaches of the Act include fines of up to NR 500,000 for 
anti-competitive agreements, abuse of dominant position, and merger or amalgamation with intent 
to restrict trade, or lesser fines for other offences. The Act also allows for leniency for collaboration 
with the market protection officer befo re or during an investigation. In 2013, it was reported that: 
"the board, including market officers, has failed to conduct a single case of anti -competitive conducts 
and file a case in the court".45 However, the authorities noted that market officers operat e using the 
Joint Market Monitoring Guidelines, which take into account the provisions of different laws and, at 
end-June 2018, although no cases had gone to court under the Competition Promotion and Market 
Protection Act, about 30 competition -related case s were ready to be filed under the Food Act and 
another 1 under the Black Market and Other Social Offences and Penalty Act.  
3.3.4.2   Price controls  
3.99.   The Nepal Oil Corporation Ltd. (NOC) is a state -owned trading company, established in 1970 
by the Government, with so le rights to import, transport, store, and distribute petroleum products. 
                                                
44 Competition Promotion and Market Protection Act, 2007, as amended by the Act Amending Some 
Nepal Acts 2007. Viewed at: http://www.wipo.int/edocs/lexdocs/laws/en/np/np002en.pdf  [May 2018].  
45 Khatiwada, A. (2013), Nepal, pg. 3, in Case Law Analysis of TBT and SPS Agreements , CUTS -CCIER. 
Viewed at: http://www.cuts -ccier.org/CIRCOMP -II/pdf/Book/Asia_Pacific/23 -Nepal.pdf  [May 2018].  WT/TPR/S/ 381 • Nepal  
 
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  All imports are from the Indian Oil Corporation. In September 2014, the NOC introduced the 
Automatic Petroleum Pricing Mechanism, under which the retail price is reviewed every fortn ight and 
may be adjusted whenever the price changes by 2% or more. As a result, petroleum prices are 
revised every 15 to 30 days based on international prices.  
3.100.   With the agreement of the Government, the Salt Trading Corporation (STC), which has a 
monopoly on iodized salt and in which the State has a minority holding, sets retail prices for iodized 
salt. It was reported that, in 2017, STC sought to raise prices, as retail prices were below cost 
prices.46 
3.101.   As noted in the last Review, under the Essential Commod ities Control (Authorization) Act, 
1961, the Government may control or regulate the production, distribution or trade of essential 
products, which include: cereals, lentils and some other food products; fuel; salt; cement; and 
medicines.47 However, during t he review period, the Act was not applied to any product.  
3.3.5   State trading, state -owned enterprises, and privatization  
3.102.   There are four statutory monopolies, of which two are fully state -owned: the Nepal Electric 
Authority; and the NOC. The other two are partia lly state -owned:  the STC, which is 21.32% 
state-owned; and the Kathmandu Valley Drinking Water, which is 80% owned by the Government 
and municipalities.  
3.103.   Nepal has not made any notifications to the WTO relating to state -trading enterprises. 
According to the  Yellow Book at the Ministry of Finance, there are 40 wholly, or majority state -owned 
enterprises (SOEs) , employing about 30,000 people ( Table  3.16).48 Although this appears to be an 
increase in the number of SOEs since the last Report, this is the result o f the separation of the 
National Insurance Corporation into life and non -life businesses, the unbundling of the electricity 
authority, and the inclusion of Nepal Bank Ltd. in the list. The Bank  has always been majority 
state-owned but its performance had b een reported separately from other SOEs. Not all the SOEs in 
the Yellow Book are operating, with several reporting no profits or losses and/or no employees 
(Table  3.16). In addition, the State has minority holdings in 26 companies.  
3.104.   During the period 1992 to 2008, 30 SOEs were liquidated, sold, or partially sold, with the 
State retaining majority ownership of Nepal Lube Oil (40% of shares sold in 1994), Nepal Bank Ltd. 
(10% sold in 1997), and, in the last action under the privatization programme, Nepal Tele com 
(8.53% sold in 2008).49  
3.105.   SOEs were created for various reasons: some to provide reasonably priced goods or services, 
such as Nepal Drugs Ltd., and the Nepal Housing Development Finance Co. Ltd; and others to ensure 
the regulation of services, such as th e Civil Aviation Authority. In many cases, the companies are 
small, with less than 100 employees and an operating profit or loss of under NR  300 million 
(Table  3.16).50 
3.106.   Some of the SOEs are consistently loss -making, such as Nepal Drugs Ltd., Nepal Orind 
Magnesite Pvt Ltd., and Nepal Television. On the other hand, some consistently make profits, such 
as most of the financing institutions. The A sian Development Bank's 2013 country partne rship 
strategy stated that loss -making public enterprises, such as the Nep al Electricity Authority and the 
NOC, should be restructured, and their management and financial systems improved.51 However, 
the results for FY 2016 -17 and 2017 -18 show that SOEs as a group are now profitable, including, 
                                                
46 New Business Age (2017), Salt Trade Ltd. Proposes Hike in Salt Price , 6 February. Vi ewed at: 
http://newbusinessage.com/Articles/view/5294  [May 2018].  
47 WTO document WT/TPR/S/257/Rev.1, 19 April 2012, Section III(3)(i ii). 
48 Ministry of Finance (2018), Annual Performance Review of  Public Enterprises 201 8, Kathmandu. 
Viewed at: http://mof.gov.np/en/archive -documents/soe -information --yellow -book-29.html  [August 2018].  
49 WTO document WT/TPR/S/2 57/Rev.1, 19 April 2012, Section III(3)(iv).  
50 Ministry of Finance (2013), Annual Performance Review of Pubic Enterprises 2013 , Kathmandu 
(English). Ministry of Finance (2018), Annual Performance Review of Public Enterprises 2017,  Kathmandu 
(Nepali). Viewe d at: http://mof.gov.np/en/archive -documents/soe -information --yellow -book-29.html  
[May 2018].  
51 Asian Development Bank (2013), Country Partnership Strategy – Nepal 2013-2017, October, pg. 2. 
Viewed at: https://www.adb.org/sites/default/files/institutional -document/34001/files/cps -nep-2013-2017.pdf  
[May 201 8]. WT/TPR/S/ 381 • Nepal  
 
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  following a change in the fuel pric ing policy (Section 4. 2), the NOC. The Corporation Co -ordination 
Division in the Ministry of Finance is responsible for SOE policy and managing privatization52, while 
the semi -autonomous Public Enterprises Management Board regulates and oversees the 
management of SOEs.  
Table 3.16 SOEs, operating profits and numbers of employees  
 
SOE Operating profit ( loss) 
(NR million)  Number of employees  
 Actual 
2011 -12 Actual 
2016 -17 Estimate 
2017 -18 Actual 
2011 -12 Actual 
2016 -17 Estimate 
2017 -18  
Industrial sector        
1 Dairy Development 
Corporation   (1,997)  (2,139)  50 1,117  1,122  1,149  
2 Herbs Production and 
Processing Co. Ltd.   (393)  71 71 204  166 166 
3 Hetauda Cement 
Industries Ltd.   (1,325)  1,549  2,440  548  386 414 
4 Janakpur Cigarette Factory 
Ltd.  (3,833)  (384)  - 812  33 33 
5 Nepal Drugs Ltd.   (433)  (1,387)  (2,959)  269  110 110 
6 Udayapur Cement 
Industries Ltd.   (824)  377 3,940  502  405 465 
7 Nepal Orind Magnesite Pvt. 
Ltd.  (1,242)  (1,195)  (6,184)  23  23 22 
 
Total   (10,047)  (3,107)  (2,642)  3,475  2,245  2,359   
Trading sector   
   
  
8 Agriculture Inputs 
Company Ltd.   (323)  1,321  529 275  270 296 
9 National Seeds Company 
Ltd.  (139)  455 43 73  79 79 
10 National Trading 
Corporation Ltd.   (1,475)  14,303  - 369  42 - 
11 Nepal Food Corporation  5  642 681 440  268 280 
12 NOC  (97,159)  104,114  109,319  623  728 1,099  
13 The Timber Corporation of 
Nepal Ltd.   (1,423)  (188)  923 181  181 102 
 
Total   (100,514)  120,647  111,495  1,961  1,568  1,856   
Service sector        
14 Industrial District 
Management Ltd.   (310)  404 214 194  207 220 
15 National Construction 
Company Nepal Ltd.   (161)  0 0 34  0 0 
16 Nepal Transit and 
Warehouse Ltd.  67  255 262 121  58 58 
17 Nepal Eng. Consultancy 
Service Cen. Ltd.  0    0 0 0    0 0 
18 Nepal Airlines Corporation  1,008  1,663  737 1,411  1,406  1,512  
19 National Productivity & 
Eco. Dev. Centre Ltd.   (105)  (71) (205)  25  15 13 
20 Civil Aviation Authority of 
Nepal  22,249  15,072  7,874  973  890 890 
 
Total  22,748  17,323  8,882  2,758  2,576  2,693   
Social sector   
   
  
21 Sanskritik Sansthan  146  (276)  (164)  78  84 84 
22 Gorkhapatra Sansthan  741  1,009  0 549  375 0 
23 Janak Shiksha Samagri 
Kendra Ltd.   (315)  (3,162)  606 764  435 425 
24 Nepal Television   (1,021)  (960)  (1,253)  401  403 439 
25 Rural Housing Company 
Ltd. 22  (334)  701 77  76 0 
 
Total   (427)  (3,723)  (111)  1,869  1,373  948  
Public utility sector   
   
  
26 Nepal Drinking Water 
Corporation   (1,350)  (2,079)  2,747  729  569 550 
27 Nepal Electricity Authority   (116,432)  15,122  4,382  9,013  8,351  8,709  
                                                
52 Ministry of Finance online information. Viewed at: http://mof.gov.np/en/divisions/corporation -co-
ordination -division -39.html  [May 2018].  WT/TPR/S/ 381 • Nepal  
 
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SOE Operating profit ( loss) 
(NR million)  Number of employees  
 Actual 
2011 -12 Actual 
2016 -17 Estimate 
2017 -18 Actual 
2011 -12 Actual 
2016 -17 Estimate 
2017 -18 
28 Nepal Doorsanchar 
Company Ltd (Nepal 
Telecom)  116,329  153,728  162,993  5,536  4,286  4,310  
29 Electricity Production 
Company  n.a. (323)  305 n.a. 7 12 
30 National Electricity Grid  n.a. 47 83 n.a. 19 19  
Total   (1,453)  166,495  165,016  15,278  13,232  13,600   
Financial sector   
   
  
31 Agricultural Development 
Bank Ltd.   (1,027)  25,652  28,388  3,303  2,632  2,558  
32 Rastriya Beema Sansthan 
(Life)  10,182  2,370  2,307  75  74 80 
33 Rastriya Beema Sansthan 
(Non-Life) 1,533  68 80 137  81 166 
34 Nepal Industrial 
Development Corporation 
Ltd. 4,948  2,090  778 53  46 43 
 
35 Rastriya Banijya Bank Ltd.  248  27,763  37,128  2,644  2,248  2,547  
36 Deposit and Credit 
Guarantee Corporation 
Ltd. 2,295  9,206  9,439  26  44 44 
37 Nepal Stock Exchange Ltd.  705  3,721  4,093  37  31 79 
38 Citizen Investment Trust  5,539  9,684  4,801  111  127 153 
39 Hydroelectricity 
Investment and 
Development Company 
Ltd. 5,074  4,910  6,632  10  16 16 
40 Nepal Bank Ltd.  n.a. 31,179  20,257  n.a. 2,112  2,112   
Total  29,725  116,643  113,904  6,414  7,411  7,898   
Grand total (59,968)  414,278  396,545  31,755  28,405  29,354  
n.a. Not applicable (i.e. not listed).  
Source:  Ministry of Finance Yellow Books 2013/14 and 2018/19.  
3.3.6   Government procurement  
3.107.   Nepal is neither a party nor an observer to the WTO Government Procurement Agreement. 
The Public Procurement Act, 2007 (as amended), and the Public Procurement Regulations, 2007, 
apply to all procurement by all public bodies, including central and local go vernment bodies, and 
wholly and majority state -owned enterprises. Although each public entity is responsible for 
procurement, the Public Procurement Monitoring Office (PPMO), which was established under the 
Act, is responsible for, inter alia: ensuring goo d governance in public procurement; developing 
policy; monitoring implementation of the law; developing and issuing standard bidding documents; 
issuing manuals, directives, instructions and technical notes; soliciting the views of stakeholders on 
the procu rement system; and coordinating public procurement.53 
3.108.   Under the Act, each public procurement entity is required to set up a procurement unit and 
set out a description of the goods, services and works to be procured, cost estimates, a procurement 
plan, the p rocurement methods based on cost estimates and thresholds, and the technical 
requirements required from bidders. In addition, each procurement entity must prepare a master 
procurement plan for contracts of more than one year or with a value of more than NR  100 million, 
and an annual procurement plan for all contracts of more than NR 1 million. It has been reported 
that: "most PEs do not have master or annual procurement plans in place, that there is poor 
correlation between procurement and budgeting and tha t PEs have weak skills in preparing cost 
estimates".54 However, the authorities noted that all public bodies are required to have a 
procurement plan and a procurement officer, and all are monitored by the PPMO and subject to 
                                                
53 PPMO online information. Viewed at: http://ppmo.gov.np/home  [August 2018].  
54 Japan International Cooperation Agency, The Crown Agents for Oversea Governments and 
Administrations Ltd. (2013), Study on Public Procurem ent Systems and Capacity in South Asian Countries – 
Final Report , February, Sutton. Viewed at: http://open_jicareport.jica.go.jp/pdf/12087599.pdf  [August 2018].  WT/TPR/S/ 381 • Nepal  
 
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  audits. Furthermore, amendments to the Public Procurement Act are intended to simplify procedures, 
and e -bidding is now compulsory for contracts of NR 5 million and above.  
3.109.   Although discrimination is prohibited, goods manufactured in Nepal should be acquired if the 
difference in price compared to foreign goods is not more than 10%, and for consultancy services, 
international consultants must have a local agent.  
3.110.   Thresholds and the related procurement methods are in  Table  3.17. A contract may not be 
divided into separate lots so that a lo wer method of procurement can be used.  
Table 3.17 Procurement methods and thresholds  
(NR) 
Method  Goods and services  Works  Consultancy services  
National level open tendering   More than 1,000,000  More than 2,000,000   
International tendering  Open international bidding is used when: the goods or services are not 
available in Nepal; no bids were received under national bidding; a donor 
requires international bidding, or the contract is complex and requires 
international bidding.  
Sealed quotes  300,000 to 1,000,000  500,000 to 2,000,000   
Direct purchase   Up to 300,000  Up to 500,000   
Users committee or beneficiary 
group  Up to 6,000,000  Up to 6,000,000   
Force account  Minor regular works, goods, services.  
Competitive proposal  n.a. n.a. Over 100,000  
Direct negotiation  n.a. n.a. Up to 100,000  
n.a. Not applicable.  
Source:  Public Procurement Regulations , 2007 (last amended in 2016).  
3.111.   Prequalification criteria are required for "large" and "complex" construction works or "high 
value" goods; these terms are to be defined by the PPMO. They may also be used based on the 
decision of the procuring entity. However, they may not be used for works contracts with an 
estimated value of less than NR 6 million. W hen prequalification is used, all qualified applicants must 
be invited to bid.  
3.112.   Under tendering, single -stage bidding is normally required, although two -stage bidding may 
be used where it is not feasible to define all technical aspects in the tender, or if the complex nature 
of the procurement means the procuring entity must discuss it with the bidders. Contracts should 
be awarded to the lowest evaluated bid, taking into account the preference for Nepalese goods and 
companies (see above), where the terms of evaluation are set out in the bidding documents.55  
3.113.   A complaint concerning public procurement should be made within seven days of the bidder 
becoming aware of an error in the process or of a breach of the rules. In the first instance, the 
complaint should b e made to the head of the procuring entity (unless the contract is already in 
force), which has seven days in which to respond. For a contract over NR 30 million, if the head of 
the procuring entity has not responded within the deadline, or the complainant  is not satisfied with 
the response, a complaint may be submitted to the Review Committee in the PPMO along with a 
security deposit of 0.5% of the value of the contract. Although there are provisions in the Public 
Procurement Act for complaints, it has bee n reported that: "in practice, the majority of procurement 
complaints are submitted to the courts or to anti -corruption organisations, such as the Commission 
on Investigation of Abuse of Authority and National Vigilance Centre".56 
                                                
55 Adhikari, R. P. (2015), Public Procurement Issues and Challenges in Nepal , Journal of Engineering 
Economics and Management, Vol. 2 -3, January pp 3 -27. Japan International Cooperation Agency, The Crown 
Agents for Oversea Governments and Administrations Ltd (2013), Study on Public Pr ocurement Systems and 
Capacity in South Asian Countries – Final Report, February, Sutton. Viewed at: 
http://open_jicareport.jica.go.jp/pdf/12087599.pdf  [April 2018].  
56 Japan International C ooperation Agency, The Crown Agents for Oversea Governments and 
Administrations Ltd (2013), Study on Public Procurement Systems and Capacity in South Asian Countries – 
Final Report, February, Sutton , pg. 112 . Viewed at: http://open_jicareport.jica.go.jp/pdf/12087599.pdf  
[April  2018].  WT/TPR/S/ 381 • Nepal  
 
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  3.114.   Starting in 2012, the PPMO  began the development of an electronic government 
procurement (e -GP) system, which was developed with assistance from the Asian Development 
Bank, the United Kingdom, and the European Union. The comprehensive e -GP system began 
operating in July 2016, and c overs all stages of public procurement from user registration to awards 
of contracts. The e -GP system will replace existing systems used by public procurement entities, 
with plans to use it to cover A sian Development Bank- and World Bank -funded projects as  well.57 At 
April 2018, there were 965 public entities using the e -GP system and 4,229 registered users.  
3.115.   Data were unavailable on public procurement spending, numbers of contracts, procurement 
methods, or the number and value of contracts awarded to Nepales e and foreign companies.  
3.3.7   Intellectual property rights  
3.116.   The Department of Industry in the Ministry of Industry, Commerce and Supplies is 
responsible for policy formulation and the preparation of draft legislation on intellectual property 
(IP). In addition to  the WTO, Nepal is a member of the World Intellectual Property Organization 
(WIPO), a party to the Paris Convention for the Protection of Industrial Property, and the Berne 
Convention for the Protection of Literary and Artistic Works. It is not a member of  the Madrid Union 
relating to the Madrid Agreement and Protocol Concerning the International Registration of Marks58 
or the Lisbon Agreement for the Protection of Appellations of Origin and their International 
Recognition.59 
3.117.   The new Constitution includes IP within the definition of property, and states that: " Every 
citizen shall, subject to law, have the right to acquire, own, sell, dispose, acquire business profits 
from, and otherwise deal with, property " (Article 25). During the period under review, there w ere 
no changes to the legislation on IP ( Table  3.18) and, as noted in the last Report, c urrent legislation 
does not cover layout designs, geographical indications  (GIs), plant varieties, or undisclosed test or 
other data .60 Although the National Seeds Board  may register and grant ownership rights on new 
plant varieties and establish ownership rights for traditionally used local plant varieties, there are no 
specific provisions for such rights in the Seeds Act , and no plant breeder has applied for ownership 
rights.61 On the other hand, in 2017 , there were 605 varieties of 65 crops registered and released 
in Nepal.62 
                                                
57 Asian Development Bank (2016), Instituting e -Government Procurement in Nepal , Knowledge 
Showcases, Issue 66, June. Viewed at: https://www.adb.org/sites/default/files/publication/184930/ks066 -e-
gov-procurement -nepal.pdf  [April 2018].  
58 WIPO online information. Viewed at: http://www.wipo.int/madrid/en/members/  [July 2018].  
59 WIPO online information. Viewed at: http://www.wipo.int/treaties/en/registration/lisbon/  [July 2018].  
60 WTO document WT/TPR/S/257/Rev.1, 19 April 2012, Section III, paragraph 111.  
61 Shrestha, P. K. (2016), Commentary on the Nepalese Seeds Act and Seeds Regulation , in Farmers' 
Crop Varieties and Farmers' Rights – Challenges in Taxonomy and Law , edited by Hal ewood, M., London and 
New York, Routledge, pp 324 -331. Viewed at: https://www.bioversityinternat ional.org/e -
library/publications/detail/farmers -crop-varieties -and-farmers -rights -challenges -in-taxonomy -and-law/ [April 
2018].  
62 Joshi, B.K. (2017), Plant Breeding in Nepal: Past, Present and Future , Journal of Agriculture and 
Forestry University, Vol. 1 (2017): I -33.  WT/TPR/S/ 381 • Nepal  
 
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  Table 3.18 IP legislation  
Legislation  Protection  Agency  
Patent, Design and Trademark 
Act, 1965  
 Patents: 7 years, with a possibility 
of two renewal periods of 7 years 
(maximum 21 years).  
Industrial designs: 5 years, with a 
possibility of two renewal periods 
of 5 years (maximum 15 years).  Department of Industry, Ministry 
of Industry, Commerce and 
Supplies 
Copyright Act, 2002  
Copyright Rules, 2004  Authors' rights: 50 years from the 
death of the author.  
Work published in volumes: 50 
years from the date of the first 
publication of such work, or the 
date on which the work is made 
public, whichever is earlier.  
Cinematographic or audiovisual 
works: 50 years from the 
first publication.  
Performers: 50 years from the 
first publication.  
Producers of phonograms: 50 
years from the first publication.  
Producers of film: 50 years from 
the first publication.  
Broadcasting organizations: 50 
years from the first publication.  
Photographs: 25 years from the 
year of preparation of such work.  Copyright Registrar Office, 
Ministry of Culture, Tourism, and 
Civil Aviation  
Seeds Act, 1988  Registration and grant of 
ownership.   National Seed Board, Ministry of 
Agriculture, Land Management 
and Cooperatives  
Source:  Data received from the  authorities , and WTO document WT/TPR/ S/257/Rev.1 . 
3.118.   Fees for the registration and renewal of intellectual property rights (IPRs) are the same for 
foreign and domestic applications, and have not changed since the last Review, except for the fees 
for a copy of the registration certificate for industrial designs and trademarks, which were increased 
from NR  500 each to NR 1,000 and NR 2,000, respect ively ( Table  3.19).  
Table 3.19 Registration and renewal fees, 2018  
(NR) 
Particulars of fees  Patent  Design  Trademark  
Application  2,000  1,000  1,000  
Application amendment  500 500 500 
Registration  10,000  7,000  5,000  
Transfer of ownership  5,000  3,000  2,000  
Changes in record  2,000  1,000  1,000  
Search of registration  750 750 500 
Complaint and opposition  1,000  1,000  1,000  
Copy of registration certificate  1,000  1,000  2,000  
Renewal (annual rate)  
a. For the first term  
b. For the second term  n.a. 
5,000  
7,500  n.a. 
1,000  
2,000  500 
n.a. 
n.a. 
n.a. Not applicable.  
Source:  Department of Industry online information. Viewed at: http://iponepal.gov.np/fee.php  
[August  2018].  
3.119.   The last Report noted that a new law on industrial property was being prepared, which would 
cover all categories of industrial property rights, including layout designs, parallel imports, 
compulsory licensing, and the Amendment to the TRIPS Agreeme nt (the latter was accepted by WT/TPR/S/ 381 • Nepal  
 
- 64 - 
 
  Nepal on 11 March 201663).64 At April 2018, the new legislation had not been passed but, in 2017, 
the Government released its first National Intellectual Property Policy65 and, in 2015, the National 
Information and Communication  Technology (ICT) Policy, which addressed the protection of IP on -
line. 
3.120.   The National Intellectual Property Policy sets out five objectives:  
(i) to encourage protection, promotion and development of IP ; 
(ii) to develop a balanced IP system ;  
(iii) to create awareness abo ut the social, economic and cultural aspects of IP ; 
(iv) to encourage the commercialization of IP ; and  
(v) to strengthen the legal, administrative and human resources to ensure protection and 
enforcement of IP.  
3.121.   To achieve these objectives, the Policy aims to revise the existing legislation and legislate 
for GIs, petty patents, traditional/cultural knowledge, integrated circuits, trade secrets, biodiversity, 
and plant variety protection. In addition, enforcement of IP protection, and awareness and promotion 
of IPRs are to be addressed. A National Intellectual Property Council is to be established, consisting 
of representatives from civil society, the public sector, and experts, to assist policy development.66 
3.3.7.1   Copyright  
3.122.   Copyrights may be registered with the Copyri ght Registrar's Office in the Ministry of Culture, 
Tourism and Civil Aviation. Although registration is not required for copyright protection, registration 
is useful for proof of copyright and for licensing and commercial exploitation.  
3.123.   In general, protecti on is 50 years from creation for films, performances, and recordings, or 
from the death of the author for authors' rights, or 25 years for photographs ( Table  3.18). According 
to the Copyright Act, 2002, fines for infringement may range from NR 10,000 to 10 0,000 and 
imprisonment for up to six months for the first infringement and double that for second and 
subsequent infringements. In addition, the owner of the copyright should be compensated for any 
loss incurred through the infringement. Data on the number  of cases taken to the courts were not 
available.  
3.124.   Copyright registrations vary from one year to the next, from as low as 59 in FY 2011 -12 to 
213 in FY 2013 -14.67  
3.3.7.2   Trademarks  
3.125.   Trademarks for goods and service marks for companies should be registered with the 
Industrial Property Section in the Department of Industry in the Ministry of Industry, Commerce and 
Supplies. Trademarks are registered for seven years (renewable). Ownership of a trademark is 
conferred upon registration with the Department of Industry, wi th no specific provisions in the Act 
relating to protection for unregistered trademarks, including well -known and famous marks. 
However, someone who has submitted an application to register a trademark in another party to the 
Paris Convention may claim pri ority when filing an application for the same trademark in Nepal.  
3.126.   A trademark will not be registered if: "such trade -mark may hurt the prestige of any 
individual or institution or adversely affect the public conduct or morality or undermine the national 
                                                
63 WTO document WT/LET/1138, 17 March 2016.  
64 WTO document WT/TPR/S/257/Rev.1, 19 April 2012, Section III, paragraph s 112-113. 
65 Ministry of Industry, Commerce and Supplies (2017), National Intellectual Property Policy, 2017 . 
March. Viewed at : http://www.moi.gov.np/downloadfile/rastriya_baudik_sampatiniti_2073_1490948967.pdf  
(Nepalese) [April 2018].  
66 Government of Nepal (2017), National Intellec tual Property Policy, 2017, Kathmandu, and Upreti, P. 
N. (2017), A Brief Analysis of Nepal's First National IP Policy , in Intellectual Property Watch, June. Viewed at:  
http://www.moi.gov.np/downloadfile/rastriya_baudik_sampatiniti_2073_1490948967.pdf  [August 2018] and 
http://www.ip -watch.org/2017/06/09/brief -analysis-nepals -first-national -ip-policy/  [August 2018].  
67 Copyright Registrar's Office online information. Viewed at: 
http://www.nepalcopyright.gov.np/en/content.php?id=230  [August 2018].  WT/TPR/S/ 381 • Nepal  
 
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  interest or the reputation of the trade -mark of any other person, or in case such trade -mark is found 
to have already been registered in the name of another person" (Article  18). In addition, if a 
trademark is not used within a year of registration, the regi stration may be cancelled. Illegal use of 
a trademark is punishable by the confiscation of the goods and a fine of up to NR 100,000.  
3.127.   Infringements suits may be brought to the courts by the owner of a registered trademark 
against an infringing party, seekin g an injunction and the confiscation of the offending material, or 
the owner may seek administrative action from the Department of Industry.  
3.128.   Since 2011, there has been an uneven upward trend in filings, applications, and 
registrations, including from non -residents.  
Table 3.20 Trademarks  
 Filings  Number of classes in applications  Number of classes in registrations  
 Total  Resident  Non-resident  Abroad  Resident  Non-resident  Abroad  
2011 2,256  2,204  1,379  52 762 619 20 
2012 2,531  2,471  1,490  60 1,001  915 325 
2013 2,857  2,845  1,706  12 1,519  1,091  46 
2014 3,055  2,942  1,796  113 909 953 12 
2015 2,495  2,464  1,812  31 1,107  1,146  102 
2016 3,357  3,215  1,863  142 1,169  1,617  27 
Note:  Application class count: In the international trademark system , an applicant can file a trademark 
application that specifies one or more of the 45 goods and services classes of the Nice Classification.  
Source:  WIPO Statistical Country Profiles . 
3.3.7.3   Industrial designs  
3.129.   An application to register an industrial design should be made to the Industrial Property 
Section in the Department of Industry, by submitting an application along with a description, 
drawings and four copies of the model. For trademarks, priority may be claimed under the P aris 
Convention. An application may be refused if it is deemed to have an adverse effect on the dignity 
of any individual or institution, if it affects the wellbeing or morale of the public in general or in the 
national interest, or if such a design has al ready been registered in the name of another person. The 
Department of Industry also checks whether the design to be registered is new and original.  
3.130.   There has not been any discernible trend in the number of filings or in the number of designs 
covered by th ese filings over the past few years ( Table  3.21). 
Table 3.21 Industrial designs  
 Filings  Number of designs in applications  Number of designs in registrations  
 Total  Resident  Non-resident  Abroad  Resident  Non-resident  Abroad  
2011 21 21 0 0 0 0 0 
2012 4 3 13 1 5 15 1 
2013 21 21 35 0 0 0 0 
2014 0 0 0 0 5 4 0 
2015 16 16 19 0 0 1 0 
2016 15 11 23 4 10 11 0 
Note:  Application design count: Under the Hague System for the International Registration of Industrial 
Designs, an applicant may obtain protection for up to 100 industrial designs for products belonging 
to one and the same class by filing a single application.  
Source:  WIPO Statistical Country Profiles . 
3.131.   The registration of an industrial design lasts for five years, which may be renewed twice for 
an additional five years each time.  
3.3.7.4   Patents  
3.132.   Patent applications should be made to the Industrial Property Section in the Department of 
Industry, by submitting an application form along with a description of the method of operation or 
utilization of the invention and, if necessary, the principle or formula on which it is based, drawings, WT/TPR/S/ 381 • Nepal  
 
- 66 - 
 
  and, if the invention is by someon e else, the conditions for acquiring the right to the patent from 
the inventor. A patent application may be refused if: the invention has already been registered; the 
applicant is not the inventor and has not acquired the right to register from the invento r; the 
invention could have an adverse effect on the health, conduct, or morals of people in general; the 
invention is against the public interest; or it violates the prevailing laws in Nepal.  
3.133.   According to the Department of Industry, patent examination fo llows the usual principles of 
novelty, industrial applicability, and inventive step before deciding whether to grant a patent, and 
the Department may, if necessary, take advice from experts in the area related to the application. 
Once granted, the rights t o the patent are for seven years, renewable twice for an additional seven 
years each time.  
3.134.   Penalties for infringements of patent rights include fines of up to NR 500,000 and the 
confiscation of the offending goods.  
3.135.   Seventy -two patents were in force in 2014  and, although the number of filings and 
applications has been quite low, very few patents were granted in the review period ( Table  3.22). 
Table 3.22 Patents  
 Patent filings  Patent applications  Patent s grant ed Patents in 
force  
  Resident  Non-resident  Abroad  Resident  Abroad   
2011 11 8 15 3 2 0 n.a. 
2012 9 4 13 5 2 0 72 
2013 21 18 12 3 1 0 72 
2014 12 10 36 2 0 2 72 
2015 24 11 71 13 2 1 n.a. 
2016 11 11 16 0 0 0 n.a. 
n.a. Not available.  
Source:  WIPO Statistical Country Profiles . 
3.3.7.5   Enforcement  
3.136.   Enforcement of IPR protection at the border is the responsibility of Customs. Under Section 
68 of the Customs Act 2007, Customs may only act following a complaint  by the IPR holder. Data 
were not available for enfo rcement at the border, but on enforcement generally the authorities stated 
that there were more than 100 cases regarding the infringement of trademarks per year. For FY 
2017-18, there was a total of 679 trademark cases under consideration in the Department  of 
Industry, and 269 cases had been decided, with 209 under appeal in the courts. With few registered 
patents, there were no cases in the Department or the courts for infringement.  
 WT/TPR/S/ 381 • Nepal  
 
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  4  TRADE POLICIES BY SE CTOR  
4.1  Agriculture and Fisheries  
4.1.1   Agriculture  
4.1.1.1   Features  
4.1.  Agriculture is very important for the economy and employment in Nepal with the majority of 
the population living in rural areas and dependant on farming for food and income ( Table 4.1). In 
FY 2017 -18 agriculture contributed over 27% to GDP and represented about two -thirds of total 
employment.  
Table 4.1 Agriculture in the economy 2010 -11 to 201 7-18 
 
  2010 - 
11 2011 -
12 2012 -
13 2013 -
14 2014 -
15 2015 -
16 2016 -
17 2017 -
18 
GDP total  NR 
billion  1,367  1,527  1,695  1,965  2,130  2,253  2,643  3,007  
GDP agriculture and 
forestry (ISIC)  % of 
GDP 36.7 34.8 33.4 32.2 31.3 31.1 28.2 27.1 
Real annual growth  % 4.5 4.6 1.1 4.5 1.0 0.0 5.1 2.7 
Employment           
 Total ,000 n.a. 9,930  n.a. n.a. n.a. n.a. n.a. n.a. 
 Agriculture, forestry 
and fishing  ,000 n.a. 6,356  n.a. n.a. n.a. n.a. n.a. n.a. 
Note:  n.a. – not available  
Source:  Central Bureau of Statistics. Viewed at: http://cbs.gov.np/sectoral_statistics/  [July 2018].  
4.2.  There are three distinct agricultural regions in Nepal:  
• the Terai in the south along the border with India which is flat and fertile land at an altitud e 
of 60 to 800 metres which has potential for increased production through more irrigation 
and better land use. A wide variety of crops are produced along with livestock and 
aquaculture. About 41% of the Terai is cultivated;  
• the Hills in a central strip at  an altitude of 800 to 1,800 metres which are characterised by 
sloped land and many small valleys. About 20% of this land is cultivated with maize as 
the main crop and livestock farming  is important; and  
• the high mountains over 1,800 metres where only 5% o f the land is suitable for cultivation 
and access to markets and roads is difficult.  
4.3.   Due to the topography, out of a total of about 13 million ha in Nepal, approximately 3 million 
ha are cultivated and 6 million ha are under forest.  The diverse topography also means Nepal has 
the potential to produce a wide variety of products but faces many challenges as a landlocked LDC 
with poor infrastructure, small scale farming, low productivity, and a high risk of natural disasters – 
the earthquakes of 25 April and 12  May 2015 were estimated to have caused NR 28.3 billion in 
damages and losses to a griculture.1 
4.4.  Practically all farming is carried out on small family holdings. In 2011 -12 there were about 6.4 
million people employed in agriculture, forestry and fishing, slightly less than two -thirds of the total 
employed, with nearly 4 million separate holdings of, on average, 1.5 ha each. In addition to being 
small, most holdings are fragmented with an average of 3.2 parcels per holding.2 According to the 
Agriculture Development Strategy (ADS) 2015 -2035, farm households could classified into three 
different groups:  
                                                
1 Ministry of Agricultural Development (2015), Nepal Portfolio Performance Review (NPPR) 2015 , 
11 September, presentation. Viewed at: 
www.mof.gov.np/uploads/document /file/report_2015_20150914084119.pdf  [July 2018].  
2 Central Bureau of Statistics (2016), 2015 Statistical Year Book , Kathmandu, Table 2.1 and 2.2.  WT/TPR/S/ 381 • Nepal  
 
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  • the small commercial group represent s about 61% of the total area of farm holdings, 
including the 20% of rural households who have farms of 1 ha or more.  Within this group, 
those with 5 ha or more had 3.3% of the total area of holdings and amounted to 0.3% of 
all rural households. Small commercial farmers sell more than  30% of their output, the 
rest being consumed by the farm household;  
• subsistence farmers represent 2 6.5% of rural househ olds with holdings of 0.5 to 1.0  ha 
representing 27.6% of the total area of farm holdings . This group sell s little, if any, of its 
output and must find off -farm employment to supplement production  to survive ; and  
• those with less than 0.5 ha represent 53.5%  of the rural population but only 19 .2% of the 
total area of farm holdings. They are completely, or almo st completely, dependent on 
off-farm work.3  
4.5.  From the data for 2001 -02 and 2011 -12, it appears that the total number of farms has 
increased while the to tal land area cultivated has decreased. Furthermore, the number of farms less 
than 1 ha has increased while the number of larger farms has decreased ( Chart 4.1).4 According to 
the authorities, the increase in the number of farm households and the decline in farm size are due 
to inheritance patterns where a farm is divided among the children of the deceased farmer.  
Chart 4.1 Farm structure 2001 -02 and 2011 -12 
 
Source:  Government of Nepal, Ministry of Agricultural Development (2016), Agriculture Development 
Strategy (ADS) 2015 to 2035, Part: 1 , Kathmandu, p. 83.  
4.6.  Despite many challenges facing agriculture in Nepal, the GDP of agriculture increased in real 
terms in every year since FY 2010 -11, although growth slowed in  2014-15 and 2015 -16 due to 
the 2015 earthquakes and disruptions to trade on the southern border ( Table 4.1). According to the 
Food and Agriculture Organization (FAO), the total gross value of production for agriculture reached 
NR 909 billion in 2016; 73% of the value was from crops, with rice as the single most important 
crop followed by potatoes and maize ( Table 4.2). In particular, the value and volume of production 
and the area devoted to  roots and vegetables5 (not including potatoes) have increased considerably 
                                                
3 Government of Nepal, Ministry of Agricultural Development (2016), Agriculture Development Strategy 
(ADS) 20 15 to 2035, Part: 1 , Kathmandu, p p. 83-84. 
4 Government of Nepal, Ministry of Agricultural Development (2016), Agriculture Development Strategy 
(ADS) 2015 to 2035, Part: 1 , Kathmandu, p. 83.  
5 Where roots and vegetables  include tubers (but not potatoes), r hizomes and leguminous crops. That is, 
FAO categories: artichokes; asparagus; avocados; bambara beans; beans, dry; beans, green; broad beans; 
horse beans; cabbages and other brassicas; carrots and turnips; cassava; cauliflowers and broccoli; chick peas; 
chicory roots; chillies and peppers; cow peas; cucumbers and gherkins; eggplants; garlic; ginger; leeks and 
05001,0001,5002,0002,5003,0003,5004,000
2001/02 2011/12 2001/02 2011/12Farms bigger than 5 ha
Farms between 1 and 5 ha
Farms between 0.5 and 1 ha
Farms less than 0.5 haNo. of farm households 
(,000)Total area by farm 
household size
(,000 ha)WT/TPR/S/ 381 • Nepal  
 
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  since 2010 and represented nearly one -third of the value of crop production in 2016. Similarly, the 
value of production of livestock products nearly doubled from 2010  to 2016 when it reached 
NR 246 billion.  
4.7.  In volume terms, production of the main commodities increased from 2010 to 2016, mainly 
due to increases in yield as the area under cultivation has not changed significantly, except for roots 
and vegetables ( Table 4.2). 
Table 4.2 Production of main agricultural commodities, 20 10-16 
  2010  2011  2012  2013  2014  2015  2016  
Value of 
production  NR 
million  536,836  632,082  727,254  749,438  817,438  853,530  908,831  
Crops  NR 
million  409,812  481,340  531,489  538,038  603,351  636,986  662,753  
Rice NR million  86,231  92,239  107,988  105,856  127,504  130,044  120,300  
 000 ha 1,481  1,496  1,531  1,421  1,487  1,425  1,363  
 000 tonnes  4,024  4,460  5,072  4,505  5,047  4,789  4,299  
Potatoes  NR million  57,465  59,829  62,681  67,799  76,681  76,019  84,972  
 000 ha  185 183 190 197 206 197 200 
 000 tonnes  2,518  2,508  2,584  2,690  2,818  2,586  2,806  
Maize  NR million  39,274  45,031  49,146  47,976  59,181  60,055  64,367  
 000 ha  876 906 871 850 929 882 892 
 000 tonnes  1,855  2,068  2,179  1,999  2,283  2,145  2,232  
Wheat  NR million  30,804  37,762  40,080  41,284  48,608  55,074  49,890  
 000 ha  731 767 765 754 754 762 746 
 000 tonnes  1,557  1,746  1,846  1,727  1,883  1,976  1,737  
Roots and 
vegetablesa NR million  117,431  153,274  163,490  169,518  179,247  193,629  205,258  
 000 ha  590 607 622 606 617 662 654 
 000 tonnes  3,686  3,941  4,075  4,096  4,265  4,416  4,569  
Livestock  NR 
million  127,023   150,742  195,765  211,400  214,087  216,544  246,078  
Milk, buffalo  NR million  38,407  46,481  49,615  57,608  56,946  57,258  64,828  
 000 tonnes  1,067    1,109       1,154       1,188       1,168         
1,167       1,210  
Meat, 
buffalo  NR million  29,523  32,467  62,131  54,625  54,953  55,282  58,707  
 000 tonnes  160 158 276 199 n.a.  n.a. n.a. 
Meat, goat  NR million  18,643  22,087  25,876  30,543  30,726  30,910  32,825  
 000 tonnes  46 49 52 51 n.a. n.a. n.a. 
Milk, cow  NR million  15,445  17,217  18,710  22,390  24,351  25,665  32,347  
 000 tonnes  429  447  469  492  532 558 644 
a Not including potatoes  
n.a. not available  
Source:  FAOStat online database. Viewed at: http://www.fao.org/faostat/en/#data  [August  2018].  
4.1.2   Trade  
4.8.  Nepal is a net importer of agricultural products (WTO definition6). Exports of agricultural 
products declined in 2015 compared to 2013 and 2014 primarily because of a sharp fall in exports 
of nuts (HS 080290), tobacco (HS 240399), and dried vegetables (HS 071340). Exports recovered 
in 2017, even though exports of nuts and tobacco declined even more, but exports of cardamom 
(HS 090831), mixed juice s (HS 200990), tea (HS 090240), and other products increased. Exports 
of agricultural goods are concentrated in a few areas with cardamom, mixed juices, and black tea 
representing over half of total exports of agricultural products. The main destination fo r exports of 
                                                
other alliaceous vegetables; lentils; lupins; onions; peas; pigeon peas; pulses n.e.s.; pumpkins, squash and 
gourds; roots and tubers n.e.s.; spinach;  string beans; sweet potatoes; taro; tomatoes; triticale; vegetables 
fresh n.e.s.; vegetables leguminous n.e.s.; yams; and cocoyam . See http://www.fao.org/faostat/en/#data  [July 
2018]  
6 For the purpo ses of this section of the TPR, the definition of agriculture products used is that set out in 
Annex 1 of the Agreement on Agriculture , where fish and fish products are taken to include tariff lines under 
HS2012 Headings 020840, 03, 050800, 050900, 051191, 1504, 1603, 1604, 1605, and 230120.  WT/TPR/S/ 381 • Nepal  
 
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  most products is India, with some exceptions such as dried vegetables (HS 071340), most of which 
go to Bangladesh, and dog and cat food (HS 230910) m ost of which goes to the  United  States.  
4.9.  Imports of agricultural goods increased from US$ 1.2 b illion in 2013 to US$1.8 billion in  2017, 
although imports of some products, such as soya -bean oil (HS 150710) and palm oil (HS  151110) 
decreased. The main source for most imports is India,  with some exceptions such as soya -bean oil 
(most of which comes fr om Argentina), sunflower and safflower oil (Ukraine), and palm oil 
(Indonesia).  
Table 4.3 Trade in agricultural products, 2013 -17 
(US$ million ) 
Exports   
2013  2014  2015  2016  2017  
Total all exports  863.3  900.9  660.2  728.8  740.7  
Total agriculture exports  196.8  250.0  192.3  194.8  214.8  
of which       
090831  Spices; cardamoms, neither crushed nor 
ground  19.2  32.8  42.8  36.2 43.5 
200990  Juices; mixtures of fruits or vegetables, 
unfermented, not containing added spirit, 
whether or not containing added sugar or 
other sweetening matter  25.0  24.9  23.0  29.7 31.4 
090240  Tea, black; (fermented) and partly 
fermented tea, in immediate packings of a 
content exceeding 3kg  19.8  19.9  17.3  24.9 27.0 
230641  Oil-cake and other solid residues;  .. from 
low erucic acid rape or colza seed oils  6.0  6.3  5.8  11.5 15.0  
140490  Vegetable products; n.e.c. in chapter 14  6.6  7.9  7.2  6.7 10.0  
071340  Vegetables, leguminous; lentils, shelled, … 
dried  16.9  18.5  8.4  13.7 9.3  
121190  Plants and parts n.e.c. in heading no. 1211, 
used primarily in perfumery, pharmacy or 
for insecticidal, fungicidal purposes; fresh 
or dried  10.1  12.9  5.3  6.1 7.3  
190219  Food preparations; pasta, uncooked 
(excluding that containing eggs), not 
stuffed or otherwise prepared  6.8  8.8  6.0  7.6 7.1  
230910  Dog or cat food; put up for retail sale, used 
in animal feeding  1.8  2.7  2.6  4.4 7.1  
200911  Juice; orange, frozen, unfermented  9.9  8.2  5.0  5.6 6.2  
080290  Nuts, edible; n.e.c. in heading no. 0801 
and 0802, fresh or dried  18.3 36.9 17.1 0.0 0.1 
240399  Tobacco; other than homogenised or 
reconstituted or smoking  10.1 20.5 12.0 2.3 1.8 
Imports   
2013  2014  2015  2016  2017  
Total all imports  6,451.7  7,590.1  6,612.1  8,878.5  10,037.8  
Total agricultural imports  1,222.2  1,399.6  1,212.8  1,656.7  1,800.7  
of which       
100630  Cereals; rice, semi -milled or wholly milled, 
whether or not polished or glazed  80.9  144.7  141.2  191.7  192.5  
150710  Vegetable oils; soya -bean oil and its 
fractions, crude, whether or not 
degummed, not chemically modified  302.4  139.6  99.9  130.9  149.3  
100590  Cereals; maize (corn), other than seed  44.1  79.4  71.3  105.0  106.6  
230400  Oil-cake and other solid residues; whether 
or not ground or in the form of pellets, 
resulting from the extraction of soya -bean 
oil  43.3  62.8  63.7  71.2 89.0 
151211  Vegetable oils; sunflower seed or 
safflower oil and their fractions, crude  23.5 35.4 12.7 38.1 57.6 
151110  Vegetable oils; palm oil and its fractions, 
crude, not chemically modified  79.0  63.8  27.8  35.2 56.0 
210690  Food preparations; n.e.c. in item no. 
2106.10  37.1  43.5  38.8  52.7 55.9 
120510  Oil seeds; low erucic acid rape or colza 
seeds, whether or not broken  22.1  21.5  28.4  41.4 54.0 
100610  Cereals; rice in the husk (paddy or rough)  39.4  62.6  62.1  29.2 46.8 
080810  Fruit, edible; apples, fresh  13.0 18.5 23.1 41.6 46.7 
Source:  UNSD Comtrade online database. Viewed at: https://comtrade.un.org/  [August  2018]  WT/TPR/S/ 381 • Nepal  
 
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  4.1.3   Agriculture policies  
4.10.   The simple average applied tariff on agricultural products (WTO definition) is 15% with a 
median of 10% (including estimates for ad valorem  equivalents (AVEs) of non -ad valorem  tariffs) 
and high variability indicated by a standard deviation of 20.8%. Bever ages spirits and tobacco are 
particularly highly protected with an average of 58% while the applied tariff on agricultural cotton 
products is zero ( Section 3.1. 3). There are eight  tariff lines with applied tariffs greater than 100%, 
which are applied to ci garettes and distilled spirits.  
4.11.   In acceding to the WTO, Nepal undertook not to use export subsidies for agricultural goods, 
has no commitments relating to tariff quotas, and did not reserve the right to use the special 
agricultural safeguard on any tariff line. The most recent notificat ion for export subsidies to the  WTO 
was for 2011.7 
4.12.   Exports of some agricultural products to destinations other than India qualif ied for subsidies 
under the Cash Incentive Scheme for Exports (CISE) which was introduced in 2012  with a subsidy 
rate that depended on the domestic value added: at 2% of the value of the export where the value 
of domestic content was 30%; and rising to 4% where  the value of local content exceeded 80%. 
The Scheme was modified in 2013 and renamed the CI SE 2070. Under the modified Scheme, the 
subsidy was 1% or 2% of the value of exports for eligible products , which included a number of 
agricultural products under both the "agricultural products" and "industrial products" headings 
(Table  4.4). The budget f or the Scheme for FY 2013 -14 was NR 300 million .8 In the Budget Speech 
for FY 2018 -19, the Minister for Finance stated that export grants of up to 5% would be provided 
for exports of industrial produce.9 According to the authorities, at mid -August 2018, th e modalities 
for the scheme had not been developed and, with a budget allocation of US$ 5.4 million, the impact 
of the subsidy would be insignificant.  
Table 4.4 Eligible products and subsidy rates CISE 2070  
Industrial products  Agricultural products  
2% subsidy rate  1% subsidy rate  1% subsidy rate  
Processed coffee  Ready -to-eat chow chow  Seeds  
Semi-processed hides and skins  Bran Cut flowers  
Handcraft and wooden craft  Wheat flour  Fruits  
Handmade paper and related products  Polyester or viscos e yarn Vegetables  
Processed honey  Read-made garments  Ginger  
Tea Polyester textile yarn  Cardamon  
Carpet and woollen garments  Vegetable fat/oil  Herbs  
Pashmina and silk products  Transfer s  
Processed herbs and essential  oils Ball pens   
 Lentils   
 Precious and semi -precious jewellery   
 Gold and silver ornaments   
 Turmeric   
 Dried ginger   
Source:  Defever F, Reyes JD, Riaño A, Varela G (2017), All These Worlds Are Yours, Except India – The 
Effectiveness of Export Subsidies in Nepal , World Bank, Policy Research Working Paper 8009, March , 
Table 1 . 
4.13.   The Ministry of Agriculture and Livestock Development is  the principal Government entity 
responsible for developing agricultural policies although several other ministries are involved in 
different aspects of agricultural policy, including: the Ministry of Land Management, Co -operatives 
and Poverty Alleviation; the Ministry of Forests and Environment; and the Ministry of Energy, Water 
Resources and Irrigation. In addition, a  number of government agencies are responsible for 
implementing policy such as: the Nepal Agricultural Research Council (NARC), established in 1991 
as an autonomous organization under the Nepal Agricultural Research Council Act  of 1992 , which 
                                                
7 WTO document G/AGN/N/NPL/3, 12 October 2012.  
8 Defever F, Reyes JD, Riaño A, and Varela G (2017) , All These Worlds Are Yours, Except India – The 
Effectiveness of Export Subsidies in Nepal , World  Bank, Policy Research Working Paper 8009, March. Viewed at: 
http://documents.worldbank.org/curated/en/698681490020512516/All -these -worlds -are-yours -except -India-
the-effectiveness -of-export -subsidies -in-Nepal  [June 2018].  
9 Government of Nepal, Minis try of Finance (2018), Budget Speech of Fiscal Year 2018/19, Delivered to 
Joint Assembly of Federal Parliament, 29 May, para 106.  WT/TPR/S/ 381 • Nepal  
 
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  conducts agri cultural research; the Agricultural Development Bank (ADB); and the Small Farmers 
Development Bank (SFDB). Both banks operate under the Ministry of Finance.    
4.14.   There is no integrated  agricultural law in Nepal but there are specific laws relating to differe nt 
aspects of agricultural policy such as: the Nepal Agricultural Research Council Act of  1992; the Seeds 
Act of 1988 , which provides the legal basis for seed quality standards and the distribution of seeds 
to farmers; and the Cooperatives Act of 2017,  which makes provision for the establishment, 
registration, operation , and management of cooperative associations or societies.  Agricultural 
policies are implemented through funds provided from the Budget .  
4.15.   Current policy is set out in the ADS which followed on from the Agriculture Perspective Plan 
1995-96 to 2014-15. According to the ADS, the vision of the policy may be summari zed as: " a self-
reliant, sustainable, competitive, and inclusive agriculture sector that drives economic growth and 
contributes to improved livelihoods and food and nutrition security leading to food sovereignty". To 
achieve this goal, several objectives are set out  for the short, medium, and long term , which  include: 
self-sufficiency in food grains and a trade surplus in agricultural goods; higher productivity; and 
better nutrition ( Table 4.5). 
Table 4.5 Indicators and targets for the ADS vision  
Indicator  2015  Short -term 
target  
5 years  Medium -term 
target  
10 years  Long -term 
target  
20 years  
Self-sufficiency      
Food grains (trade surplus/deficit)  16% deficit  0% deficit  0-5% surplus  0-5% surplus  
Sustainability      
Irrigation (% year -round coverage)  25.2 35 60 80 
Soil organic matter (%)  2 3 4 4 
Degraded land (million ha)  3.7  2.9 2.6  1.6  
Forest cover (% land)  44.7 44.7 44.7 44.7 
Land productivity (US$ GDP/ha)  3,278  4,184  5,339  8,697  
Agribusiness (% of GDP)  8 9 11 16 
Competitivity      
Trade balance in agricultural products 
(US$ million)  - 1,123  -1,073  -882 + 508  
Inclusivity      
Farm land owned by women or joint 
ownership  (%) 15 20 30 50 
Farmers reached by agricultural 
programmes (%)  18 22 26 32 
Growth      
Annual growth in agricultural GDP (%)  2.2 4 5 6 
Livelihood      
Agricultural (US$ GDP/labour unit)  835 1,029  1,268  1,926  
Poverty in rural areas (%)  24.3 19 15 9 
Nutrition      
Stunting (%)  37.4 29 20 8 
Underweight (%)  30.1 20 13 5 
Wasting (%)  11.3 5 2 1 
Women with low body mass index (%)  18.1 15 13 5 
Source:  Government of Nepal, Ministry of Agricultural Development (2016),  ADS, Part: 1, Kathmandu, 
pp. 3-4. 
4.16.   According to the ADS, higher productivity of land and labour is the basis for the Strategy and 
this requires: "the adoption of appropriate technologies and know -how to increase efficiency and 
sustainability of agricultural production consistently with mark et demand and food security needs of 
subsistent farmers. The measures to raise agricultural productivi ty include those related to 
(i) effective agricultural research and extension; (ii) efficient use of agricultural inputs; (iii)  efficient 
and sustainable practices and use of natural resources (land, water , soils, and forests); and 
(iv) increased resilience to climate change and disasters". In addition, the ADS states that improved 
governance through better policies and their implementation by government en tities is essential to WT/TPR/S/ 381 • Nepal  
 
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  deliver support to farmers this requires better coordination among these entities and with other 
stakeholders , such as farmer organizations, cooperatives , and the private sector.10 
4.17.   The total cost for the programmes under the ADS was e stimated to be about NR 502 billion 
over ten years, of which about 87% was to be provided by the Government and donors and the rest 
from the private sector and communities. For FY 2018 -19, public spending on the ADS was to be 
89.44% from the Government and  10.56% from donors. The largest programme is for irrigation , 
followed by the Value Chain Development Program (VADEP) which is intended to develop each step 
of the value chain from inputs, to production and processing, including infrastructure, quality 
assurance, and technology  (Table 4.6). 
Table 4.6  Total 10 -year cost, ADS  
Programme costs  NR million  Note  
Irrigation  94,830  Completion of existing schemes, 
maintenance and construction of new 
systems, and improvements in efficiency.  
Infrastructure  27,310  Infrastructure investment to include rural 
roads, markets, irrigation banks, etc.  
Innovation and Agroentrepreneurship 
Program (INAGEP)  19,485  Combination tax incentives, agribusiness 
incubators, matching grants.  
Value Chain Development Program 
(VADEP)  72,727  Support for development of each step o f 
the value chain, initially focussing on 
maize, dairy, vegetables, lentils, and tea.  
Decentralized Science, Technology, and 
Education Program (DESTEP)  62,883  Decentralization of extension and research 
services.  
Food and Nutrition Security Program 
(FANUSEP)  30,657  Develop with FAO, to be aligned with 
other initiatives to improve nutrition.  
Forestry  40,538   
Fertilizer  38,000   
Other  115,405   
Total  501,835   
Source:  Government of Nepal, Ministry of Agricultural Development (2016), ADS, Part: 1, Kathmandu,  
pp. 19-20 
4.18.   In addition to the ADS, policies have been set out for some specific sectors such as the 
Floriculture Promotion Policy of 2012, the Pasture Policy of 2012, and the National Sector Export 
Strategies for 2017 -2021 for coffee, cardamom, and tea.  
4.19.  At end -August 2018, the most recent W TO notification for domestic support to agriculture was 
for the calendar years 2010 and 2011. For 2011, the notification showed that the total value of support 
was about NR 5.1 billion – which was about 0.8% of the value of agricultural production for that  year. 
According to this and earlier notifications, agriculture support is provided over a range of programmes. 
However, some programmes notified as Green Box in 2010 were notified as being exempt from 
reductions under Article 6.2 of the Agreement on Agric ulture for 2005, 2007, and 2009.11  
4.20.   For FY 2017 -18, the total budget for the Ministry of Agriculture, Land Management and 
Cooperatives was NR 24.3 billion  which included administrative expenses. However, the Ministry has 
been separated into two: the Ministry of Agriculture and Livestock Development; and the Ministry of 
Land Management, Co -operatives and Poverty Alleviation. Therefore, the budget will be div ided 
accordingly.  
4.21.   In addition to the programmes under the Ministry, the budget for the Ministry of Finance 
included provisions for the ADB, the SFDB, the Micro Insurance Support Program and the Agriculture 
and Livestock Interest Subsidy.  
4.22.   Although there we re about 40 differe nt programmes for agriculture, four  of them accounted 
for over half the total budget of the Ministry of Agriculture Development ( Table 4.7). 
                                                
10 Government of Nepal, Ministry of Agricultural Development (2016), ADS, Part: 1 , Kathmandu, 
pp.5-9. 
11 WTO documents: G/AG/N/N PL/2, 24 October 2011; and NPL/4, 3 October 2012.  WT/TPR/S/ 381 • Nepal  
 
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  Table 4.7 Spending on agricultural programmes 2012 -13 to 2016 -17  
and Budget for 2017 -18 
(NR million )  
2012 -13 2013 -14 2014 -15 2015 -16 2016 -17 2017 -18 
 Spending  Spending  Spending  Spending  Estimated 
Spending  Budget  
Ministry of Finance       
 
ADB 
SFDB  
Micro Insurance Support 
Program  130 157 231 238 570 397 
Agriculture and Livestock 
Interest Subsidy  1,000  1,000  500 1,776  2,116  2,300  
Ministry of Agricultural 
Development        
Prime Minister Agriculture 
Modernization Project  -    -    -    -    5,250  3,259  
Special Program for 
Agricultural Production  4,927  5,957  5,453  5,799  4,638  5,129  
Agricultural Extension 
Program  54  1,341  2,043  2,304  2,576  1,919  
Project for Commercial 
Agriculture and Trade  259  652  476  1,112  2,183  - 
Agriculture Research 
Program  948  1,750  1,672  1,884  1,911  2,456  
Agriculture Food Security 
Project  3  214  1672  1,151  1,328  1,524  
Improved Seed for 
Farmers Programme  19  132  255  569  1,333  1,123  
Raising Income of Small & 
Medium Farmers Project  150  271  145  403  572 941 
Cooperative Farming 
including Small Irrigation, 
Fertilizer and Seed 
Transportation  219  435  571  531  583 155 
ADS Monitoring and 
Coordination Program  110  166  182  479  586 497 
Total 11,547  17,634  15,867  22,095  24,407  24,261  
Source:  Ministry of Finance Red Books  
Special Program for Agricultural Production  
4.23.   For most of the years  under review,  the Special Program for Agricultural Production (SPAP) 
was the largest single item in the Ministry's B udget and accounted for NR 5.1 billion  in the Budget 
for 2017 -18. According to the International Food Policy Research Institute (IFPRI), most of these 
funds are for fertilizer subsidies to producers although fertilizer subsidies are also provided through 
some other programmes12: according to the Budget Speech for 2016 -17 a total of NR 5.47 billion 
was allocated for chemical and organic fertilizers and impro ved seed and seedlings.13  
4.24.   The g overnment -owned Agriculture Inputs Company Ltd (AICL) is responsible for importing 
and distributing mineral and organic fertilizers with subsidized fertilizer available for up to 0.75 ha 
in the hills and 4 ha in the Terai. The AICL imports and distributes the fertilizer to its regional offices 
from which it is released to cooperatives for sale to farmers.14 According to the discussion paper by 
IFPRI, the formal supply of fertilizer provides less than 25% of total use.15  
                                                
12 Kyle, J, Resnick D, and Karkee M (2017), Improving the Equity and Effectiveness of Nepal's Fertilizer 
Subsidy Program , IFPRI Discussion Paper 01685, December.  
13 Ministry of Finance (2016), Budget Speech of Fiscal Year 2016/ 17, p. 14. Viewed at: 
http://www.mof.gov.np/en/archive -documents/budget -speech -17.html?lang = [June 2018].  
14 Krishi Samgri Company Ltd online informati on. Viewed at: http://www.kscl.gov.np/home/index.php  
[June 2018].  
15 Kyle, J, Resnick D, and Karkee M (2017), Improving the Equity and Effectiveness of Nepal's Fertilizer 
Subsidy Program, IFPRI D iscussion Paper 01685, December, pp. 8 -9. WT/TPR/S/ 381 • Nepal  
 
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  4.25.   Under t he ADS, consideration is to be given to expanding the private sector's role in importing 
and distributing fertilizer and seeds, and introducing a pilot programme to give vouchers to farmers 
for purchases of inputs and other measures to improve targeting an d efficiency of input -related 
schemes.16 
Prime Minister Agriculture Modernization Project  
4.26.   The Prime Minister Agriculture Modernization Project (PMAMP) is a ten-year project which 
started in FY 2016-17. Under the Project,  agriculture production is classified into different categories 
depending on land area and production. For the first year, there were to be:  
• 2,100  small business agricultural production centres ( pockets ) of 10 ha each;  
• 150 commercial agricultural producti on centres ( blocks ) of 100 ha each;  
• 30 zones for agricultural business production and processing centres (zones) of 500 ha 
each;  and 
• 7 large commercial agricultural production and academic centres ( super zones ) of 
1,000  ha each. Each of the super zones is  promoted for a specific product (paddy, fish, 
vegetables, potatoes, maize, apples , and wheat for the first seven).  
4.27.   The geographic coverage and numbers under each category should increase as the Project 
develops so that at the end of ten years there are t o be 1,500 pockets, 1,500 blocks, 300 zones, 
and 21 super zones.  
4.28.   Subsidies under the Project include : a 50% subsidy for purchases of agricultural equipment 
and tools in block and pocket areas ; and 85% of the cost of construction of agriculture production 
collection centres, agriculture Haat Bazaar (market) centres, primary processing centre, and a 
warehouse and business training centre. In addition, in the zone s, an 85% subsidy is provided for 
seeds, plants, seedlings and resource centres for fish and a 50%  subsidy for a production processing 
centre, warehouse and cold storage. The Budget also includes an 85% grant for the establishment 
of seed, seedling, and plant resource centres, and a fish production  centre , organic fertiliser factory 
and pesticide produ ction centre. 17, 18, 19 
Agriculture Extension Program  
4.29.   Although there are several separate programmes related to training and extension services 
(including the Agriculture Extension and Training Program, and the Livestock Training Program) the 
Agricultural Extension Service is the largest with NR 1.9 billion  (about US$ 17 million)  allocated in 
2017-18.   
4.30.   According to the Directorate of Agricultural Extension in the Ministry of Agricultur e, Land 
Management and Cooperatives , Nepal has practised several extension models and approaches , all 
of which had various strengths and weaknesses. As farming has become more closely linked to 
quality, competitiveness, and sustainability , the focus has shifted away from being e xclusively on 
increasing production and the Government's role has moved from delivery of the service to 
facilitation and encouragement of participation by the private sector and other organizations to 
provide extension services on a contract and/or partner ship basis.20 The ADS also states that 
                                                
16 Government of Nepal, Ministry of Agricultural Development (2016), ADS, Part: 1 , Kathmandu, p p. 7, 9, 
17. 19, 21, 77, 84, 103, 104, etc.  
17 PMAMP  online information. Viewed at: http://pmamp.gov.np/en/home/  [July 2018]  
18 Kafle L (2016), Prime Minister Agriculture Modernisation Project to be implemented soon , The Rising 
Nepal, 9  December. Viewed at: http://therisingnep al.org.np/news/16070  [July 2018].  
19 The Kathmandu Post (2017), PM agri modernisation project to boost output , 13 March. Viewed at: 
http:// kathmandupost.ekantipur.com/news/2017 -03-13/pm -agri-modernisation -project -to-boost -output.html  
[July 2018].  
20 Directorate of Agricultural Extension online information. Viewed at: http://agriextension.gov.np/ home  
[July 2018].  WT/TPR/S/ 381 • Nepal  
 
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  consideration is to be given to a voucher scheme for extension services, particularly for commercial 
farmers.21 
Project for Commercial Agriculture and Trade  
4.31.   The Project for Commercial Agriculture and Trade (PACT) was supported by grants and loans 
from the World Bank with the objective of improving the competitiveness , initial ly in 25  districts,  of 
smallholder farmers and the agribusiness sector in selected commodity value chains. The PACT was 
schedule d to be completed in  June 2018  and there was no provision in the Budget for funding in FY 
2017-18; estimated spending the previous year was NR 2.2 billion . There were three components 
to the Project:  
1) agriculture and rural business development: at end -March 2017, the Project had been 
supporting the implementation of over 1,300 sub -projects which were co -financed by 
cooperatives, farmer groups, private firms, and producer associations;  
2) support for SPS facilities and food quality management which includes inspections of food 
processing projects by the responsible authorities for SPS standards and food quality 
management; and  
3) project management, including the construction of district agriculture and livestock offices 
destroyed by the 2015 earthquakes.22  
Agriculture Research Progr am 
4.32.   The budget for the Agriculture Research Program has increased steadily over the past few 
years to reach over NR 2.5  billion in FY 2017-18, up from less than NR 1 billion in FY 2012-13. 
The NARC was created under the Nepal Agricultural Research Council Act of  1992, and replaced the 
National Agriculture Research and Service Centre (NARSC). The NARC is an autonomous entity 
responsible for all agricultural research in the country, although the Ministry of Agriculture, Land 
Management and Cooperatives and th e Institute for Agriculture and Animal Science are also 
responsible for some aspects of research. In addition, the National Agricultural Research and 
Development Fund under the Ministry provides resear ch grants to government and non -government 
organization s.23 
Nepal Agriculture Food Security Project  
4.33.   The Nepal Agriculture Food Security Project (NAFSP) was supported, in grant form, by the 
World Bank with co -financing from the Government , and was implemented by the Ministry of 
Agriculture, Land Management and Cooperatives. The Project closed in March 2018 . Its aims had 
been improved crop and livestock technologies, increased productivity for crops and livestock and 
improved dietary intake for pregnant and nursing women. According to the World Bank, as a result 
of the Project, 4,521 producer groups were supported and 85,106 farmers increased productivity in 
19 locations.24  
Improved Seed for Farmers Program  
4.34.   The Improved Seed for Farmers Program (ISFP) is a joint programme between the 
Government and the Internation al Fund for Agricultural Development (IFAD). Total funding for the 
Program for FY 2017 -18 was NR 1.1 billion. The seven -year programme (2012 -2019) is intended to 
                                                
21 Government of Nepal, Ministry of Agricultural Development (2016), ADS, Part: 1 , Kathmandu, p . 84. 
22 World Bank online information. Viewed at: http://projects.worldbank.org/P087140/project -agriculture -
commercialization -trade -pact?lang=en&tab=overview  [July 2018].  
Ministry of Agriculture, Land Management and Cooperatives online information. Viewed at: 
http://www.pact.gov.np/?option=home  [July 2018].  
23 Nepal Agricultural Research Council (2010), NARC's Strategic Vision for Agricultural research 
(2011 -2030) Meeting Nepal's Food and Nutrition Security Goals  through Agricultural Science & Technology , June.  
24 World Bank online information. Viewed at: http://projects.worldbank.org/P128905/nepal -agriculture -
food-security -project?lang=en&tab=overview  [July 2018].  WT/TPR/S/ 381 • Nepal  
 
- 77 - 
 
  promote competitive, sustainable, and inclusive agriculture in the selected hill and mountain areas. 
The Program includes three components:  
• support for the expansion of the formal seed sector through the development of the formal 
sector and  the correct labelling of seeds;  
• small holder livestock commercialization with a focus on raising goats and bu ffalo through 
breed and productivity improvement, nutrition management, veterinary services, farmer 
training and market linkages; and  
• institutional and entrepreneurial development.25 
4.35.   In the first phase the Program covers six districts in hill areas with a target group of 150,000 
households. In the second phase, it is to expand its activities to other districts and reach 350,000 
households.  
Agriculture and Livestock Interest Subsidy  
4.36.   Under the Agriculture and L ivestock Interest Subsidy the Government, through the NRB, 
provides a subsidy of 5% (up from 4% in 2017) on loans of up to NR 70 million. Loans greater than 
NR 50 million require the approval of the Central Coordination and Monitoring Committee under the 
NRB.  
4.37.   The maximum interest rate applicable to these loans is 10%, meaning the borrower pays a 
maximum of 5%. The scheme applies to loans: to produce, process, store and distribute vegetables, 
fruits, seeds, fish, herbs, mushrooms, dairy items, ostriches, tu rkeys, ducks, sugarcane, coffee, tea, 
cardamom, ginger, turmeric, jaitun, sunflower, allo, lokta, barley, buckwheat, and silam seeds. The 
Subsidy also cover s loans granted f or: floriculture and beekeeping businesses; the rearing of  
livestock and poultry; the establish ment of slaughterhouses; and the storage, process ing and 
distribut ion of  meat items. Land and crops should be used as collateral for the loans, although loans 
of up to NR 1 million each may be granted  based on guarantee s from a farmer group s.26 
4.2  Mining and Energy  
Mining  
4.38.   Mining and quarrying contributed 0.6% to GDP in 2017 -18 (Chart 1.1). Based  on their market 
values, minerals are classified into three categories: very precious minerals (gold, uranium, thorium, 
diamond s, rubies, sapphire s, emerald s, and corundum); precious and valuable minerals (zinc, silver, 
lead, cobalt, copper, natural (biogenic) gas, and other fossils ); and general minerals (marble, 
granite, salt, and other minerals which are not classified as very precious or precious and valua ble 
minerals).  
4.39.   The Ministry of Industry, Commerce and Supplies is responsible for mining and quarrying. 
Other institutions involved in the sector include  the Ministry for Forest and Environment, the Ministry 
of Science and Technology , and the Department o f Mines and Geology . 
4.40.   Under the National Mineral Resources Policy 2074 (2017), Nepal's main policy objectives 
include making the mining and quarrying sector more competitive, sustainable and environment ally 
friendly by using new and innovative technology; a nd attracting larger private sector investment by 
providing incentives and facilities.  
4.41.   Nepal opened up its mining sector to FDI in 1999, on the basis of the Mines and Minerals Act, 
2042 (1985) and its Regulations 2056 (2000). Other legislation governing mi neral exploration and 
mining includes: the Mines and Minerals Rules, 2055 (1999); the Nepal Petroleum Act, 2040 (1983); 
                                                
25 IFAD online information. Viewed at: 
https://www.ifad.org/web/operations/project/id/1602/country/nepal  [July 2018].  
26 The Kathmandu Post (2017), Interest subsidy on agri loans raised to 5 per cent , 1 April. Viewed at: 
http://kathmandupost.eka ntipur.com/news/2017 -04-01/interest -subsidy -on-agri-loans-raised -to-
5percent.html  [July 2018].  WT/TPR/S/ 381 • Nepal  
 
- 78 - 
 
  the Petroleum Exploration Regulation, 2041 (1984); the Environment Protection Act, 2053 (1997); 
and the Forest Act, 2049 (1993).  The roy alty arrangement for natural resources is per the Fiscal 
Arrangement Act, 2074 (2017).  
4.42.   No mining  activities can lawfully occur in the absence of a mining licence  issued by the 
Department of Mines and Geology (DMG) and environmental clearance from the Minis try for Forest 
and Environment. There are two types of licen ces related to mining activities issued by the DMG: a 
prospecting licen ce and a mining licen ce. The prospecting licen ce is required for all exploration 
activities in Nepal. It allows the licen ce-holder to conduct exploration in an area of not less than 
0.25 km2 and not more than 250 km2 for an initial exploration period of two to four years , and can 
be extended for up to two years. Exploration activities should be completed within two years for 
ordinary non -metallic minerals and four years for metallic and valuable non -metallic minerals. This 
type of licen ce is categorized by the value of the mineral being explored.  
4.43.   A mining licen ce is required to conduct all excavation activities. It allows the li cence-holder 
to conduct mineral exploitation works in an area of not less than 0.25 km2 and not more than 25  km2 
for an initial period of 10 to 30 years depending on the level of mineral work, and can be extended 
by up to ten years.27 The fees and deposit amount for the acquisition of a licence  depends upon the 
category under  which the licen ce falls.28  
4.44.   Nepal offers investment incentives to the mining and quarrying sector in the form of reduced 
income tax provisions (Table 4.8).  
Table 4.8 Investment incentives, 2018  
Incentive 
category  Ordinary 
provision  Incentive  provision  
Income Tax  20% is the 
applicable 
tax rate  For special industr iesa provid ing direct employment to at least 100 Nepalese 
per year, the effective tax rate shall be 70% of the applicable tax rate  
  Exemption of dividend tax in case of special industr ies, industry based in 
agriculture and tourism sector capitalizes its profit (issues bonus shares) for 
the purpose of the expansion of the capacity of the industry  
  Special industr ies with capital of NR 1 billion and providing direct employment 
to more than 500 persons can enjoy a 100% exemption for first 5 years from 
the date of operation of business and a 50% concession for next 3 years  
  For s pecial industries established in least developed, underde veloped and 
undeveloped regions, the applicable tax rate shall be 10%, 20% and 30%, 
respectively , of normal tax rate for first 10 years  
  Industries related to the survey and extraction of petroleum and natural 
gases commencing commercial operation from March 2024 shall be provided 
with a tax holiday for the first 7 years and a 50% exemption for the next 3 
years  
  Losses can be carried forward up to 12 years instead  of 7 years for petroleum 
extracting industries  
  A 15% exemption for special industries listed in Nepal Stock Exchange 
(NEPSE)  
  An export income tax rate  of 20%  
a A "special industry" means a production -oriented industry as classified in Section 3 of  the Industrial 
Enterprises Act 1992, with the exception of industries producing cigarettes, bidi, cigar, tobacco, 
khaini or other products of the same nature involving tobacco as the principal raw materials, or 
industries producing liquor, beer and simila r products.  
Source:  Office of the Investment Board online information. Viewed at: 
http://ibn.gov.np/uploads/files/Sector/Mines%20Minerals.pdf . 
4.45.   In 2015 -16, 85 mines and quarries for 15 different minerals were in operation. Of these, 
31 are limestone quarries and seven  are gem mines. Over 250 private investors, both domestic and 
foreign, have shown interest and acquired 400 prospecting licences to explore 24 mineral 
                                                
27 This type of licen ce is related to the scale of the mining operation : very small scale (ten years of 
operation); small -scale (15 years); medium -scale (20 years); and large -scale (30 years).  In the case of cement 
grade limestone, the initial period for a very small scale and a small-scale licence is 15 and 20 years, respectively, 
and can be extended by the DMG.  Office of the Investment Board online information. Viewed at: 
http://ibn.gov.np/uploads/files/Sector/Mines%20Minerals.pdf . 
28 Regulations of the Mines and Minerals Act  2056 (2000).  WT/TPR/S/ 381 • Nepal  
 
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  commodities , and 222 mining licences to exploit 15 mineral commodities (except river gravel and 
sand mines). There are over 31 limestone quarries from which limestone is supplied to some cement 
industries. FDI in the sector comes from Australia,  Canada, China, India, South Africa, the United 
Kingdom and the United States. Most interest has been shown in base metals, diamonds, mineral 
sands and gold.  
4.46.   Nepal has also granted approval  to Dangote Cement from Nigeria, Hongshi and Huaxin from 
China and Reliance Cement from India to invest in Nepal. C ombined , these FDIs amount to 
US$1.45  billion , and their proposed output stands at 22,000 tons  per day. Hongshi has already 
started trial production, a Project Investment Agreement has been initialized for Huaxin Cement, 
and Dangote has been participating in tenders.  
Energy  
4.47.   The Ministry of Energy, Water Resources and Irrigation is responsible, inter alia , for energy 
policy, and regulates other bodies related to the sector: the Department of Electricity Devel opment 
(DoED) promotes the participation of private investors by providing a "One Window" service, 
manages the licensing process for independent power producers (IPPs), etc.; the Water and Energy 
Commission Secretariat (WECS) assists in the formulation of policies and the planning of projects 
regarding water resources and energy; the Nepal Electrici ty Authority (NEA) is the state -owned 
vertically -integrated utility company in charge of generating, transmitting and distributing 
electricity; the Alternative E nergy Promotion Centre (AEPC), under the Ministry of Energy, Water 
Resources and Irrigation, promotes the use of alternative/renewable energy technologies ; and the 
state-owned Nepal Oil Corporation (NOC) has the monopoly for importing and selling petroleum  
products. However, various private companies hold the total retail market in the distribution of 
petroleum products, including LPG. The Investment Board Nepal (IBN), headed by the Prime 
Minister, facilitates FDI projects, negotiates public private  partner ship (PPP) projects, and furnishes 
Project Development Agreement s (PDAs) for hydropower projects  having an  installed capacity of 
above 500 MW.29 
4.48.   Under the Electricity Regulatory Commission Act, 2074 (2017), the Electricity Regulatory 
Commission (ERC) was established (replacing the Electricity Tariff Fixation Committee ) and is in the 
process of formation. It will recommend and advise the Government on policies regarding the 
generation, transmission, distribution or trade of electricity, and tariff fixation. T he ERC will have 
the authority to determine generation and consumer tariffs and wheeling charges, and will also 
regulate electricity service providers.  
4.49.   The energy sector is key to Nepal's future economic growth. Despite the fact that no major 
oil, gas, or coal reserves have been found thus far , Nepal would have  all it needs to meet its own 
energy needs plus those of many of its neighbo urs if it tapped its significant hydroelectric, solar and 
wind resources. Nepal 's river systems comprise approximately 83,000 MW of hydropower potential; 
its solar power potential is estimated at 1,829 MW-peak (MWp), taking into account an average 
generation of 33.5 MWp per km2 of land area (utilizing 2% of the best solar irradiance a rea, out of 
an available total of 2,729 km2); and its gross wind power potential is calculated to be 3,000 MW.30 
These resources could be complemented with measures to strengthen energy efficiency planning, 
with significant potential for transmission upgrad es and retrofits and more efficient lighting practices.  
4.50.   Moreover, biomass and geothermal energy could also become important energy sources. 
Because Nepal' s economy is heavily based on agriculture, biomass technology may be a useful 
energy source for its ru ral and remote mountainous regions. However , research on low -cost and 
cold climate biogas plants is still required in order to make this technology affordable and accessible. 
Geothermal energy is also in its earliest stages of development in Nepal.31 The us e of geothermal 
spring water s is largely confined to bathing and laundry. The absence of adequate knowledge of the 
utilization of low temperature thermal waters has been a major impediment to the promotion of this 
                                                
29 The IBN, established in 2011, is  responsible for the implementation of large infrastructure projects.  
30 Office of the Investment Board online information. Viewed at: 
http://ww w.ibn.gov.np/uploads/files/Sector/Energy%20Sector.pdf . 
31 Most of the major geothermal springs in Nepal lie just to the north of the Main Central Thrust and 
south of the Main Boundary Fault.  WT/TPR/S/ 381 • Nepal  
 
- 80 - 
 
  resource. Nepal has huge potential to expo rt Himalayan mineral water to various countries, including 
Gulf countries.  
4.51.   According to the authorities, Nepal does not practice load shedding any more. However, 
ensuring reliable and quality access to electricity remains a key challenge b ecause of inadequ ate 
planning, delays in project implementation, and significant underinvestment in the baseload 
generating capacity  over the years. According to the latest data by the NEA, 87% of the population 
has access to electricity.  
4.52.   The period 2016 -26 has been declar ed National Energy Crisis Reduction and Electricity 
Development Decade (Energy Emergency Decade). In February 2016, a Concept Paper was issued 
and subsequently endorsed by the Cabinet of Ministers , signal ling Nepal's intention to achieve zero 
power shortag e within two years and ensure energy security during the period. Other key reforms 
identified in the Concept Paper include: the use of Power Purchase Agreement s (PPAs) denominated 
in convertible currencies; the use of government guarantees as security for NEA payments; and a 
one-time recommendation for foreign currency payments to contractors/consultants.32 
4.53.   On 8 May 2018, the Ministry of Energy, Water Resources and Irrigation launched its White 
Paper "Energy, Water Resources and Irrigation Sector's Current S tatus: Challenges and Roadmap 
for the Development of the Energy Sector", with the aim of achieving self -sufficiency in electricity 
through the overall development of the electricity sector; reducing the trade deficit by replacing 
other sources of energy by  electricity; expanding the internal and external markets for electricity; 
and delivering sustainable, reliable, easily available, quality and clean energy to the people by 
increasing their access to such energy.33 
4.54.   Nepal's per capita energy consumption of 0.41 tons of oil equivalent (toe) in 2014 was  among 
the lowest in the world.34 However, Nepal 's energy intensity is about four times greater  than the 
world average , and is the highest in the region largely because of inefficiencies in energy 
consumption. To improve energy efficiency, the Nepal Energy Efficiency Programme (NEEP) was 
launched in 2010. The first phase of the NEEP was completed in June 2014. The second phase, which 
started in July 2014 and is being implemented by the Ministry of E nergy, Water Resources and 
Irrigation , introduces market -based energy -efficiency services for the private and public sectors; 
supports the development and introduction of biomass -based improved cooking stoves for rural 
households; and provides direct advic e and expertise to the Government for the establishment of a 
policy and institutional framework to encourage energy efficiency.  
4.55.   In 2015, biomass, comprising waste and sustainable resources such as firewood, animal  dung, 
and agricultural residue, represent ed 78% of Nepal's total energy consumption (down from 85% in 
2010). Petroleum products accounted for approximately 12% of Nepal's energy needs (up from 9% 
in 2010); all of the petroleum products consumed in Nepal are imported from India. Electricity 
suppli es 3% of the energy demand (2% in 2010), with solar and other modern renewables sources 
of energy representing only 3% of the total (Chart 4. 2). In 2014, some 83% of energy consumption 
went to the residential sector, followed by the transport sector (7%).  
                                                
32 The paper recognizes procedural problems in acquiring land for p roject s, and has proposed the 
streamlining of processes for acquiring land and obtaining environmental clearances for energy projects.  Office 
of the Investment Board online information. Viewed at: 
http://www.ibn.gov.np/uploads/files/Sector/Energy%20Sector.pdf . 
33 The Ministry of Energy, Water Resources and Irrigation has formulated a comprehensive policy and 
working roadmap.  
34 In 2014, t he world average was 1.89 toe, and the average for Asia (excluding China) was 0.72 toe. 
Total primary consumption per capita of neighboring countries in 2014  was: Bangladesh, 0.22 toe; India, 
0.64 toe; Myanmar, 0.36 toe; Sri Lanka, 0.52  toe; and Viet Nam, 0.73 toe.  Asian Development Bank (2017), 
Nepal Energy Sector Assessment, Strategy, and Road Map , Manila.  WT/TPR/S/ 381 • Nepal  
 
- 81 - 
 
  Chart 4.2 Energy consumption, 2010 and 2015  
 
Source:  Information provided by the authorities.  
4.56.   Nepal's largest available renewable energy resource is hydropower. While economically viable 
hydropower capacity s tands at 42,000 MW, the current installed capacity is 1,075  MW (less than 3% 
of its proven potential). The slow progress of hydropower development is attributable to inadequate 
planning and investment in the generation, transmission, and distribution capacity; and delays in 
project development, caused partly by legal and regulatory inadequacies.35 
4.57.   Nepal recognizes that it must accelerate the development of its abundant hydropower 
potential as an important step forward in its efforts to reduce poverty an d stimulate economic 
growth. Hydropower development would provide clean energy to enhance economic and social 
development in rural and urban areas, and enable Nepal to generate revenue from the export of 
excess energy to neighbo uring countries. The Hydropo wer Development Policy 2001 addresses 
issues including private sector demand, the need for reasonable pricing, rural electrification, the 
need to raise the level of employment, hydropower exports , and investor friendly practices.  
4.58.   The existing capacity is c omprised of five "large" hydropower stations (greater than 25 MW) 
and more than 80 small ones. Annual generation is 4,082 Gigawatt hours (GWh) , or 65% of the 
total supply. The remaining 35%, or 2,175 GWh, is purchased from India. Nepal' s domestic 
hydropowe r supply includes 1,777 GWh (44%) which is sourced from IPPs, while 2,305 GWh (56%) 
is supplied by NEA power stations.36 
4.59.   Nepal has only one hydropower storage project; the rest of its generating stations operate on 
a "run of river " and "peaking run of river " basis. Consequently, electricity generation fluctuates and 
is highly seasonal. Plans are to develop around 6,000 MW of storage and run of river projects for 
domestic use , which will collectively generate 10,000 MW by 2026. Regarding FDI, to date, 73 
projects (only 2% of the total) have been registered as energy projects. But in terms of FDI pledged, 
energy -based projects comprise almost half of the total.  
4.60.   Under the Electricity Act 2049 (1992), no licence  is required for hydropower projects of up to 
1 MW. For hydropower projects with an installed capacity of more than 1 MW , the following licence s 
are required37: 
• survey licence, issued by the DoED within 30 days of the receipt of an application . 
Depending on the capacity of the hydropower project, the survey licence fee per annum 
ranges from NR 1 million to NR 6 million . The maximum term of the licence is five years. 
After obtaining the licence, the licensee must carry out a detailed survey and design (as 
                                                
35 NEA Annual Report 2017.  
36 NEA Annual Report 2017.  
37 Electricity Rules 2050 (1993).  
Chart 4.[]    Energy consumption, 2010 and 2015
2015 2010
Petroleum products
9%Modern renewables
1%
Electricity
2%
Source:  Information provided by the authorities.Biomass
85%
Electricity
3%Petroleum products
12%
Coal  4%Biomass
78%
Modern renewables
3%
Total: 11.3 MTOE Total: 9.8 MTOECoal  3%WT/TPR/S/ 381 • Nepal  
 
- 82 - 
 
  evidenced in a Detailed Project Report (DPR)), a financ ial and economic analysis , and an 
Initial Environmental Examination (IEE) or, as applicable, an Environmental Impact 
Assessment (EIA);  
• generation  licence, required to construct and operate a production facility. The maximum 
term for a generation  licence is 50 years , and it is issued within 120 days of receiving a 
complete application. Depending on the capacity of the hydropower project, the  one-time 
fee for the generation licence ranges from NR 500,000 to NR 5 million.  There are a number 
of pre -conditions  to receiving a generation  licence, including a feasibility study report, the 
names of the partners in the project and the type of their association, the method of 
financing (a detailed financing plan), and a con nection agreement ; 
• transmission licen ce, req uired to construct and operate a transmission facility. The 
maximum term for a transmission licen ce is 50 years , and it is issued within 120 days of 
receiving a complete application.  The one-time fee for the transmission licence ranges 
from NR  500,000 to N R 5 million . The documents required to obtain a transmission licen se 
are the same as those required for a generation license; and  
• distribution licen ce, required to construct and operate a distribution facility. The maximum 
term of a distribution licen ce is 50 years , and it is issued within 120 days of receiving a 
complete application.  
Electricity  
4.61.   Nepal is a net importer of electricity, and the amount of imports doubled from 694 GWh in 
FY2011 to 1,758 GWh in FY2016 , an average annual growth rate of 20.4%, compared with a 0.3% 
annual increase in NEA generation. The dominance of run of  river hydropower plants has led to acute 
capacity shortages especially during the dry season (winter), when demand rises sharply but wa ter 
flow decreases, adversely affecting power generation. The existing plan envisages the installation of 
over 2,000 MW of new capacity by 2022. Domestic demand is expected to grow to more than 
6,000  MWs by 2030 , which will require approximately US$6.45 bi llion in downstream infrastructure 
investment.  
4.62.   Nepal' s electrification rate of about 76% is comparable to that of other countries in the region. 
However, there is a significant disparity between the urban and rural areas. About 97% of the urban 
population but only about 72% of the population in the rural areas has access to electricity. Nepal 
ranks 137th out of 147 countries regarding  quality of electricity supply. The NEA suffers 
approximately 22.9% technical and commercial losses. The State controls acces s to all markets and 
networks, and prices are set by the Government. Consumer tariffs do not cover costs , and 
consequently do not offer adequate incentives to use electricity efficiently.38 
4.63.   Nepal aims at ending basic load shedding by 2018, and a chieving ene rgy independence 
by 2019. By 2050, Nepal aims to achieve 80% electrification through renewable energy sources 
having an appropriate energy mix, and reduce its dependency on fossil fuels by 50%.  
4.64.   The Electricity Act 2049 (1992) and the Electricity Rules 2050  (1993) govern the survey,  
generation, transmission and distribution of electricity. Royalt ies are payable, after the generation 
of electricity, depending on the nature of the project as shown in Tables 4. 9 and 4. 10. 
Table 4.9 Royalties for internal consumption projects, 2018  
 Up to 15 years  After 15 years  
Electricity capacity  Annual capacity 
royalty, per kW  
(NR) Energy royalty 
per kWh (%)  Annual capacity 
royalty, per kWh  
(NR) Energy royalty 
per kWh (%)  
Up to  1 MW  0 0 0 0 
Greater than 1  MW 100 2 1,000  10 
Source:  Current Finance Act; and data provided by the authorities.  
                                                
38 NEA Annual Report 2017.  WT/TPR/S/ 381 • Nepal  
 
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  Table 4.10 Royalties for export oriented hydropower projects, 2018  
 Up to 15 years  After 15 years  
Type Annual capacity 
royalty, per kW  
(NR) Energy royalty 
per kWh (%)  Annual capacity 
royalty, per kWh  
(NR) Energy royalty 
per kWh (%)  
Export -oriented run  of river 
project  400 7.5 1,800  12 
Export –oriented storage 
project  500 10 2,000  15 
Source:  Hydropower Development Policy 2001.  
4.65.   Nepal offers various investment incentives to the sector in  the form of income tax and 
VAT concessions (Table 4.11).  
Table 4.11 Investment incentives, 2018  
Incentive c ategory  Ordinary provision  Incentive provision  
Income Tax  Normal tax rate: 25%  Tax rates 
- Build, Own, Operate and Transfer Model (BOOT) 
projects: powerhouse  construction, hydropower 
generation and transmission: 20%  
-  Income generated by the entity from export: 20%  
-  For hydro generation and transmission entities listed 
on the stock exchange: 1 5% exemption from the  normal 
tax rate  
Tax holiday  
-  Licensed person or entity producing electricity through 
hydro, solar, wind or bio fuel, starting its commercia l 
production, transmission or distribution before  
12 April 2024: 100% exemption for the first  7 years and 
50% exemption for next 3 years  
Disclosure norms  
- Income source disclosure is not required for investment 
made in hydro projects of national priority until 
13 April 2019 
Carry ing forward of 
losses  Normal provision:  
7 years  - Powerhouse construction, generation and transmission 
of electricity: 12 years  
Depreciation 
provisions  Applicable Pool  
Pool A: 5%  
Pool B: 25%  
Pool C: 20%  
Pool D: 15%  - 33.3% accelerated depreciation for BOOT projects, 
powerhouse construction, hydropower generation and 
transmission  
- Investment made during a year on the replacement of 
old machiner y after the deduction of the accumulated 
depreciation up to that year , is allowed to be booked as 
an expense  
- 50% depreciation shall be allowed in the year of the 
purchase of equipment to produce energy for the 
business  
Value added tax   - 0% VAT facility based on a recommendation from the 
AEPC for batteries produced and supplied by Nepalese 
industries for use in solar energy -producing industries  
- VAT exemption on the import of machinery, 
equipment, tools and their spare parts, penstock pipes 
or iron sheets used in hydropower projects and not 
produced in Nepal (based on the recommend ation of 
the AEPC or the DoED ) 
- VAT exemption for equipment and machines, tubular 
batteries, and solar lead batteries, required by bio -gas, 
solar, and wind energy industries  
Custom duty rate Various  - Duty on generation plant s having a capacity equal to or 
exceeding 10 kW: 1%  
- Duty on generating parts imported by VAT -registered 
industries producing generators: 1%  
- Duty on alternative energy -based industries: 1%  
- Windmill s and related parts imported by wind 
energy -based in dustries 
- Solar panel s, modules, tubular batteries  and solar 
pump s imported by solar industries  
- Bio-stoves imported by bio industries  WT/TPR/S/ 381 • Nepal  
 
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  Incentive c ategory  Ordinary provision  Incentive provision  
- Import of mill s, machinery, equipment and spare parts 
thereof and chemicals for the purpose of producing 
organic fuel  
- Appliances and equipment such as main gas valves, 
valves used in biogas, fitting, elbow, gas pipes, gas 
gauges, biogas (dung gas) lamps, gas taps (brass), gas 
stoves, and parts thereof, reduction elbows and rubber 
hose pipe necessary for dung gas , includin g bio gas  
Source:  Office of the Investment Board online information. Viewed at: 
http://www.ibn.gov.np/uploads/files/Sector/Energy%20Sector.pdf . 
4.66.   To promote  investment in and ownership of hydropower assets, Nepal is encouraging  PPPs to 
construct transmission lines on a build/transfer model. It also plans to launch a program me called 
"Electricity for Every Household, Shares for Everyone" to initiate projects w ith attractive returns 
through joint  investments by the Government and the public. Finally, there have been discussions 
related to the development of a regional grid for the purpose of regional power trade.  
4.67.   On 21 October 2014, Nepal signed with India the "Agreement on Electric Power Trade, Cross 
Border Transmission, Interconnection, and Grid Connectivity", also known as the Power Trade 
Agreement (PTA), paving the way for the free flow of electricity as a cross -border commodity. It will 
enable government -to-government cooperation on a number of power sector activities , including 
transmission interconnections, grid connectivity, and power exchange and trading. Under the PTA, 
Nepal can get access to the Indian power market.  
4.68.   Two PDAs, a type of concession, wer e concluded in 2014 with two Indian investors: GMR for 
the development of the 900 MW Upper Karnali Hydropower  Project , and SJVNL for the development 
of the 900 MW Arun III .39 The combined cost of th ese two projects exceeds US$2.5  billion. Nepal 
and India ha ve also agreed to prepare a master pl an for the development of cross -border 
transmission lines.   
4.69.   In November 2014, the South Asian Association for Regional Co -operation (SAARC)40 
Framework Agreement on Energy Cooperation  – Electricity entered into force. It  allows relevant 
institutions in the respective countries to develop transmission interconnectivity within the region to 
allow cross -border power supply within SAARC member countries.  
4.3  Manufacturing  
4.70.   Nepal' s manufacturing sector is rich in potential, both f or large-scale and innovative 
small -scale projects. As of March 2016, 6,328 companies were registered in Nepal, 41% of which 
belonged to th is sector.41 However , the contribution of manufacturing to GDP has steadily declined 
during the last decades; it went from 9% in 2000 -01 to 6.2% in 2013 -14 and to 5.4% in 2017 -18 
(Section 1.1). Reasons behind this overall downward trend include low labour productivity, high 
transport costs, production stoppages due to electricity cuts, and poor labour -employer relations 
leading to strikes.42 Given Nepal's unique topography and strong business linkages with India, 
manufacturing companies are concentrated in Kathmandu and the Terai plains, which border India.  
4.71.   The manufacturing sector has also undergone substantial changes in its composition by 
subsector. The major change has been the increase of the share in value added of the food and 
beverages industry , from 22.8% in 1996 to 34% in 2011 (latest available figures), at the expense 
of textiles from 25.9% to 3.8%, and clothing  and fur from 6.3% to 0.5% in the same period.43  
                                                
39 The IBN has granted an electricity generation licence to SJVNL. The construction of Arun III has 
commenced.  
40 SAARC members are: Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and 
Sri Lanka.  
41 Office of the Investment Board online information. Viewed at: 
http://www.ibn.gov.np/uploads/files/Sector/Manufacturing%20Sector.pdf . 
42 National Planning Commission Secretariat (2014), Development of Manufacturing Industries in Nepal: 
Current State and Future Challenges , Kathmandu.  
43 National Planning Commission Secretariat (2014), Development of Manufacturing Industries in Nepal: 
Current State and Future Challenges , Kathmandu.  WT/TPR/S/ 381 • Nepal  
 
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  4.72.   Manufacturing can be broadly classified into three subsectors: fast moving consumer  goods 
(FMCGs), the largest with 59% of the total in 2014, followed by industrial goods (38%), and 
consumer goods  (3%).44 Due t o limited electricity and the lack of an enabling environment for 
manufacturing enterprises, industrial goods constitute a relatively small portion , but this subsector 
is expected to grow as the economy matures and the enabling environment improves.  
4.73.   Under  Nepal's Trade Integration Strategy (NTIS) 2016, priority economic activities with export 
potential were identified, including certain craft and manufacturing industries: all fabrics, textiles, 
yarn and rope, leather, footwear, chyangra pashmina, and knotted carpets ( Table 2.2).45 Other 
potential manufacturing export activities are: cement, pharmaceuticals, metal and metal products, 
and handmade paper and paper products.  
4.74.   The Ministry of Industry, Commerce and Supplies is responsible for the manufacturing sec tor. 
The Industrial Policy 2010 replaced the Industrial Policy 199246, with the aim of promoting industrial 
activity and increasing its contribution to GDP, generating more job opportunities, boosting per 
capita income, and reducing poverty. The Industrial Policy 2010 also aims to promote value -added 
industries47, facilitate the supply and adoption of new technology to increase production and 
productivity, and upgrade technical and skill -related aspects of the administrations related to the 
industrial sector.   
4.75.   As part of the Industrial Policy 2010, 11 industrial districts have been established, ten of which 
are in operation, have 628 industries and provide employment to 13,500 people. In addition, Nepal 
plans to establish 12 Special Economic Zones (SEZs) to cater for export -oriented industries , and 
increase the industrial processing of local product s. Expo rt industries that intend to ex port at least 
75% of their production can be established in a n SEZ after investing the prescribed capital and 
obtaining permission from the Special Economic Zone Development Committee (SEZDC) under the 
Ministry of Indu stry, Commerce and Supplies .   
4.76.   Under the Special Economic Zone Authority Act 2016, companies operating in SEZs are eligible 
for various incentives, including a 50% income tax exemption for th e first five years (Table  4.12). 
To become  eligible for such ince ntives, a licence is required with a maximum validity of 30 years, 
extendable for another ten years ( Section 2. 4). 
Table 4.12 Incentives for companies in SEZs, 2018  
Type of exemption  Details  
Income tax  - Industries are eligible for a 50% tax exemption for the first 5 years  
- Industries that use at least 60% domestic raw materials will receive a 50% tax 
exemption for an additional 5 years and a 25% exemption for another 5 years  
- Tax on dividends is exemp t for 5 years , and is 50%-exempt for the next 3 years  
VAT - Zero VAT rates are available for goods or services traded among entrepreneurs 
operating within a n SEZ, and for goods or services exported from the industries 
established therein  
Customs duty  - Industries within a n SEZ are exempt from customs duty for raw materials, 
auxiliary raw materials, packing materials and products used in the production of 
exportable goods, if made under a bank guarantee facility  
- Industries within a n SEZ are exempt from customs duty on the import of plant, 
machinery, instruments, tools and spare parts required for the industry  
- Customs duty is refundable to an importer that sells any goods to an industry 
within a n SEZ 
                                                
44 FMCGs include food and beverages, tobacco, and soap; indu strial goods are fabricated metal products, 
non-metallic mineral products, basic metal, plastics and rubber products, and textiles; and consumer goods are 
electronics, furniture and leather and allied products. Office of the Investment Board online informa tion. Viewed 
at: http://www.ibn.gov.np/uploads/files/Sector/Manufacturing%20Sector.pdf . 
45 Ministry of Commerce (2016), Nepal Trade Integration Strategy 2016 , Kathmandu.  
46 During its WTO accession negotiations, Nepal indicated that the Industrial Policy 1992, the Industrial 
Enterprises Act 1992, and the Industrial Enterprises Regulations would be amended to bring them into conformity 
with the WTO Agreements on Subsidies and  Countervailing Measures and on Trade Related Investment Measures. 
Nepal also stated that it would identify subsidy measures incompatible with the WTO, and these would be 
eliminated (WTO document WT/ACC/NPL/16, 28 August 2003).  
47 The Government promises to  purchase goods that are produced by domestic firms if there is 30% value -
addition in the final product.  WT/TPR/S/ 381 • Nepal  
 
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  Type of exemption  Details  
Facilities equal to 
export to be 
provided  - The sale  of raw materials or any products within the SEZ shall be regarded as an 
export , and the industry shall be entitled to all such concessions  
- The facility of a bonded warehouse shall be available for utili zation within a period 
of 45 days from the date on which an application is submitted  
Other facilities  - Rent or lease payments made by industries established in a n SEZ shall be 
exempted by 50 %, 40% and 25% for the first 3 years of establishment, respectively  
- No local tax will be charged on the import of  up to 3 vehicles for the purpose of 
transportation of machinery, instruments, and spare parts of machines, raw 
materials or goods required for the industry, having regard to the scale of the 
industry  
Source:  Office of the Investment Board online information. Viewed at: 
http://www.ibn.gov.np/uploads/files/Sector/Manufacturing%20Sector.pdf . 
4.77.   The Bhairahawa SEZ, inaugurated on 18  November 2014, near the border with India, is about 
to be operational. Feasibility studies have been completed to establish SEZs in Biratnagar, 
Panchkhal, Gorkha, Jumla and Dhangadhi. The Simara SEZ has recently been inaugurated as a 
garment processing zo ne (GPZ) to capitali ze on the zero tariff preference, which has been extended 
by the United States to Nepal for 77 products in the garment/apparel industry.  
4.78.   The Nepal Industrial Development Corporation (NIDC), a national development bank for more 
than 50 years, no longer exists. In early May 2018, it merged with Rastriya Banijya Bank. As a 
result, all assets and liabilities of the NIDC have been taken over by Rastriya Banijya Bank.  
4.79.   The Industrial Enterprises Act 2016 was promulgated, replacing the Industri al Enterprises Act 
1992 (as amended). Regulations corresponding to the Act are being drafted . Some of the salient 
features of the Act are:  
• industries have been classified into eight categories (manufacturing, energy, agro and 
forest, mineral, tourism, ser vice, information and technology, and construction);  
• licences are required only for specified industries, and registration with the Department of 
Industry is compulsory for all industries. Industries can commence operations only after 
obtaining an EIA or an IEE, as applicable;  
• industries are classified as either "cottage industries" (traditional industries using specific 
skills and local raw materials), "small industries" (f ixed assets investment up to 
NR 100 million), "medium industries" (fixed assets of  between NR 100 million and 
250 million), and "large industries" (fixed assets of more than NR 250 million);  
• medium or large industries, and cottage and small industries whose annual turnover 
exceeds NR 150 million, are required to allocate 0.5% of annual  turnover to corporate 
social responsibility activities; and  
• nationalization of privately -owned industrial enterprises is prohibited.  
4.80.   The Act provides statutory protection of changes in law in relation to benefits and exemption s 
provided under it and othe r applicable laws. The stabilization provision states that no provisions shall 
be made to limit the benefits and exemptions prescribed under the Act and other applicable laws. 
This provision was introduced against the background that  a stabilization provis ion was set  up mostly 
for infrastructure projects under the applicable laws , but now all industries registered under the Act 
are eligible to enjoy the benefits.  Under the Act, fiscal concessions are granted for different 
industries. M anufacturing and export -oriented industries enjoy most of the fiscal incentives  
(Table  A4.1).   
4.81.   Despite Nepal's privatization programme, the State continues to play an important role in 
manufacturing, mainly through public enterprises (PEs), some of which are loss -making WT/TPR/S/ 381 • Nepal  
 
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  (Section  3.3.5). There  are 36 active full or majority PEs, seven  of which produce manufactures such 
as cement.48 
4.82.   MFN applied tariffs on manufactured goods (major division  3 of ISIC, Revision 2) 
average  12.6% ( Table A3.1), with  rates ranging from zero to 80% (without AVEs) and 356.5% 
(including AVEs).49 For some manufacturing products, notably motor vehicles, MFN applied tariffs 
exceed the bound rates (Section 3.1.3.3).  
4.4  Services  
4.83.   The services sector is, increasingly, the largest contributor to GDP, with a 57.6% share in 
2017-18 (49.8% in 2010 -11). In 2017 -18, wholesale and retail t rade led services, with a 
13.3%  share of GDP, followed by real estate, renting and business activities (11.4%); transport, 
storage, and communications (8.0%); education (7.2%); health, social and personal services 
(6.6%); and financial intermediation (6.3 %) (Chart 1.1).  
4.84.   On the basis of tourism -related receipts, Nepal became a net exporter of services during the 
review period, with a surplus averaging over US$200 million per year during 2 013-14 to 2016 -17. 
In 2016, Nepal ranked 100th both among world exporters and importers in terms of commercial 
services trade  (considering EU member States as one, and excluding intra -EU trade).50  
4.85.   Services are covered in some of Nepal's preferential tradin g arrangements, e.g. the SAARC 
Agreement on Trade in Services (SATIS) under the South Asian Free Trade Area (SAFTA) 
(Section  2.3.2. 1). 
4.86.   Under the General Agreement on Trade in Services (GATS), Nepal scheduled extensive specific 
commitments, including on fin ancial services, telecommunications, transport, tourism, and 
professional services.51 
4.4.1   Financial Services  
4.87.   Nepal has a large untapped market for financial services. As per the FinScope Consumer 
Survey of Nepal 2014, 60% of Nepal' s population ha s no bank account, only 6.7% use debit cards, 
and 18% of the adult population is excluded from the financial services sector; they do not use 
formal or informal banks and financial institutions (BFIs).52 Nonetheless, access to financial services 
and financia l deepening have been growing over the last few years: total deposit and total credit of 
BFIs to GDP ratios reached 97.1% and 86.3%, respectively, as of mid -February 2018.53  
4.88.   Under the Nepal Rastra Bank Act 2002 (as amended in 2016) and the Banks and Financ ial 
Institutions Act 201754, the NRB regulates and supervises BFIs. The Foreign Exchange Regulation 
Act 1962 confers on the NRB the power and jurisdiction to regulate foreign exchange transactions. 
Other major policies and regulation s related to BFIs are: the Insolvency Act 2006; the Insurers' 
Licensing Policy; the Securities Board Regulation 2008; the Lender of Last Resort Policy 2010; the 
Foreign Currency Loan Policy 2002; the Licensing Policy for Payment Related Institutions 2016; the 
Licensing Policy for  Foreign Bank Branch; the Insurance Regulation 1993; the Securities 
                                                
48 The cement factories in operation are the Hetauda Cement and Udaypur Cement companies. Ministry 
of Finance online information. Viewed at: mof.gov.np/ en/archive - documents/soe -information —yellow -
book-29.html.  
49 Prepared food, beverages, and tobacco (one tariff line).  
50 WTO online information. Viewed at: 
http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?Language=E&Country=NP.  
51 WTO documents GATS /SC/139, 30 August 2004; and GATS/SC/139/Corr.1, 3 November 2005.  
52 FinScope Consumer Survey Nepal 2014 , access to financial services by adult s in Nepal (18 years and 
older). Viewed at: https://www.finmark.org.za/finscope -nepal, 2014 -consumer -survey.  
53 NRB online information. Viewed at: 
https://nrb.org.np/bfr/monthly_statistics.php?tp=Monthly_Statistics&&vw=15 . 
54 The Banks and Financial Institutions Act 2006 has been repealed by the Banks and Financial Institutions 
Act 2017.  WT/TPR/S/ 381 • Nepal  
 
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  Businessperson (Stock Broker, Dealer & Market Maker) Regulation 200 8; and  the Securities 
Businessperson (Merchant Banker) Regulation 2008.55 
4.89.   The financial services sector in Nepal is compos ed of institutions licensed and regulated by  
the NRB, and other, non -NRB licensed/regulated institutions. As of  July 2018, the financial 
institutions under the responsibility of the NRB comprised: 28 commercial banks ('A' class financial 
institutions); 36 development banks ('B' class financial institutions); 25 finance companies ('C'  class 
financial institutions); 63 micro -finance companies  ('D' class financial institutions); 14  saving and 
credit cooperatives56; 24 financial intermediaries non-governmental organizations ( FINGOs)57; 49 
money transfer firms; and 393 money changers. Nepal Bank, Rastriya Banijya Bank, and the ADB  
are the three  remaining state-owned banks58; the others are private (seven are registered as joint  
ventur es, and the remainder are local ).59 
4.90.   The remaining financial institutions include those licensed and regulated by the Ministry of 
Finance: 36 insurance companies; the Nepal Stock Exchange (NEPSE); the Employees Provident 
Fund60; the Citizen Investment Trust61; the Deposit and Credit Guarant ee Corporation62; and the 
Credit Informati on Bureau63; as well as the Postal Savings Bank (licensed and regulated by the 
Ministry for Information and Communications)64; and 13,578 Savings and Credit Cooperatives 
(licensed and regulated by the by the Cooperati ve Act 2074 (2017) ).65 
4.91.   The growth of new BFIs has recently slowed , owing to a moratorium imposed by the NRB on 
the issuance of licence s for new BFIs, except for micro -finance institutions . Moreover, after the NRB 
issued the Merger and Acquisition By-Law 201 6, some BFIs have been seeking mergers and 
acquisitions with other sector participants in order to meet the NRB's newly established capital 
requirements. Commercial banks were required to increase paid -up capital to NR 8 billion, national 
level development  banks to NR 2.5 billion, development banks operating in three provinces and a 
maximum of ten  districts  to NR 1.2 billion, and development banks operating in three  provinces and  
a maximum  of five districts to NR 0.5 billion. Almost all BFIs have met these requirements . According 
to the NRB, this will make BFIs stronger and ensure the system 's financial stability.66 
4.92.   During the period under review, other changes were made to the regulatory framework of 
financial institutions. The NRB Act Second Amendment (NRBA A) Bill has been in force since 
14 November  2016. It aims to strengthen and clarify the bank resolution powers of the NRB, increase 
the NRB's capital, and align accounting standards with international practice. Despite  these 
improvements, according to the IMF, the NRBAA curtails somewhat the autonomy of the NRB, and 
                                                
55 Office of the Investment Board online information. Viewed at: 
http://www.ibn.gov.np/uploads/files/Sector/BFS_Sector%20Profile.pdf . 
56 Established under the Cooperatives Act 2074 (2017) . Cooperatives undertake limited financial 
transactions under the directives issued by the NRB in 2002 ( amended  in 2003  and 2016 ). 
57 NGOs are licensed by the NRB to undertake limited financial transactions. They are registered under 
the Institutions Registration Act 1977 , and undertake limited banking transactions in accordance with the 
provision of the Financial Intermediation Rel ated Institutions Act 1999.  
58 The State has a minority shareholding in Nepal Bank, and a majority stake in the other two banks.  
59 Commercial banks provided employment to some 29,000 i ndividuals as of mid -June 2018, of which 
private commercial banks employed 75% and the three state -owned  banks employed the rest.  
60 The Employees Provident Fund, an autonomous entity established under the Employees Provident Fund 
Act 1962, mobilizes the savings collected through the pr ovident fund of government employees, the army, the 
police, teachers, government corporations, and some private companies.  
61 The Citizen Investment Trust, established under the Citizen Investment Trust Act 1991, mobilizes 
private as well as institutional s avings, extends loans and advances, and works as an issue manager.  
62 The Deposit and Credit Guarantee Corporation was established in 1974 to encourage commercial banks 
to extend loans to priority sectors and serve remote areas and poor families. It guarant ees a number of loans 
including priority sector loans, livestock loans, vegetable farming loans, foreign employment loans, micro and 
deprived sector credit, and credit for small and medium industries.  
63 The Credit Information Bureau, established in 1989, s tarted operations as a company in March  2005. 
It is the prime organization in Nepal acting as the repository for credit information of the consumers and 
commercial borrowers of all financial institutions.  
64 The Postal Savings Bank, established under the Po stal Services Depart ment, entered into operation 
in 1976. It has 117 offices engaged in collecting deposits.  
65 Department of Cooperatives online information. Viewed at : 
http://www.deoc.gov.np/ne/cooperativestat.php?id=1 . 
66 NRB online information. Viewed at: https://n rb.org.np/bfr/circular/2074 -
75/2074_75_For_A_,_B_&_C_Class --Circular_17 -
CCD_Ratio,_Spread,_Branch_&_Provincewise_Capital_Related.pdf . WT/TPR/S/ 381 • Nepal  
 
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  fails to grant explicit consolidated supervision powers and clarify emergency liquidity assistance 
provisions67 In September 2016, the new Deposit and Credit Guarantee Fund Act (DCGF) was also 
approved ; it enhances the legal framework for the deposit insurance scheme.  In 2013, the Asset 
(Money) Laundering Prevention (Second Amendment) Ordinance was issued .68 
4.93.   BFIs are entitled to receive some investment incentives ( Table 4. 13). 
Table 4.13 Investment incentives, 2018  
Incentive category  Incentives and subsidy provision  
Banking  - The p rovision made by a person running a banking business to cover the risk for 
outstanding loan s will be deductible up to a limit of 5% of the total outstanding loan 
under the norms and standards prescribed by the NRB 
- A deduction from the profit s as expenses for bad debt shall not be allowed, and , if 
any amount of the risk-bearing fund is capitaliz ed or distributed as profit or dividend, 
the amount shall be included in calculating  the income of the year when it is so 
capitalized or distributed  
General insurance 
business  The p rovision of an unexpired risk reserve fund can be deducted from the income of 
the general insurance business sum of:  
 
- 50% of the net insurance premium as shown in the income statement of the 
particular year , and 115% of the outstanding claim at the end of the financial  year. 
The closing balance of such unexpired risk fund claimed as a deduction in the current 
income year should be carried forward as income in the next income year  
Life insurance 
business  The following amounts are not included in the computation of life insurance business 
income:  
 
- the amount received from the premium or reinsurance premium received during the 
year 
- the amount received from reinsurance, guarantee, or any indemnity contract during 
the year  
 
The following amount shall not be deducted when  computing the expense s of the life 
insurance business:  
 
- any amount paid or reimbursed as an insurer during the year  
- the refund of the premium to the insured during the year  
Retirement fund For the purposes of calculating the income of a retirement fund:  
 
- retirement contributions received by the fund shall not be included in the calculation , 
and shall not be considered as  income of the fund  
- retirement payments shall not be deductible in the calculation , and shall not be 
considered as an outgoing of the fund  
- the interest of a beneficiary in a retirement fund shall not be a liability of that fund  
- the income of an approved retirement fund shall be exempt from tax  
Source:  Office of the Investment Board online information. Viewed at: 
http://www.ibn.gov.np/uploads/files/Sector/Manufacturing%20Sector.pdf . 
4.94.   Under the GATS, Nepal made specific commitments (and put some conditions) on financial 
services, incl uding: (i) branches will be allowed for insurance services and wholesale banking as of 
1 January 2010; (ii) only a licensed commercial bank, a licensed specialized bank or a registered 
finance company may accept deposits; (iii) only a licensed commercial b ank may accept deposits 
that are repayable upon demand; (iv) only financial institutions with a rating of at least 'B' by a 
credit rating agency may have commercial presence in Nepal; (v) the total foreign shareholding in 
any financial services institution is limited to 67% of the issued share capital (for banks this threshold 
has recently been increased to 80%); (vi) the shares held by forei gn nationals and foreign financial 
institutions in their locally incorporated companies are not transferable without the prior written 
approval of the NRB or any other competent authority; (vii) representative offices may not be 
engaged in commercial busin ess; and (viii) members of the Board of Directors of a financial service 
supplier will be in proportion to the equity representation of that financial service supplier.69 
                                                
67 Under the NRBAA, t he Government may issue directives to the NRB on money, banking and finance , 
and the NRB shall abide b y such directives. IMF Country Report No. 17/74.  
68 IMF Country Report No. 17/74.  
69 WTO document GATS/SC/139, 30 August 2004.  WT/TPR/S/ 381 • Nepal  
 
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  4.4.2   Banking  
4.95.   The Banking and Financial Institution Act (BAFIA) 2017  regulates BFIs. Among others, it 
establishes: the rules and procedures related to the incorporation and licensing of banks and other 
financial institutions, and the registration and carrying out of business by foreign banks; and 
minimum capital requirements for BFIs. Saving and  credit cooperatives are governed by the 
Cooperatives Act 2017. The BAFIA also contains provisions designed to encourage FDI (Section  2.4). 
4.96.   Financial soundness indicators of banks in Nepal have improved over the last few years. All 
class A banks now meet t he minimum 11% capital adequacy ratio (CAR). The three state -owned 
banks, which represent about one sixth of system assets, were undercapitalized until 2014 when 
they received capital injections. Further, there has been a fourfold increase in banks' paid -up capital 
as required by the NRB  (Section 4.4.1) , banks' profits were at record high in 2016 -17, and non -
performing loans (NPLs) and loan loss provisions were at a record low.70 
4.97.   Notwithstanding these positive developments, banks face vulnerabilities. Accord ing to the 
IMF, the rapid growth in banks' credit to the private sector over the last few years has increased 
their loan -to-deposit ratio close to the regulatory maximum of 80%. It has been concentrated in 
overdrafts, which can be diverted to risky activit ies, such as purchases of real estate and stocks. To 
mitigate macro -financial risks, the IMF has called for accelerating financial sector reforms, through 
stronger supervision by the NRB (building on recent amendments to the regulatory framework, 
Section 4 .4.1), more stringent loan classification and provisioning, as well as upgrading the banks' 
risk management.71 
4.98.   Financial cooperatives account for around 13% of Nepal's financial system assets , and have 
linkages to the banks. According to the IMF, the absenc e of meaningful regulation and supervision 
of the cooperatives sector needs to be remedied, for example through the creation of a designated 
second -tier institution as well as resolution tools.72 
4.99.   Under the Policy Provision for Opening Branch Offices by Fore ign Banks and Financial 
Institutions 2010, f oreign banks/financial institutions are allowed to open branches for wholesale 
banking. They require approval by the NRB ; an assigned capital of at least US$ 20 million; and 
deposits must be from corporations/asso ciations registered in Nepal, of a minimum of N R 100 million 
and in the form of fixed deposits for more than one  year. Moreover, the BAFIA  encourages the 
establishment of infrastructure development banks (IDB s) with minimum paid -up capital of NR 20 
billion  and foreign ownership of up to 85%.  
4.100.   In principle, all commercial banks in Nepal are universal banks (i.e. allowed to carry out all 
types of banking activities). The ratio of total assets/liabilities of commercial banks to GDP was 
99.4% in mid -July 2017 ( 66.6% in mid -July 2010 ). 
4.101.   Banks are not allowed to carry out activities related to insurance.73 However , commercial 
banks, development banks, and finance companies may maintain equity stakes in insurance 
companies.74  
4.4.3   Insurance  
4.102.   Nepal' s insurance market remain s very small , and has a limited range of products. More 
innovative products have yet to be designed, and this might prove to be a lucrative market for new 
market entrants. There are  39 insurance companies: 20 carry out non -life insurance business, 18  
are life, and 1  is re-insurance. On 7 November 2014, Nepal Re -Insurance Company Limited (Nepal 
Re) was established for the purpose of covering damages caused by terrorism.75 Accordi ng to the 
ownership structure, three  insurance companies are state -owned, 30 are owned by the private 
                                                
70 IMF Country Report No. 17/74.  
71 IMF Country Report No. 17/74.  
72 IMF Country Report No. 17/74.  
73 Article 47 of the BAFIA.  
74 For example, Laxmi Bank, a leading commercial bank, has a 15% stake in Prime Life Insurance 
Company.  
75 Nepal Re is 50% state -owned, and the remaining 50% is held by other Nepalese insurers.  WT/TPR/S/ 381 • Nepal  
 
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  sector, three  are joint ventures, and three  are foreign branches. In mid -July 2016, the ratio of total 
assets/liabilities to GDP was 7% for insurance companies and 0.3% for re -insurance companies.  
4.103.   The Insurance Act 1992 and the Insurance Rules 1993 govern the provision of insurance 
services. The Insurance Act establishes the Insurance Board as the administrative body responsible 
for organiz ing and regulat ing the insurance sector. It also sets out th e functions of the Board , which 
include issuing licence s, and inspecting/supervising/monitoring licensees. The Insurance Rules 
provide additional detail on matters , including the establishment of the insurance business, licensing 
procedures, and the regula tion of insurance agents, insurance brokers, and insurance surveyors. 
They also establish rules related to payments against claims.  
4.104.   The Act requires insurance businesses to, inter alia, obtain a licence to set up an office in 
Nepal, and for all intermediar ies wishing to  operate in the insurance business (e.g. agents, 
surveyors, brokers).76 It also requires life and n on-life insurance companies to have a paid up capital 
of NR 500 million and N R 250 million , respectively . There is no minimum capital requirement for 
establishing a branch insurance office or a reinsurance business.77 No new composite insurance 
companies are permitted.  
4.105.   Third-party liability insurance for motor vehicles is compulsory. Under Section 26 of the 
Foreign Employment Act, no Nepali citizen is allowed to work abroad without an insurance policy 
covering any kind of accident, disability or death. Section  38 of the Labour Act of 1992 (as amended) 
establishes mandatory insurance for certain occupations, whi ch is provided via a personal accident 
policy.78 
4.106.   As institutional investors, Nepalese insurance companies act as principals for their own 
account, and invest the assets of their company in a wide range of financial instruments , including 
equities and debt, corporate securities, and government bonds , and in commercial and development 
banks according to the requirements of the Insurance Act.  
4.4.4   Securities  
4.107.   The Securities Act 2007 establishe d the Securities Board of Nepal (SEBON) as the premier 
institution for sec urities. It also establishe d rules which regulate the issuance, purchase, sale and 
exchange of securities. Among others, the SEBON is obligated to: provide advice to the Government 
on matters related to the development of the capital market; issue necessar y securities regulations 
and directives; register the securities of public companies; regulate and systematize the issue, 
transfer, sale and exchange of registe red securities; issue licenc es to operate stock exchanges; and 
issue licence s to stock brokers, dealers, merchant bankers and fund managers.79 
4.108.   The NEPSE is still in the infant stage.80 The number of listed companies decreased from 214 
in 2012 to 196 in mid -April 2018 , due to some mergers and acquisitions of BFIs. The growth in the 
listed companies most ly includes BFIs that are required to publicly float at least 30% of their shares 
and get listed in the stock exchange within a specific period of time.81 The ratio of market 
capitalization of the NEPSE to GDP  went from 21.4% in mid-March  2012 to 49.8% in 
mid-April 2018.82 The NEPSE index reached 1,390  points at the end of 2017  (up from 533.9  points 
                                                
76 The Insurance Board is a chartered member of the International Association of Insurance Supervisors 
(IAIS), and a member of the Insurance Congress of Developing Countries (ICDC), the South Asian Insurance 
Regulators Forum (SAIRF), the Asian Insurance Regulator Forum, and the IAIS -CGAP Joint Working Group  on 
Micro  Insurance.  
77 Insurance branches and reinsurance business es are subject to the working capital requirement 
stipulated by the Insurance Board.  
78 A personal accident  policy includes  a minimum requirement regarding property damage/bodily injury 
of US $10,000.  
79 Office of the Investment Board online information. Viewed at: 
http://www.ibn.gov.np/uploads/files/Sector/BFS_Sector%20Profile.pdf . 
80 The organized and full -fledged stock market began with the conversion of the Securities Exchange 
Centre (SEC) , established in 1976,  into NEPSE in 1993. It opened its trading floor in the beginning of 1994. The 
NEPSE is the only stock exchange in Nepal.  
81 Since t here is no such a mandatory requirement for companies in the real sector , fewer real sector 
companies have been listed in the NEPSE . 
82 NRB's "Current Macroeconomic Situation of Nepal" report.  WT/TPR/S/ 381 • Nepal  
 
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  at the end of 2012) 83, mainly due to the positive macroeconomic performance during the period, 
political stability after the new Constitution was adopted in 2015 , and the fact that the Nepalese  
have been gradually using  the stock market as a hedge against inflation.   
4.5  Telecommunication s and Postal Services  
4.109.   Overall, Nepal's telecommunications market has grown considerably during the last few 
years, notably the mobil e market where the number of subs cribers more than doubled from 
16.6 million in 2012 to 36.1 million in 2017 (Table 4. 14), reaching 37.8 million by May 2018. 
Moreover, the percentage of individuals using the Internet jumped from 11.15 % to 63.81 % 
during  2012-17. Total telecommunication revenues also rose fro m NR 75.7 billion in 2012 to 
NR 102.4  billion in 2016.  
Table 4.14 Telecommunications indicators, 2012 -17 
  2012  2013  2014  2015  2016  2017  
Subscribers        
Fixed telephony ('000)  831.7  829.1  837.3  846.9  858.2  861.3  
Per 100 inhabitants  3.01 2.96 2.96 2.96 2.96 3.25 
Fixed broadband ('000)  230.6  311.5  250.6  302.7  224.2  554.4  
Per 100 inhabitants  0.83 1.11 0.88 1.06 0.77 1.90 
Cellular mobile telephony ('000)  16,608  21, 362  23,021  27,516  32,120  36,096  
Per 100 inhabitants  60.07  76.33  81.28  96.02  110.83  136.34  
Internet (% of population)  11.15  13.30  15.44  17.58  19.69  63.81  
Total revenue (NR billion)  75.7 87.6 99.0 102.7  102.4  .. 
..  Not available.  
Source:  World Telecommunications/ICT Indicators; and information provided by the authorities.  
4.110.   Nepal's telecom sector has been further liberalized during the review period  through the 
adoption of various policy papers and regulations: the National Broadband  Policy 2015, the National 
Information and Communications Technology (ICT) Policy 2015, the Spectrum Policy 2016, and the 
Telecom Infrastructure Service Regulation 2017. In addition, other legal instruments are being 
drafted, including the new Telecommunic ations Act that will replace the 1997 Telecommunications 
Act, the new IT Act, the National Broadband Master Plan, the Telecommunications Frequency 
Distribution Regulation, and the Regulatory Framework for Mobile Portability.  
4.111.   Under the National Broadband P olicy 2015, the Government views broadband as a "general 
purpose technology" that will transform economic relations, enhance productivity and create new 
services. Some of the key objectives are to: provide secure, meaningful, affordable and reliable 
broadb and services on demand in urban areas; provide universal access to broadband services in 
rural, unserved and underserved areas; promote broadband take -up by early and influential users 
including government and business users, and other important users (e.g . education and health 
sectors); and stimulate demand and content creation and build user capacity.  
4.112.   The Information and Communications Technology (ICT) Policy 2015 seeks to tackle the 
policy incongruence that has hindered the growth of IT and the IT-enabled services sector. It 
stresses the need for a well -defined and consistent policy and regulatory framework for addressing  
converged regimes of telecommunications, broadcasting, and ICT. Some of the main goals are: 
enhancing overall national ICT readin ess with the objective of being at least in the second quartile 
of the international ICT development index and eGovernment rankings by 2020 ; at least 75 % of 
Nepalese  should have digital literacy skills by the end of 2020 ; and 90% of the population should be 
able to access broadband services  by 2020 . 
4.113.   Some of the key objectives of the Spectrum Policy 2016 are to: create level playing fields 
among telecommunication players; implement technology neutrality; bring in more 
spectrum -efficient technology; auction n ew frequency brands; and  maximize the government 
revenue from the spectrum.  
4.114.   Nepal's main policy objectives in telecommunications include: universal access in rural 
areas; a universal service obligation in urban areas; liberalization of all telecom services ; an open 
                                                
83 On 31 August 2008, the NEPSE index had reached its all -time high of 1,175 points  before plunging to 
a record low of 292 on 15 June 2011, partly due to the effects of the global economic crisis and the 10 -15% 
increase in the capital gains tax.  WT/TPR/S/ 381 • Nepal  
 
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  licensing regime except for systems requiring scarce resource s; the encouragement of private -sector 
participation and economic efficiency; and a technology -neutral licensing regime.  
4.115.   Investment incentives are granted to the telecoms sector  (Table 4.15). 
Table 4.15 Investment incentives, 2018  
Incentive category  Incentive provisions  
Income tax  - ICT industries employing more than 300 Nepalese nationals throughout the year: 10% 
tax rebate  
Concessions based on 
establishment in specific areas 
(SEZ & IT park)  - Software development, information processing, cyber cafés, and digital mapping 
industries established in technology parks, bio -tech parks, and information processing 
parks specified by the Governme nt through Rajpatra will be provided with a 50% 
exemption on the applicable tax rate  
- A 15% tax rate exemption for ICT industries listed on the stock exchange  
Others  - Telecom companies are required to collect a Telecom Service Fee of 13% from its 
custom ers, and this must be deposited together with the VAT.  
Source:  Office of the Investment Board online information. Viewed at: 
http://ibn.gov.np/uploads/files/Sector/ICT.pdf . 
4.116.   Under the 1997 Telecommunications Act and the 1997 Telecommunications Regulations, 
telecommunications and postal services are the responsibility of the Ministry of Communication and 
Information Technology. The Act also established the Nepal Telecommunications Authority ( NTA) as 
an autonomous regulatory and licensing authority for all telecommunication services except 
broadcasting.84 The objective of the NTA is to create a favourable and competitive environment for 
the development, expansion, and operation of telecom servic es.85 Under the Telecommunications 
Act and its Regulations, all telecom operators require a licence from the NTA. Licences are issued 
for a maximum of ten years, are subject to fees ranging from NR 100 to NR  3 million, and are 
renewable every five years for  up to 25  years. The NTA charges an annual Rural Telecom 
Development Fee (set at 2% of the licensees' total adjusted gross revenue) on all licensees. In 
addition, every basic mobile telecom operator must invest 15% of their total investment to expand 
their network to rural areas. Licensees who require the spectrum must pay a frequency fee set by 
the Radio Frequency Determination Committee.  
4.117.   Under the NTA's Interconnection Guidelines, each licensee is required to make available its 
telecommunications network and services to any other licensees wishing to interconnect, on an 
appropriate basis. The charges that a licensee offers for all interconnection services must be 
cost-based and reflect the carrier -to-carrier relationship between licensees.86 Where feasible,  the 
licensees must use an established cost methodology. The NTA fixes tariffs for interconnection 
services to international call termination, to reduce illegal Voice over Internet Protocol (VoIP) call 
bypass.87 The NTA is currently reviewing the Guidelines  provisions.  
4.118.   Nepal' s telecommunication sector is dominated by two large market participants, Nepal 
Telecom (NTC) and Ncell. NTC is a public limited company  (15% of shares are owned by the public) , 
whereas Ncell is privately owned and is the largest mobile Internet service provider in Nepal . 
According to the latest Management Information System (MIS) report of the NTA, dated May 2018, 
the NTC dominated the fixed and mobile phone markets, with 93.8% and 50.0%, respectively, of 
total subscribers . Ncell had a 4 3% share of the mobile market.88 In addition to NTC and Ncell, there 
are four other mobile service operators: Smart Telecom Private Limited (STPL); Nepal Satellite 
Telecom Private Limited (NSTPL); CG Telecom; and United Telecom Limited (UTL).  
4.119.   Based on propo sals submitted by the service providers, telecom tariffs are approved by the 
NTA. Tariffs for basic and mobile telephone services are revised continuously for balancing.   
4.120.   Under the GATS, Nepal made several specific commitments on telecommunications, 
includ ing: (i) no limitation on the number of service providers for both basic telecom and mobile 
                                                
84 The NTA is fully financially independent. However, its members (including the Chairperson) are 
appointed by the Government, and the NTA Board is accountable to the Government.  
85 Telecommunications Regulations 2054 (1997) (Annexes).  
86 This generally involves the provision of services that are not available to customers or to unlicensed 
third parties.   
87 International call termination is defined as carrying international voice traffic from around the world 
and delivering it to the desir ed local telephone number.  
88 NTA online information. Viewed at: http://nta.gov.np/en/mis -reports/ . WT/TPR/S/ 381 • Nepal  
 
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  telephony as from January 2009, although foreign participation is permitted through joint ventures 
with up to 80% equity participation89; and (ii) opening its value -added services.90 Nepal accepted 
the Reference Paper on basic telecommunications services.91 The internal courier service is not open 
to foreign investors.  
4.6  Transport S ervices  
4.121.   Over the next five years, the Government will invest  US$8.2 billion in road infrast ructure, 
rail connectivity and transport sector management.92 Road transport is the predominant mode of 
transport in Nepal, accounting for 90% of the movement of passengers and goods. The demand for 
air transport is increasing as services become more access ible and affordable. India 's eastern port 
of Kolkata has been used as Nepal 's gateway to the sea; it is about 750 km away . To diversify transit 
facility and connectivity through China and Bangladesh, Vishakapatnam in India  is used as an 
additional port . For railway connectivity, Nepal has been working with India and China. However, 
the presence of railways is still limited.  
4.122.   The main institutions involved in the sector are the Ministry of Physical Infrastructure and  
Transport, the Ministry of Federal Affair s and General Administration, the Ministry for Culture, 
Tourism and Civil Aviation, the National Planning Commission, and the Nepal Civil Aviation Authority.  
4.123.   The principal objective of Nepal's National Transport Policy is "to develop a reliable, cost 
effective, safe facility -oriented and sustainable transport system that promotes and sustains the 
economic, social, cultural and tourism development of Nepal as a whole".93 The Government 
recognizes the need to connect all of Nepal's regions , and to extend the road network so that a ll 
Nepalese are within a four -hour walk of an all -season "motorable" road in the hill areas and 
mountains , and within two hours ' walk in the Terai  region .  
4.124.   Investment incentives are granted to the transport sector  in the areas of income tax and 
customs duties  exemptions (Table 4.16) . 
Table 4.16 Investment incentives, 2018  
Incentive category  Incentive provisions  
Income tax  - A 40% tax exemption on the construction and operation of roads, bridges, 
tunnels, airports , and on the operation of  tram trolley bus es  
- The tax rate for the construction and operation of roads, bridges, tunnels, 
ropeway s, and flyover bridge s; the operation of trolley bus es and tram s; and 
BOOT: 20%  
- Industries  related to the survey and extraction of petroleum and natural gases 
commencing commercial operation s from March 2019 shall be provided with a tax 
holiday for the first seven years and a 50% exemption for the next three years  
- International airline operat ors with capital investments of NR 2 billion are entitled 
to a tax holiday for five years after the start of business. After that , they are  
entitled to a 50% tax exemption for the following three years.  
 
In addition, if existing operators increase their cu rrent capacity by 25% and 
contribute new investments so that their capital investment reaches NR 2 billion, 
they will be granted a tax holiday on all profits earned from that increased capacity 
for 5 years and a 50% exemption on such profit for an addition al three years  
 
- Losses can be carried forward for up to 12 years (the normal provision is 7 years) 
for BOOT projects related to public infrastructures and petroleum industries  
                                                
89 In addition, the majority of the members of the Board of Directors of a joint venture should be Nepalese 
nationals.  
90 Including Internet, e -mail, voice mail, fax mail, Very Small Aperture Terminal ( VSAT ), audio conference, 
pay phone, pre -paid calling cards, local, long -distance and international data communication, radio paging, and 
trunk mobile.  
91 WTO docume nt GATS/SC/139, 30 August 2004.  
92 Office of the Investment Board online information. Viewed at:  
http://ibn.gov.np/uploads/files/Sector/Transportation_Sector%20Profil e.pdf. 
93 Ministry of Physical Planning and Works , National Transport Policy (2001 -2002), Kathmandu.  WT/TPR/S/ 381 • Nepal  
 
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  Incentive category  Incentive provisions  
Customs duty 
exception/concession  - A 50% concession is granted on the chargeable customs duty on the import of 
passenger vehicles and container vehicles that are operated by electricity or 
battery  
- Hybrid vehicles (that is, those operated by both batter y and fuel) receive a 25% 
exemption on chargeable duties  
Source:  Office  of the Investment Board online information. Viewed at:  
http://ibn.gov.np/uploads/files/Sector/Transportation_Sector%20Profile.pdf . 
4.6.1   Road transport and railways  
4.125.   Nepal  has total road network of 80,078 km,  of which 26,935 km are part of  the strategic 
road network (30% of which are paved, 24% gravel led, and 46% unpaved) and are constructed and 
maintained by the Department of Roads (DoR).94 The remaining local roads are the responsibility of 
the Department of Local Infrastructure Development and Agricultural Roads, together with Local 
District Development Committees. Due to the mountainous terrain in the north, more than 60% of 
roads are con centrated in the lowland Terai area. The quality and quantity of roads are low as 
compared to countries with similar income. Nepal 's road density is one of the lowest in South Asia. 
This shows the need to prioritize investment in the development of road in frastructure.  
4.126.   The main legislation in the subsector is composed of the Motor Vehicle and Transport 
Management Act 1993, the Public Road Act 1974 , and the Railway Act 1963. The Government is 
seeking PPPs in the upgrading and the development of new highways,  developing  international trade 
routes, associated infrastructures, and improving major district road networks. Some important 
initiatives recently taken include: the first tunnel project  in the road subsector, the 2.5  km 
Naghdunga tunnel, at an estimated cost of US$150 million; the Banepa -Sindhuli -Bardibas road (160 
km) connect ing Kathmandu to Eastern Terai, constructed at a cost of over US$210  million with grant 
assistance from Japan; and a Chinese construction contractor has received the award to widen a nd 
upgrade the 27 km Kathmandu ring road section.95 Moreover, Nepal could  become a transit route 
connecting India and China. This could att ract as much as US$70  billion of business per year.96 
4.127.   The Ministry of Finance provides funds for the maintenance of the  strategic road network  
through the DoR and the Roads Board Nepal (RBN). The D oR is the primary planning and 
implementation agency for road maintenance. The RBN approves the annual plan of the DoR prior 
to releasing funds from its budget  for the maintenance of the sector. RBN funds come mainly from 
fuel levies, vehicle registration fees, and tolls. The DoR uses other source funds, such as direct 
allocation from the Government and funds provided through externally funded projects, for othe r 
maintenance works. A review of this financing strategy seems necessary to ensure that sufficient 
revenues can be raised to carry out road maintenance in a sustainable manner.  
4.128.   Foreign trucks, mostly from neighbouring countries, are allowed to transport p eople and 
goods within Nepal on the basis of reciprocity . 
4.129.   Nepal's total physical railway line is 57 km. The state -owned Nepal Railways Company (NRC)  
owns the 53 km narrow -gauge rail line, which comprises two sections currently not in operation : 32 
km betwe en Jaynagar in India to Janakpur in Nepal, and 21 km from Janakpur to Bijalpura. There 
is a 5 km line operating at the Inland Clearance Depot in Birgunj, which acts as a connector to Indian 
Railways.  Indian Railways manages 6  km of railway line, 4 km of wh ich are in Nepal connecting the 
Inland Clearance Depot in Birgunj (Nepal) to Raxaul (India).  Given the importance of railways in 
carrying freight and passengers, Nepal has embarked on a plan to construct a railway line that runs 
the entire width  of the cou ntry, from east to west. It is expected that the project will be realized in 
the form of one or more PPPs.97 
                                                
94 Office of the Investment Board online information. Viewed at:  
http://ibn.gov.np/uploads/files/Sector/Transportation_Sector%20Profile.pdf . 
95 It will  upgrade the two-lane road to eight lanes, along  with bicycle lanes and footpaths on both sides . 
96 Office of the Investment Board online information. Viewed at:  
http://ibn.gov.np/uploads/files/Sector/Transportation_Sector%20Profile.pdf . 
97 Office of the Investment Board online information. Viewed at:  
http://ibn.gov.np/uploads/files/Sector/Transportation_Sector%20Profile.pdf . WT/TPR/S/ 381 • Nepal  
 
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  4.6.2   Air transport  
4.130.   Nepal has 52 airports, including 1  international airport , eight  regional hub domestic  airports , 
and various short takeoff and landing strips  (operational and non -operational) . Some of the short 
take-off and landing strips in remote areas are unpaved, have no terminal facilities, and lac k modern 
communication.98 Because of these challenges, major investment projects are under way,  with the 
Government mobiliz ing its own resources, while private sector involvement for the construction, 
operation and maintenance of airports is also being encouraged.  
4.131.   Tribhuvan International Airport (TIA) is being modernized in four phases because it is 
nearing  passenger capacity and the domestic terminal is operating beyond its capacity. The total  
estimated cost for the upgrade is US$605 million.99 The feasibility study and construction of an 
alternate airport in Kavrepalanchok will be expedited to manage the ai r traffic pressure at TIA. 
Another international airport at Nijgadh is to be constructed . The total project cost is US$6.7 billion 
(including the development of an airport city).100 The Pokhara Regional Airport is being upgraded to 
a regional international airport. The construction of this new airport began in April 2016 and should 
be completed within four years , at an estimated cost of US$214.7  million.101 The Gautam  Buddha 
Airport is also being transformed into a regional  international airport at a cost of  US$90.6  millio n.102 
Construction of domestic airports will be expedited. Construction of an alternate airport in Dang will 
be accelerated. A master plan will be prepared for the expansion of domestic airports.  
4.132.   The Civil Aviation Authority of Nepal Act 2053 ( 1996) ensures the participation of the private 
sector in the development and operation of airports. The Act lays down  the conditions relating to the 
establishment of airport s in Nepal, the granting of permission therefor, and the prescribing of fees. 
The C ivil Aviation Authority of Nepal (CAAN), responsible for the administration of air transport, has 
taken some initiatives to allow for PPPs. New legislation to promote private sector participation in 
the development, operation, and management of airports is  being drafted. The CAAN board has also 
recommended that the Government impose an airport development fee.  
4.133.   A liberal, open sky approach has continued during the review period under Nepal's Aviation 
Policy 2006. Nepal has signed bilateral air service agree ments and MOUs with 36 countries.  Bilateral 
air service agreements contain provisions on competition policy, safety and security. The bilateral 
agreement with India calls for the provision of 30,000 seats per week and unlimited air cargo flights 
between si x metropolitan cities of India and Nepal. Similarly, there are 10,000 seats per week to 
seven Chinese cities under that bilateral agreement.  
4.6.3   Tourism  
4.134.   The direct contribution of travel and tourism to GDP was estimated at 4% for 2017, while 
direct employment in the sector accounted for 3.2% of the total.103 In 2017, Nepal earned 
US$510  million in tourism receipts (up from US$379 million in 2012) from almost one million tourist 
arrivals (Table 4.1 7); about 75% arrived by air and the rest by land. The average leng th of stay has 
increased slightly from 12.16 to 12.60 days during the review period, while the number of licensed 
beds rose from 31,657 in 2012 to 39,833 in 2017. Almost half of the tourists come from India, 
                                                
98 Office of the Investment Board online information. Viewed at:  
http://ibn.gov.np/uploads/files/Sector/Transportation_Sector%20Profile.pdf . 
99 For phase one, the contractual scope will include the enlargement of the existing runway, the 
construction of new taxiways, the extension o f the apron, the install ation of  new lighting in the airfield, the 
renovation  of the international terminal, and the installation of a new system for baggage carriage.  
100 Once operational, the airport at Nijgadh is expected to increase tourism and ease tran sportation. The 
proposed Kathmandu -Terai fast track will connect the airport to Kathmandu , with travel time of about one hour. 
The process of land acquisition, estimated to cost US$1.2 billion has commenced. The international airport will 
be designed to handle 15 million passengers annually and accommodate the largest of jets. 
101 Nepal has signe d a soft loan agreement with China for the funding. Upon completion, the planned 
airport will have a 3 ,000 met re-long runway, an apron, international and domestic terminal buildings, an air 
traffic control tower, a cargo terminal building ,  an airport hang ar, and runways  for big aircraft s. 
102 The Asian Development Bank has provided US$58.5 million (US$42.7 5 million in loans and 
US$15.75  million in grants), the OPEC Fund for International Development will provide a loan of US$15 million , 
and the Government will bear the rest of the cost as counterpart funding.  After the completion of the first phase, 
the new facility will have a 3,000 -metre runway and the capacity to serve 760,000 passengers annually.  
103 World Travel and Tourism Council online information. View ed at: https://www.wttc.org/ -
/media/files/reports/economic -impact -research/countries -2018/nepal2018.pdf . WT/TPR/S/ 381 • Nepal  
 
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  China, Sri Lanka, the United Kingdom and the United States.104 Local tourists increasingly represent 
a larger share of the market.  
Table 4.17 Selected tourism indicators, 2012 -17 
 
2012  2013   2014  2015  2016  2017  
Tourist arrivals  803,082  797,616  790,118  538,970  753,002  940,218  
Duration of stay (days)  12.16  12.51  12.44  13.16  13.40  12.60  
Per day expenditure (US$)  36 42 48 70 53 54 
Tourist receipts (US$ million)  379 389 472 544 393 510 
Number of hotels  853 1,026  1,075  1,073  1,062  1,101  
Number of beds  31,657  34,523  36,179  36,950  38,242  39,833  
Source:  Information provided by the Ministry for Culture, Tourism and Civil Aviation.  
4.135.   Nepal is renowned worldwide as a tourist destination due to its natural beauty; ethnic, 
lingual, social and biodiversity; and cultural wealth. Home of the world 's highest mountain range 
and containing eight of the world 's ten tallest mountains, Nepal is a magnet for the most avid 
mountaineers, rock climbers, trekkers, and adventure seekers. Nepal has a pleasant year -round 
climate  and people are renowned for their hospitality. It is also home to four UNESCO World Heritage 
Sites.105 Moreover, the market opportunity for religious tourism is vast, with 1.5  billion Hindus and 
Buddhists in the world , most of whom  live in India, China and South East Asia. However , tourism 
still faces key problems, such as poor infrastructure, insufficient  investment, and limited air 
connectivity106. With the aim of tackling these problems and promoting the sustainable growth of 
tourism, several programmes are  being implemented, such as  Tourism Vision 2020, the  Nepal 
Tourism Year 2020  campaign, and the National Tourism Strategy 2016 -2025.  
4.136.   Tourism Vision 2020 identifies tourism as Nepal 's best hope for , and principal contributor to , 
a sustainable economy. It se eks to welcome  two million tourist visitors a year by 2020 and, by 
adding one million jobs to the sector, mak e the tourism industry Nepal's number one employment 
generator by 2020.  
4.137.   In November 2016, the National Tourism Strategy 2016 -2025 was launched , with a total 
budget of NR 6.44 billion.107 The Strategy has set 11 strategies for the overall development of the 
sector, including branding, marketing, developing infrastructure, and improving tourism quality 
overall. Some of its main targets are the increas e of: arrivals from 0.8 millio n currently to 2.5  million 
by 2025; the average tourist length of stay from 13 days in 2016 to 15 days in 2025; the average 
spend per tourist per day from US$53 in 2016 to US$90 by 2025; jobs in the tourism industry from 
633,000 in 2015 to 898,000 by 2025; foreign exchange earnings from the tourism sector from NR 
49.78 billion in 2015 to NR 340 billion by 2025; and the contribution of tourism to GDP from 2.4% 
in 2015 to 9.3% by 2025.108 
4.138.   The Ministry for Culture, Tourism and Civil Av iation is responsible for policy formulation, 
including the development of air transportation and other tourism trade -related services. The Nepal 
Tourism Board was established in 1997 to promote and regulate tourism activities, and foster 
partnerships betw een the Government and the private sector.  
4.139.   Tourism is regulated by a set of general rules, laws, and industrial acts, such as: the Tourism 
Act, 2035 (1978) amended in 2053 (1997); the Hotel, Lodges, Restaurants, Bar and Tourist Guide 
Regulation, 2038 (1981 ); the Travel and Trekking Agency Regulation, 2062 (2005)  amended in 
2017; the Rafting Regulation, 2063 (2006); and the Mountaineering Rules, 2059 (2002) amended 
                                                
104 India and China together account for  about one  third of the total . Office of the Investment Board 
online information. Viewed at:  http://ibn.gov.np/uploads/files/Sector/Tourism.pdf . 
105 These are: (i) the seven monuments of the Kathmandu valley (Kathmandu Durbar Square, 
Patan  Durbar Square, Bhaktapur Durbar Square, two Buddhist stupas Swayambhu and Boudanath, and two 
Hindu temples Pashupati and Changu Narayan); (ii) Lumbini, the birthplace of Buddha; (iii) Chitwan National 
Park; and (iv) Sagarmatha National Park.  
106 Due to its landlocked situation, visitors must either fly to Kathmandu or enter Nepal by land through 
Kodari, bordering China, or Bhairawaha on India 's border .  
107 One quarter  of the funding is expected to be spent in the first and second years , and one  quarter  
during each of the remaining three years.  
108 Travel News Digest, 30 August 2016.  WT/TPR/S/ 381 • Nepal  
 
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  in 2017. During the review period, new legislation has also been enacted, such as the New Casi no 
Rules, 2070 (2013).  
4.140.   Under the Industrial Enterprises Act 2016, tourism is considered a priority industry. 
Investment incentives are granted to the tourism industry  in terms of income tax and customs duties 
exemptions (Table 4.1 8). 
Table 4.18 Investment incentives, 2018  
Incentive category  Incentives and subsidy provision s 
Income tax  - A 10% tax rebate to tourism companies listed with the Security Exchange Board  
- In the case of special industry, industry based in the agriculture and tourism sector s 
that provides direct employment to at least 100 Nepalese nationals throughout  a 
whole year, the effective tax rate shall be 70% of the applicable tax rate  
- A mandatory provisi on has been made for the employees of profitable public 
corporations and those employees working in "A" and "B" class banks and financial 
institutions to be sponsored by internal tourism trips in Nepal by their respective 
employers. This may serve to drive  up the amount  of domestic tourism  
Customs duty  - 1% customs duty shall be applicable on the import of promotional materials printed 
outside Nepal for the promotion of the tourism business  
- A rebate of 50% customs duty on the import of luxury coaches, micro -buses and 
mini-buses is allowed for travel agents , trekking agencies, rafting agencies, hotels and 
resorts on the recommendation of the Ministry  for Culture, Tourism and Civil Aviation  
Source:  Office of the Investment Board online information. Viewed at:  
http://ibn.gov.np/uploads/files/Sector/Tourism.pdf . 
4.141.   Foreign investment in tourism is regulated under the Foreign Invest ment and Technology 
Transfer Act of 1992 (as amended in 1996). During 2012 -13 to 2016 -17, FDI financed, on average, 
almost two thirds of the total cost of tourism -related projects (Table 4.19).  
Table 4.19 FDI projects in tourism, 2012 -13 to 2016 -17 
 
2012 -13 2013 -14  2014 -15 2015 -16 2016 -17 
Number of projects  317 307 370 348 395 
Project cost (NR million)  51,990  40,373  81,370  20,543  16,868  
FDI (NR million)  19,818  20,132  67,455  15,254  15,017  
Number of employments  16,569  11,790  13,167  11,663  11,663  
Source:  Information provided by the Department of Industry.  
4.142.   Under the Foreign Investment and Technology Transfer Act, no permission is required for 
the establishment of foreign companies or foreign investment  in travel agencies, trekking agencies, 
water rafting, pony trekking, horse riding, or tourist lodging. FDI is permitted in the hotel industry, 
subject to authorization. In view of the economically underdeveloped status of the country and the 
dependence on  tourism of a large number of people for their livelihood, during its WTO accession 
negotiations Nepal called for the understanding of WTO Members in the opening up of its tourism 
services.109 
 
                                                
109 WTO document WT/ACC/NPL/16, 28 August 2003.  WT/TPR/S/ 381 • Nepal  
 
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  5  APPENDIX TABLES  
Table A1. 1 Merchandise exports by group of products, 2011 -17  
 2011  2012  2013  2014  2015  2016  2017  
Total exports (US$ million)  907.6  870.7  863.3  900.9  660.2  728.8   740.7   
(% of total exports)  
Total primary products  26.1 31.4 26.7 31.9 32.0 29.2 31.7 
Agriculture  21.9 27.3 23.5 28.1 30.0 27.7 29.9 
Food 18.6 24.0 20.5 25.2 26.9 24.4 26.1 
 0752 – Spices 
(except pepper and 
pimento)  4.0 6.8 2.6 4.3 7.5 6.0 6.7 
 0599 – Juice of any 
single fruit (other 
than citrus) or 
vegetable  2.8 3.4 4.0 3.8 4.5 5.1 5.2 
 0741 – Tea, whether 
or not flavoured  2.1 2.4 2.4 2.2 2.7 3.6 3.8 
 0813 – Oilcake and 
other solid residues 
(except dregs)  1.0 1.0 0.7 0.7 0.9 1.6 2.1 
 0542 – Leguminous 
vegetables, dried, 
shelled, whether or 
not skinned or split  2.7 4.6 2.0 2.1 1.3 1.9 1.3 
Agricultural raw 
material  3.2 3.3 3.0 2.9 3.1 3.3 3.8 
 2929 – Materials of 
vegetable origin, 
n.e.s.  1.4 1.1 0.8 0.9 1.1 0.9 1.4 
Mining  4.3 4.1 3.2 3.9 2.0 1.6 1.8 
Ores and other minerals  1.8 1.4 1.1 1.9 0.1 0.0 0.1 
Non-ferrous metals  2.5 2.7 2.1 1.9 1.9 1.5 1.7 
Fuels 0.0 0.0 0.0 0.0 0.0 0.0 0.0 
Manufactures  73.8 68.6 68.7 67.5 67.9 70.7 68.3 
Iron and steel  15.5 14.7 14.4 12.8 9.3 6.1 6.6 
 6741 – Flat-rolled 
products of iron or 
non-alloy steel, 
plated or coated with 
zinc 9.6 6.4 4.4 4.0 2.4 1.1 2.2 
 6781 – Wire of iron 
or non -alloy steel  3.1 3.8 2.9 2.4 2.5 2.2 2.2 
Chemicals  5.5 5.1 5.3 5.3 5.2 6.6 6.1 
 5981 – Wood - and 
resin-based chemical 
products  1.3 1.5 1.8 2.3 2.5 2.8 2.5 
Other semi -manufactures  4.1 4.9 3.9 4.4 3.9 4.3 4.5 
Machinery and transport 
equipment  1.0 0.9 0.6 0.5 0.9 0.8 1.1 
Power generating 
machines  0.0 0.0 0.0 0.0 0.0 0.0 0.0 
Other non -electrical 
machinery  0.2 0.5 0.4 0.1 0.4 0.2 0.1 
Agricultural machinery 
and tractors  0.0 0.0 0.0 0.0 0.0 0.0 0.0 
Office machines and 
telecommunication 
equipment  0.1 0.0 0.1 0.0 0.0 0.0 0.6 
Other electrical 
machines  0.5 0.3 0.1 0.1 0.4 0.1 0.1 
Automotive products  0.0 0.0 0.0 0.0 0.0 0.0 0.1 
Other transport 
equipment  0.1 0.0 0.0 0.3 0.0 0.3 0.2 WT/TPR/S/ 381 • Nepal  
 
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   2011  2012  2013  2014  2015  2016  2017  
Textiles  32.1 30.6 30.0 29.7 32.1 31.5 33.7 
 6518 – Yarn (other 
than sewing thread) 
of staple fibres; 
synthetic 
monofilament, n.e.s.; 
strip and the like of 
synthetic textile 
materials of an 
apparent width not 
exceeding 5 mm  7.3 7.6 7.1 7.6 7.9 7.5 10.1 
 6592 – Carpets and 
other  textile floor 
coverings, knotted, 
whether or not made 
up 8.4 7.3 8.3 8.2 9.6 10.1 9.1 
 6531 – Fabrics, 
woven, of synthetic 
filament yarn 
(including woven 
fabrics obtained from 
materials of heading 
651.88), other than 
pile and chenille 
fabrics  5.9 7.3 6.9 6.3 5.4 4.5 4.2 
  6581 – Sacks and 
bags, of textile 
materials, of a kind 
used for the packing 
of goods  4.4 4.2 3.8 3.8 4.4 3.9 3.8 
 6545 – Fabrics, 
woven, of jute or of 
other textile bast 
fibres of group 264  1.4 1.6 1.4 1.5 2.2 2.7 3.2 
 6571 – Felt, whether 
or not impregnated, 
coated, covered or 
laminated, n.e.s.  0.7 0.6 0.9 1.1 1.6 1.8 1.9 
Clothing  10.6 7.1 8.8 9.5 10.9 11.5 11.0 
 8461 – Clothing 
accessories (other 
than those for 
babies), not knitted 
or crocheted  2.8 1.7 2.6 2.6 3.2 3.5 3.2 
 8423 – Jackets and 
blazers  1.3 0.9 1.4 1.5 1.5 1.3 1.7 
 8453 – Jerseys, 
pullovers, cardigans, 
waistcoats and 
similar articles, 
knitted or crocheted  0.7 0.5 0.6 0.6 0.8 1.1 1.2 
Other consumer goods  5.0 5.3 5.7 5.3 5.7 10.0 5.3 
 8515 – Other 
footwear, with 
uppers of textile 
materials  1.5 2.0 2.5 2.3 2.6 2.2 1.5 
Other  0.0 0.0 4.5 0.6 0.0 0.0 0.0 
Source:  UNSD Comtrade database (SITC Rev.3).  WT/TPR/S/ 381 • Nepal  
 
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  Table A1. 2 Merchandise total imports by group of products, 2011 -17 
 
2011  2012  2013  2014  2015  2016  2017  
Total imports (US$ million)  5,915.9  6,017.5  6,451.7  7,590.1  6,612.1  8,878.5  10,037.8   
(% of total imports)  
Total primary products  41.1 44.2 43.5 43.6 38.7 35.3 38.1 
Agriculture  16.4 18.2 20.3 19.4 19.7 19.9 19.0 
Food 14.2 16.8 18.4 17.9 17.9 18.2 17.6 
 0423 – Rice, semi -milled or 
wholly milled, whether or 
not polished, glazed, 
parboiled or converted 
(including broken rice)  0.6 1.4 1.3 2.0 2.3 2.3 2.0 
 4211 – Soya bean oil and 
its fractions  2.2 2.3 4.7 1.8 1.6 1.5 1.5 
 0542 – Leguminous 
vegetables, dried, shelled, 
whether or not skinned or 
split 0.5 0.6 0.9 0.8 1.1 0.9 1.1 
 0449 – ....other  0.8 0.9 0.7 1.0 1.1 1.2 1.1 
Agricultural raw material  2.2 1.3 1.9 1.5 1.8 1.6 1.4 
Mining  24.7 26.0 23.2 24.1 19.0 15.4 19.1 
Ores and other minerals  1.3 1.4 1.4 1.3 1.2 1.3 1.3 
Non-ferrous metals  2.7 2.1 3.0 3.1 4.5 2.2 2.6 
 6811 – Silver (including 
base metals clad with 
silver), unwrought, 
unworked or semi -
manufactured  1.1 0.8 1.4 1.7 3.0 0.7 1.0 
Fuels 20.7 22.5 18.8 19.7 13.3 11.9 15.2 
 3442 – Gaseous 
hydrocarbons, liquefied, 
n.e.s.  3.4 4.0 3.4 3.7 2.2 1.9 2.3 
 3212 – Other coal  0.5 0.9 0.9 0.9 1.4 1.4 1.4 
Manufactures  54.3 50.9 51.0 53.0 59.1 62.9 59.2 
Iron and steel  8.5 8.5 10.7 8.4 9.0 9.7 9.7 
 6726 – Semi-finished 
products of iron or non -
alloy steel, containing by 
weight less than 0.25% of 
carbon  3.4 3.7 4.6 3.9 3.6 4.1 4.7 
 6761 – Bars and rods, hot -
rolled, in irregularly wound 
coils, of iron or steel  1.1 1.0 1.1 0.8 0.9 1.1 1.0 
Chemicals  12.1 10.1 11.7 10.9 12.9 11.3 10.3 
 5429 – Medicaments, n.e.s.  2.4 2.2 1.9 2.0 3.2 2.0 1.8 
Other semi -manufactures  7.2 6.8 6.1 6.6 6.5 7.5 7.7 
 6612 – Portland cement, 
aluminous cement, slag 
cement, supersulphate 
cement and similar 
hydraulic cements, whether 
or not coloured or in the 
form of clinkers  2.5 2.1 1.8 1.4 1.4 1.9 2.6 
Machinery and transport 
equipment  18.4 17.7 15.7 19.6 22.4 26.8 24.7 
Power generating machines  0.8 0.7 0.6 0.9 1.2 0.9 0.6 
Other non -electrical machinery  5.2 4.6 4.8 5.6 5.2 7.6 8.0 
 7232 – Mechanical shovels, 
excavators and shovel -
loaders, self -propelled  0.4 0.3 0.3 0.5 0.7 1.8 2.2 WT/TPR/S/ 381 • Nepal  
 
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2011  2012  2013  2014  2015  2016  2017  
 7283 – Machinery (other 
than machine tools) for 
sorting, screening, 
separating, washing, 
crushing, grinding, mixing 
or kneading earth, stone, 
ores or other mineral 
substances, in solid 
(including powder or paste) 
form; machinery for 
agglomerating, shaping or 
moulding solid mineral 
fuels, ceramic paste, 
unhardened cements, 
plastering materials or 
other mineral products in 
powder or paste form; 
machines for forming 
foundry moulds of sand; 
parts thereof  0.7 0.2 0.4 0.5 0.3 0.5 0.9 
Agricultural machinery and 
tractors  1.3 1.3 1.2 1.3 1.2 1.7 1.0 
Office machines and 
telecommunication equipment  5.1 4.3 3.2 4.6 4.6 5.1 4.8 
 7643 – Transmission 
apparatus for radio -
telephony, radio -
telegraphy, radio -
broadcasting or television, 
whether or not 
incorporating reception 
apparatus or sound -
recording or reproducing 
apparatus  1.2 1.1 1.2 1.8 2.3 2.2 2.2 
Other electrical machines  2.5 2.8 2.3 2.7 3.0 3.3 2.5 
Automotive products  2.4 2.6 2.6 3.3 3.7 6.2 4.3 
 7812 – Motor vehicles for 
the transport of persons, 
n.e.s.  0.9 0.8 0.9 1.1 1.1 2.2 1.3 
 7821 – Motor vehicles for 
the transport of goods  0.5 0.5 0.7 0.7 0.9 1.5 1.0 
Other transport equipment  2.3 2.6 2.1 2.7 4.7 3.6 4.7 
 7851 – Motor cycles 
(including mopeds) and 
cycles fitted with an 
auxiliary motor, with or 
without side-cars; side -cars 1.6 1.6 1.4 1.5 1.4 2.2 2.0 
 7923 – Aeroplanes and 
other aircraft, 
mechanically -propelled 
(other than helicopters), of 
an unladen weight 
exceeding 2,000 kg but not 
exceeding 15,000 kg  0.0 0.0 0.0 0.3 0.3 0.5 1.6 
Textiles  2.2 2.1 2.0 2.3 2.8 2.2 1.7 
Clothing  1.9 1.6 1.5 1.5 1.6 1.5 1.3 
Other consumer goods  4.1 4.0 3.3 3.9 3.9 4.0 3.8 
Other  4.6 4.9 5.5 3.4 2.2 1.8 2.6 
 9710 – Gold, non -monetary 
(excluding gold ores and 
concentrates)  4.5 4.9 4.3 3.3 2.1 1.7 2.6 
Source:  UNSD Comtrade  database (SITC Rev.3).  WT/TPR/S/ 381 • Nepal  
 
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  Table A1. 3 Merchandise total exports by destination, 2011 -17 
 
2011  2012  2013  2014  2015  2016  2017  
Total exports (US$ million)  907.6  870.7  863.3  900.9  660.2  728.8  740.7   
(% of total exports)  
Americas  9.3 7.6 9.1 9.5 11.9 13.5 12.4 
United States  7.7 6.5 7.9 8.4 10.7 12.1 11.2 
Other America  1.6 1.1 1.2 1.2 1.3 1.3 1.2 
Canada  1.3 0.8 1.0 1.0 1.1 1.1 1.1 
Europe  13.3 10.2 12.9 13.4 15.3 18.2 20.4 
EU-28 12.0 8.9 11.0 10.9 12.6 13.4 13.3 
Germany  4.5 3.4 3.9 3.6 4.1 4.0 3.9 
United Kingdom  2.2 1.6 2.3 2.3 3.1 3.4 3.4 
Italy 1.2 0.9 1.1 1.3 1.4 1.5 1.6 
France  1.7 1.2 1.5 1.4 1.5 1.6 1.5 
Netherlands  0.5 0.5 0.5 0.5 0.5 0.6 0.5 
Denmark  0.3 0.2 0.3 0.3 0.3 0.4 0.4 
Spain  0.5 0.3 0.3 0.4 0.5 0.4 0.4 
Belgium  0.4 0.2 0.3 0.3 0.3 0.4 0.4 
Austria  0.2 0.2 0.3 0.2 0.3 0.3 0.3 
EFTA 0.4 0.3 0.5 0.6 0.7 1.0 0.7 
Switzerland  0.3 0.2 0.4 0.4 0.5 0.8 0.4 
Norway  0.1 0.1 0.1 0.2 0.3 0.2 0.2 
Other Europe  0.8 1.1 1.4 1.9 2.0 3.8 6.4 
Turkey  0.8 1.1 1.3 1.9 1.9 3.8 6.4 
Commonwealth of Independent States  0.3 0.2 0.2 0.1 0.0 0.1 0.3 
Africa  0.2 0.5 0.4 0.5 0.1 0.1 0.1 
Middle East  1.1 0.7 0.6 0.7 0.7 0.3 1.4 
United Arab Emirates  0.7 0.4 0.5 0.4 0.3 0.1 1.1 
Asia 75.8 80.9 76.8 75.8 72.0 67.9 65.4 
China  1.1 2.5 2.3 3.1 1.7 2.5 3.0 
Japan  1.0 1.0 1.3 1.3 1.3 1.5 1.3 
Other Asia  73.7 77.3 73.2 71.4 69.0 63.8 61.1 
India 67.7 69.0 67.0 64.8 63.5 54.1 56.7 
Bangladesh  2.9 4.4 2.0 2.1 1.0 1.8 1.3 
Australia  0.5 0.4 0.6 0.6 0.8 0.8 0.9 
Viet Nam  0.4 0.4 0.3 0.5 0.5 0.5 0.7 
Malaysia  0.2 0.1 0.3 0.4 0.4 0.4 0.3 
Singapore  0.4 0.1 0.1 0.2 0.2 5.0 0.3 
Source:  UNSD Comtrade database (SITC Rev.3).  WT/TPR/S/ 381 • Nepal  
 
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  Table A1. 4 Merchandise total imports by origin, 2011 -17 
 
2011  2012  2013  2014  2015  2016  2017  
Total imports (US$ million)  5,915.9  6,017.5  6,451.7  7,590.1  6,612.1  8,878.5  10,037.8   
(% of total imports)  
Americas  3.6 3.5 6.2 3.6 4.2 3.6 3.6 
United States  1.0 0.8 0.9 1.0 1.5 1.1 0.8 
Other America  2.5 2.7 5.3 2.6 2.7 2.6 2.8 
Argentina  1.7 1.4 2.8 1.4 1.1 1.0 1.3 
Canada  0.3 0.2 0.5 0.5 0.9 0.6 0.9 
Europe  3.2 2.6 2.8 3.0 6.3 3.4 4.2 
EU-28 2.3 2.1 2.3 2.5 3.9 2.4 3.4 
France  0.3 0.4 0.3 0.3 1.1 0.7 1.5 
Germany  0.5 0.5 0.6 0.7 1.3 0.5 0.5 
EFTA 0.7 0.3 0.3 0.4 1.7 0.6 0.4 
Switzerland  0.6 0.3 0.3 0.3 1.7 0.5 0.4 
Other Europe  0.2 0.1 0.2 0.1 0.6 0.4 0.4 
Commonwealth of 
Independent States 0.3 1.6 1.0 0.8 1.2 0.7 0.7 
Ukraine  0.1 1.1 0.5 0.6 0.4 0.6 0.6 
Africa  0.5 0.2 0.7 0.5 0.7 0.8 1.0 
South Africa  0.1 0.1 0.5 0.2 0.4 0.4 0.6 
Middle East  7.2 7.2 7.1 6.4 4.9 3.4 3.0 
United Arab Emirates  5.6 6.2 6.1 5.5 4.0 2.4 1.7 
Saudi Arabia, Kingdom of  0.9 0.6 0.7 0.7 0.8 0.7 0.9 
Asia 85.3 84.9 82.2 85.7 82.7 87.8 85.5 
China  11.7 11.6 9.4 12.4 13.9 14.0 12.6 
Japan  0.9 0.9 0.9 0.7 0.8 0.9 0.6 
Other Asia  72.7 72.4 72.0 72.6 68.0 72.9 72.4 
India 63.4 65.4 63.6 65.0 60.6 65.5 65.0 
Indonesia  1.9 1.6 2.8 2.1 1.8 1.2 1.2 
Thailand  1.7 1.5 1.4 1.1 1.3 1.2 1.1 
Korea, Republic of  1.4 0.8 0.7 0.6 0.6 0.7 0.9 
Viet Nam  0.5 0.3 0.5 0.7 0.6 0.8 0.9 
Malaysia  1.2 0.9 0.8 1.0 0.9 0.8 0.9 
Australia  0.3 0.4 0.4 0.3 0.5 0.5 0.5 
Singapore  0.6 0.4 0.6 0.5 0.4 0.4 0.4 
Bangladesh  0.3 0.4 0.2 0.3 0.4 0.5 0.4 
Myanmar  0.0 0.0 0.1 0.2 0.1 0.2 0.3 
Other  0.0 0.0 0.0 0.0 0.0 0.2 2.0 
Source:  UNSD Comtrade database (SITC Rev.3).  
  WT/TPR/S/ 381 • Nepal  
 
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  Table A2. 1 Outstanding notifications to the WTO, January 2012 – November 2018  
Legal provision  Description of 
requirement  Frequency  WTO document  
Agreement on Agriculture  
Articles 10 and 18.2  
 Export subsidies 
(Table  ES:1)  Annual  Outstanding for 2012, 2013, 2014, 
2015 and 2016  
Article 18.2  
 Domestic support 
commitments 
(Table  DS:1)  Annual  Outstanding for 2013 and 2015  
General Agreement on Trade in Services  
Article III:3  Measures that 
significantly affect trade 
in services  Ad hoc  As at end 2017 notification  
outstanding  
Article VII:4  Each Member should 
have notified any 
existing  
Art. VII:1 recognition 
measures within 12 
months of the entry into 
force of the GATS for it.                                                      
In the absence of such 
measures, no notification 
is required.  Ad hoc  As at end 2017 notification 
outstanding  
Agreement on Implementation of Article VII of the GATT 1994 (Customs Valuation Agreement)  
Article 22.2  New or changes to laws 
or regulations relevant to 
the Agreement and the 
administration of such 
laws and regulations  Ad hoc  As at end 2017 notifications 
outstanding  
Agreement on Import Licensing Procedures  
Article 1.4(a), 5, 7.3 
and/or 8.2(b)  Questionnaire  Annual  As at end 2017 notifications 
outstanding  
Agreement on Subsidies and Countervailing Measures  
Articles 25.1.  
New and full Subsidy 
Notification was due on 
30 June 2017  Countervailing duty 
actions  Ad hoc  As at end 2017 notifications 
outstanding  
Agreement on TRIMs  
Article 6.2    As at end 2017 notifications 
outstanding  
Decision on Notification Procedures for Quantitative Restrictions (G/L/59/Rev.1)  
First notification was due 
by 30 September 2012    As at end 2017 notifications 
outstanding  
Agreement on Preshipment Inspection Art. 5  – first time  
   As at end 2017 notifications 
outstanding  
Integrated Data Base for Personal Computers Decision by General Council of 16 July 1997 
(WT/L/225)  
Tariffs for 2017 were 
due by 30 March 2017. 
Imports of 2016 were 
due by  
30 September 2017,    As at end 2017 notifications 
outstanding  
GATT 1994 Art. XVII:4(a) – Understanding on the Interpretation of Art. XVII (State trading 
enterprises)  
New & Full Notification                              
was due on  
30 June 2016      As at end 2017 notifications 
outstanding  
 
 
  WT/TPR/S/ 381 • Nepal  
 
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  Table A2. 2 Unilateral Preferential Market access to Nepal as of April 2018  
Provider  Type  Initial Entry Into Force  End Date  
Australia  GSP 1/1/1974   
Canada  GSP 7/1/1974   
European Union  EBA 5/3/2001   
Iceland  GSP 1/29/2002   
Japan  GSP 8/1/1971   
Kazakhstan  GSP 1/1/2010   
New Zealand  GSP 1/1/1972   
Norway  GSP 10/1/1971   
Russian Federation  GSP 1/1/2010   
Switzerland  GSP 3/1/1972   
Turkey  GSP 1/1/2002   
United States of America  GSP 1/1/1976   
India LDC-specific  8/13/2008   
Chile LDC-specific  2/28/2014   
China  LDC-specific  7/1/2010   
Chinese Taipei  LDC-specific  12/17/2003   
Kyrgyz Republic  LDC-specific  3/29/2006   
Tajikistan  LDC-specific  10/25/2003   
Thailand  LDC-specific  4/9/2015  12/31/2020  
Korea, Republic of  LDC-specific  1/1/2000   
United States of America  Other PTAs  12/30/2016  12/31/2025  
Source:  PTA database, WTO.  
  WT/TPR/S/ 381 • Nepal  
 
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  Table A2. 3 Nepalese manufactured articles allowed entry into India  
Products   Quantity in MT per year  
Vegetable fats (Vanaspati)  100,000  
Acrylic Yarn  10,000  
Copper products under Chapters 74 & Heading 85.44 of the 
H.S. Code  10,000  
Zinc Oxide  2,500  
 
 WT/TPR/S/ 381 • Nepal  
 
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  Table A3. 1 Summary analysis of Nepal's MFN tariff, 2018 -19 
 Number of 
lines  Average 
(%) Range 
(%) Standard 
deviation  Duty 
free 
(%) 
Total  5, 572  12.4  
(11.9)  0-356.5  
(0-80) 11.5 (8.9)  3.6 
HS 01 -24 992 14.5 
(12.5)  0-356.5 
(0-80) 18.6 (6.6)  0.1 
HS 25 -97 4,580  11.9 0-80 9.3  4.4 
By WTO category       
WTO agricultural products  798 15.0 
(12.6)  0-356.5 
(0-80) 20.8 (7.6)  1.5 
   Animals and products thereof  111 10.5 10-15 1.5 0.0 
   Dairy products  21 19.8 10-30 8.2 0.0 
   Fruit, vegetables, and plants  224 11.5 
(11.3)  5-34.9 
(5-30) 3.5 (2.8)  0.0 
   Coffee and tea  24 24.2 10-30 8.6 0.0 
   Cereals and preparations  101 14.1 5-30 7.2 0.0 
   Oils seeds, fats, oil and their products  85 10.1 5-15 2.8 0.0 
   Sugars and confectionary  21 21.4 10-30 9.4 0.0 
   Beverages, spirits and tobacco  63 58.0 
(31.9)  8.5-
356.5 
(20-80) 60.2 (12.0)  0.0 
   Cotton  5 0.0 0-0 0.0 100.0  
   Other agricultural products, n.e.s.  143 8.2 0-20 3.2 4.9 
WTO non -agricultural products  4, 774  11.9 0-80 9.1 4.0 
   Fish and fishery products  261 10.6 5-15 1.7 0.0 
   Minerals and metals  918 12.0 0-46.5 
(0-30) 7.7 (7.6)  2.9 
   Chemicals and photographic supplies  954 11.3 0-30 5.5 (5.4)  1.0 
   Wood, pulp, paper and furniture  296 13.4 0-30 7.1 3.0 
   Textiles  598 12.4 1-30 6.2 0.0 
   Clothing  218 19.9 15-20 0.7 0.0 
   Leather, rubber, footwear and travel goods  162 11.5 0-20 6.3 0.6 
   Non-electric machinery  539 6.5 0-30 5.7 9.6 
   Electric machinery  250 10.5 0-30 7.4 22.8 
   Transport equipment  170 22.7 0-80 21.6 0.6 
   Non-agricultural products,  n.e.s.  387 11.4 0-80 16.0 8.3 
   Petroleum  21 18.5 
(20.7)  3.9-30.8 
(5-30) 9.9 (8.6)  0 
By ISIC sectora      
   ISIC 1  – Agriculture, hunting and fishing  411 9.9 (9.6)  0-34.9 
(0-30) 3.8 (3.1)  1.0 
   ISIC 2  – Mining  97 10.0 0-30 5.5 1.0 
   ISIC 3  – Manufacturing  5,063  12.6 
(12.3)  0-356.5 
(0-80) 12.0 (9.2)  3.9 
        Manufacturing excluding food processing  4,436  12.0 0-80 9.4 (9.3)  4.4 
   Electrical energy  1 0.0 0-0 0.0 100.0  
By stage of processing       
   First stage of processing  785 9.3 (9.1)  0-34.9 
(0-30) 4.4 (4.1) 1.8 
   Semi-processed products  1, 823  11.4 
(11.3)  0-46.5 
(0-30) 5.9 (5.8)  1.3 
   Fully processed products  2,964  13.8 
(13.2)  0-356.5 
(0-80) 14.8 (10.9)  5.5 
By HS section       
  01 Live animals and products  373 10.5 0-30 3.1 0.3 
  02 Vegetable products  326 10.9 
(10.8)  5-34.9 
(5-30) 4.1 (3.7)  0.0 
  03 Fats and oils  51 10.7 5-15 3.1 0.0 
  04 Prepared food, beverages and tobacco  242 26.6 
(19.3)  5-365.5 
(5-80) 34.9 (9.9)  0.0 
  05 Mineral products  164 11.7 
(11.2)  0-46.5 
(0-30) 7.7 (6.7) 1.2 
  06 Chemicals and products thereof  878 10.1 0-30 4.2 3.8 
  07 Plastics, rubber, and articles thereof  227 14.6 0-30 8.4 0.9 
  08 Raw hides and skins, leather, and its 
products  70 9.4 5-20 6.0 0.0 
  09 Wood and articles of wood  128 10.5 5-15 4.6 0.0 
  10 Pulp of wood, paper and paperboard  148 13.1 0-30 5.5 6.1 
  11 Textiles and textile articles  809 14.1 0-30 6.6 1.4 
  12 Footwear, headgear, etc.  50 16.9 0-20 5.0 2.0 WT/TPR/S/ 381 • Nepal  
 
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   Number of 
lines  Average 
(%) Range 
(%) Standard 
deviation  Duty 
free 
(%) 
  13 Articles of stone, plaster, cement  145 16.4 0-30 8.0 1.4 
  14 Precious stones and metals, pearls  53 8.2 1-30 6.1 (6.2)  0.0 
  15 Base metals and articles thereof  572 12.0 1-30 7.3 0.0 
  16 Machinery, electrical equipment, etc.  794 7.6 0-30 6.5 14.7 
  17 Transport equipment  181 22.1 0-80 21.1 0.6 
  18 Precision equipment  211 6.8 0-30 4.3 10.4 
  19 Arms and ammunition  18 80.0 80-80 0.0 0.0 
  20 Miscellaneous manufactured articles  125 13.6 5-30 9.5 0.0 
  21 Works of art, etc.  7 9.3 5-10 1.7 0.0 
Note:  Including AVEs, as available.   Figures in brackets refer to data excluding AVEs.   
Source:  WTO Secretariat calculations, based on data received by the authorities.  
  WT/TPR/S/ 381 • Nepal  
 
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  Table A3. 2 Tariff lines subject to export duties, 2017 -18 
Hs code  Description  Export duty  
0713.40.90  Split red lentils  NR 1 per kg  
1001.11.00  Durum wheat: seed  NR 1 per kg  
1001.19.00  Durum wheat: other than seed  NR 1 per kg  
1001.91.00  Wheat (other than durum) and meslin: seed  NR 1 per kg  
1001.99.00  Wheat (other than durum) and meslin: other than seed  NR 1 per kg  
1005.10.00  Maize (corn): seed  NR 1 per kg  
1005.90.00  Maize (corn): other than seed  NR 1 per kg  
1006.10.00  Paddy rice  NR 1 per kg  
1006.20.00  Husked (brown) rice  NR 1 per kg  
1006.30.00  Semi-milled or wholly -milled rice  NR 1 per kg  
1006.40.00  Broken rice  NR 1 per kg  
1008.10.00  Buckwheat  NR 1 per kg  
1008.21.00  Millet: seed  NR 1 per kg  
1008.29.00  Millet: other than seed  NR 1 per kg  
1211.90.10  Yarchagumba  NR 5,000 per kg  
1211.90.90  Certain other plants  NR 1 per kg  
1404.90.10  Semi-processed Catechu of acacia (liquid Kaththha)  NR 7 per kg  
1404.90.20  Catechu of acacia (Kaththha)  NR 5 per kg  
1404.90.50  Rudrakshya  NR 1 per kg  
1404.90.60  Skin of Argeli  NR 1 per kg  
1404.90.70  Soapnut  NR 1 per kg  
1404.90.90  Other vegetable products, n.e.s.  NR 5 per kg  
2106.90.20  Pan Masala without tobacco  NR 40 per kg  
2106.90.70  Scented acreca nuts without tobacco  NR 25 per kg  
2302.10.00  Bran, sharps, and other residues: of maize (corn)  NR 0.5 per kg  
2302.30.00  Bran, sharps, and other residues: of wheat  NR 0.5 per kg  
2302.40.00  Bran, sharps, and other residues: of other cereals  NR 0.5 per kg  
2302.50.00  Bran, sharps, and other residues: of leguminous plants  NR 0.5 per kg  
2304.00.00  Oil-cake (..), resulting from the extraction of soybean oil  NR 0.5 per kg  
2305.00.00  Oil-cake (..), resulting from the extraction of ground -nut oil  NR 0.5 per kg  
2306.20.00  Oil-cake (..), resulting from the extraction of linseed  NR 1 per kg  
2306.41.00  Oil-cake (..), resulting from the extraction of low erucic acid 
rape or colza seeds  NR 0.5 per kg  
2306.90.00  Oil-cake (..), resulting from the extraction of other rape or 
colza seeds  NR 1 per kg  
2403.99.10  Jarda, Khaini (..) and similar preparations containing chewing 
tobacco  NR 50 per kg  
2403.99.90  Certain other smoking tobacco  NR 50 per kg  
2505.10.00  Silica sand and quartz sand  NR 1,200 per cubic meter  
2505.90.00  Other natural sands  NR 1,200 per cubic meter  
2514.00.00  Slate NR 1,200 per cubic meter  
2516.20.10  Stones and pebbles up to the size 2.5 inches  NR 600 per cubic meter  
2516.20.20  Stones of a size more than 2.5 inches  NR 1,200 per cubic meter  
2516.20.30  Mixture of crushed or uncrushed stones and sand  NR 1,200 per cubic meter  
2517.10.10  Aggregates and pebbles up to the size 2.5 inches  NR 600 per cubic meter  
2517.10.20  Stones of a size more than 2.5 inches  NR 1,200 per cubic meter  
2517.10.30  Mixture of crushed or uncrushed stones and sand  NR 1,200 per cubic meter  
2517.20.10  Aggregates and pebbles up to the size 2.5 inches  NR 600 per cubic meter  
2517.20.20  Stones of a size more than 2.5 inches  NR 1,200 per cubic meter  
2517.49.10  Dust of stones  NR 600 per cubic meter  
2519.49.90  Other granules, chippings and powder of stones  NR 600 per cubic meter  
2519.10.00  Natural magnesium carbonate (magnesite)  NR 600 per cubic meter  
2519.90.00  Fused magnesia; dead -burned magnesia, other magnesia oxide  NR 600 per cubic meter  
2526.10.00  Natural steatite not crushed, not powdered  NR 1.5 per kg  
4401.11.00  Fuel wood, in logs, in billets, etc.: coniferous  200%  
4401.12.00  Fuel wood, in logs, in billets, etc.: non -coniferous  200%  
4401.21.00  Wood in chips or particles: coniferous  200%  
4401.22.00  Wood in chips or particles: non -coniferous  200%  
4401.31.00  Wood -pellets  200%  
4401.39.00  Other sawdust and wood waste and scrap  200%  
4403.11.00  Wood in the rough  200%  
4403.12.00  Wood in the rough  200%  WT/TPR/S/ 381 • Nepal  
 
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  Hs code  Description  Export duty  
4403.21.00  Wood in the rough  200%  
4403.22.00  Wood in the rough  200%  
4403.23.00  Wood in the rough  200%  
4403.24.00  Wood in the rough  200%  
4403.25.00  Wood in the rough  200%  
4403.26.00  Wood in the rough  200%  
4403.41.00  Wood in the rough  200%  
4403.49.00  Wood in the rough  200%  
4403.91.00  Wood in the rough  200%  
4403.93.00  Wood in the rough  200%  
4403.94.00  Wood in the rough  200%  
4403.95.00  Wood in the rough  200%  
4403.96.00  Wood in the rough  200%  
4403.97.00  Wood in the rough  200%  
4403.98.00  Wood in the rough  200%  
4403.99.10  Wood in the rough  200%  
4403.99.90  Wood in the rough  200%  
4404.10.00  Certain wood: coniferous  200%  
4404.20.00  Certain wood: non -coniferous  200%  
4405.00.00  Wood wool; wood flour  200%  
4406.11.00  Railway or tramway sleepers of wood  200%  
4406.12.00  Railway or tramway sleepers of wood  200%  
4406.91.00  Railway or tramway sleepers of wood  200%  
4406.92.00  Railway or tramway sleepers of wood  200%  
4407.11.00  Wood sawn or chipped lengthwise (..) of a thickness exceeding 
6 mm  200%  
4407.12.00  Wood sawn or chipped lengthwise (..) of a thickness exceeding 
6 mm  200%  
4407.19.00  Wood sawn or chipped lengthwise (..) of a thickness exceeding 
6 mm  200%  
4407.21.00  Wood sawn or chipped lengthwise (..) of a thickness exceeding 
6 mm  200%  
4407.22.00  Wood sawn or chipped lengthwise (..) of a thickness exceeding 
6 mm  200%  
4407.25.00  Wood sawn or chipped lengthwise (..)  of a thickness exceeding 
6 mm  200%  
4407.26.00  Wood sawn or chipped lengthwise (..) of a thickness exceeding 
6 mm  200%  
4407.29.00  Wood sawn or chipped lengthwise (..) of a thickness exceeding 
6 mm  200%  
4407.91.00  Wood sawn or chipped lengthwise (..) of a thickness exceeding 
6 mm  200%  
4407.92.00  Wood sawn or chipped lengthwise (..) of a thickness exceeding 
6 mm  200%  
4407.96.00  Wood sawn or chipped lengthwise (..) of a thickness exceeding 
6 mm  200%  
4407.97.00  Wood sawn or chipped lengthwise (..) of a thickness exceeding 
6 mm  200%  
4407.99.00  Wood sawn or chipped lengthwise (..) of a thickness exceeding 
6 mm  200%  
4408.10.00  Sheets for veneering (..) of a thickness not exceeding 6 mm  NR 6 per kg  
4408.31.00  Sheets for veneering (..) of a thickness not exceeding 6 mm  NR 6 per kg  
4408.39.00  Sheets for veneering (..) of a thickness not exceeding 6 mm  NR 6 per kg  
4408.90.00  Sheets for veneering (..) of a thickness not exceeding 6 mm  NR 6 per kg  
Source:  Government of Nepal, Ministry of Finance, Department  of Customs, Customs Tariff 2017/18.  
  WT/TPR/S/ 381 • Nepal  
 
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  Table A3. 3 Excise duties FY 2018 -19  
HS 
Chapter  Description  No of 
National 
Tariff 
lines  Range  Remarks  
02 Meat and edible meat offal  66 5  
03 Fish and crustaceans, molluscs and other 
aquatic invertebrates  26 5  
08 Edible fruit and nuts; peel of citrus fruit or 
melons  10 5  
09 Coffee, tea, maté and spices  3 5  
14 Vegetable plaiting materials; vegetable 
products not elsewhere specified or included  2 5  
16 Preparations of meat, of fish or of 
crustaceans, molluscs or other aquatic 
invertebrates  26 5  
17 Sugars and sugar confectionery  6 5  
18 Cocoa and cocoa preparations  6 5  
19 Preparations of cereals, flour, starch or milk; 
pastry  cooks' products  6  15/kg  
20 Preparations of vegetables, fruit, nuts or 
other parts of plants  30 5  
21 Miscellaneous edible preparations  4 5 4 different rates: 5%; 
NR 15/Kg; NR 205/Kg; 
and NR  555/Kg  
22 Beverages, spirits and vinegar  63  All specific duties 
ranging from NR 10/l to 
NR 898/l depending  on 
product and alcohol 
content  
24 Tobacco and manufactured tobacco 
substitutes  18  All specific duties 
applied NR 15/piece to 
NR 2,466 per 1000 for 
cigarettes  
25 Salt; sulphur; earths and stone; plastering 
materials, lime and cement  9 5-15  
32 Tanning or dyeing extracts; tannins and their 
derivatives; dyes, pigments and other 
colouring matter; paints and varnishes; 
putty and other mastics; inks  6 7  
33 Essential oils and resinoids; perfumery, 
cosmetic or toilet preparations  17 5  
34 Soap, organic surface -active agents, washing 
preparations, lubricating preparations, 
artificial waxes, prepared waxes, polishing or 
scouring preparations, candles and similar 
articles, modelling pastes, ‘dental waxes’ and 
dental preparations with a basis of plaster  10 5  
38 Miscellaneous chemical products  1  22/L 
39 Plastics and articles thereof  34 5  
68 Articles of stone, plaster, cement, asbestos, 
mica or similar materials  3 5  
69 Ceramic products  5 5  
70 Glass and glassware  19 5  
72 Iron and steel  26  1500 per MT 
73 Articles of iron or steel  25  1500 per MT except for 
one tariff line which is 
5% 
84 Nuclear reactors, boilers, machinery and 
mechanical appliances; parts thereof  17 5-15  
85 Electrical machinery and equipment and 
parts thereof; sound recorders and  
reproducers, television image and sound 
recorders and reproducers, and parts and 
accessories of such articles  57 5-15  WT/TPR/S/ 381 • Nepal  
 
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  HS 
Chapter  Description  No of 
National 
Tariff 
lines  Range  Remarks  
87 Vehicles other than railway or tramway 
rolling stock, and parts and accessories 
thereof  90 5-100 Ad valorem  rates vary 
depending on product 
and engine size.  
90 Optical, photographic, cinematographic, 
measuring, checking, precision, medical or 
surgical instruments and apparatus; parts 
and accessories thereof  14 5-10  
95 Toys, games and sports requisites; parts  and 
accessories thereof  6 5  
Total 
lines   605   
Source:  Budget Speech  for FY 2018-19, viewed at:  
  http://mof.gov.np/en/archive -documents/budget -speech -17.html  [August 2018]  
  WT/TPR/S/ 381 • Nepal  
 
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  Table A4. 1 Fiscal concessions for different industries  
Fiscal concessions for different industries  
A. Income tax concessions  
Industry  Concessions  
Manufacturing industries  20% exemption on the rate of tax imposed on the income earned 
from such industries  
Industries investing in construction 
of roads, bridge, tunnel, ropeway, 
railway, tram, trolleybus, airport, 
industrial structure and 
infrastructural complex  and bringing 
such constructions into operation  40% exemption on  the rate of tax imposed on the income earned 
from operation of such infrastructures  
Manufacturing industries except 
those producing fruits based cider, 
brandy or wine established in 
underdeveloped, undeveloped and 
less developed region  90%, 80% and 70% exemption on rate  of the income tax for up to 
10 years from the date of commencement of commercial production 
or transaction  
Manufacturing industries producing 
fruit based cider, brandy or wine 
established in any underdeveloped 
region  40% exem ption on the income tax for up to 10 years from the date 
of commencement of business  
Manufacturing industries set up with 
the investment of at least  
NR1 billion and providing direct 
employment to more than 500 
individuals throughout the year  100%  income tax exemption for first five years from the date of 
commencement of business  
50% exemption on the income tax for next three years  
Industries already in operation are entitled to the above stated 
exemption in case such industries enhance their installed cap acity by 
at least 25%, increase investment to 1 billion and provide direct 
employment to 500 individuals throughout the year  
Individuals or entities obtaining 
approval to commercially generate 
transmit or distribute 
Hydroelectricity by  
mid-April 2024  100% income tax exemption for first 10 years  
50% income tax exemption for next five years  
Such exemption is entitled to solar, wind and bio mass energy as well  
In case of industries that have already begun commercial production 
at the time of commencement of  this Act, the exemptions applicable 
at the time of receiving approval would be applicable  
Industries conducting research and 
excavation of natural gas and fuel 
commercially, if commence the 
commercial transaction by  
mid-April 2019  100%  Income tax exemption for first seven years from the date of 
commencement of transaction  
50% exemption on the income tax for next three  years  
Industries relating to tourism sector 
established with the investment of 
above NR 2  billion  100%  Income tax exemption for the first five years from the date of 
commencement of commercial transaction  
50% exemption on rate of income tax for next three years  
Such industries already in operation are entitled to the above stated 
exemption in case such industries enhance their inst alled capacity by 
25%, increase investment to NR 2 billion  
Tourism industry including hotel, 
resort etc. established outside the 
metropolitan or sub -metropolitan 
area with the investment of more 
than NR 50 million  100%  income tax exemption for the first f ive years from the date of 
commencement of commercial transaction  
50% exemption on rate of income tax for next three years  
Industries related to software 
development, data processing, 
cyber café and digital mapping 
established inside technology park, 
bio-tech park and information 
technology park specified by the 
Government and published in Nepal 
Gazette  50% exemption on tax imposed on income of such industries  
Manufacturing industries and 
Information and communication 
technology industries employing 
300 or more Nepalese throughout 
the years  15% exemption on tax imposed on income of such industries on that 
year 
(additional 15% exemption on income tax on that year in case the 
industry has 50% of its employees from among women, scheduled 
caste and disable d persons)  WT/TPR/S/ 381 • Nepal  
 
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  Fiscal concessions for different industries  
Manufacturing industries and 
information and communication 
technology industries employing 
1,200 or more Nepalese throughout 
the year  25% exemption on tax imposed on income of such industries on that 
year 
(additional 15% exemption on income tax  on that year in case the 
industry has 50% of its employees from among women, scheduled 
caste and disabled persons)  
Manufacturing Industries exporting 
goods or commodities produced  25% exemption on the rate of tax imposed on the income earned  
All industries  
  Expen ses made by industries for long -term welfare and benefit of 
employees or workers such as housing, life insurance, health facility, 
education and training, child care, sports etc. can be deducted for 
purpose of income tax  
Expenses made for  equipment & technology used to reduce or control 
the pollution or re -processing or reuse of wastages can be deducted 
up to 50% of the adjusted taxable income of the same fiscal year  
In case the expenses cannot be deducted in full the remaining 
amount is a llowed to capitalize the depreciation on which may be 
claimed in the subsequent fiscal year  
Expenses incurred for the machine or equipment used for reducing 
power consumption can be deducted for the purpose income tax  
The costs incurred for increasing entr epreneurship, research and 
development and creation of new technology for enhancing the 
productivity of the industry can be deducted while calculating taxable 
income for an income year from business provided that such 
deduction does not exceed 50% of the a djusted taxable income from 
all business of the industry  
In case the expenses cannot be deducted in full the remaining 
amount is allowed to capitalize the depreciation on which may be 
claimed in the subsequent fiscal year.  
Costs incurred in market promotio n, survey and advertisement 
relating to the business can be deducted for the purpose of income 
tax 
  
Costs incurred for the security of the physical assets as prescribed 
and actual premium paid for insurance can be deducted for the 
purpose of income tax  
  
Costs incurred for the protection of industrial property in Nepal which 
is registered in Nepal can be deducted for the purpose of income tax  
  
25% exemption on the rate of income tax on royalty received from 
export of Intellectual Property created and registered in Nepal  
 
50% exemption on the rate of income tax on income earned from 
transfer or sale of intellectual property created by the industry  
  
Government of Nepal may reimburse the registration fee paid to 
register the intellectual property in fore ign country for its protection 
in the manner as prescribed by Nepal Government  
  
Gifts or donations given to tax exempted organization can be 
deducted up to NR 100,000 or 5% of adjusted taxable income of the 
industry, whichever is less  
  
The Government of Nepal may also provide other exemptions by 
publishing a notice in Nepal Gazette  
Industries established inside an 
Industrial Estate  Local taxes including unified property tax is not levied  WT/TPR/S/ 381 • Nepal  
 
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  Fiscal concessions for different industries  
B. VAT Exemptions  
Industry  Benefits  
All industries  VAT imposed on production is reimbursed if such goods are exported, 
based on the quantity of export  
C . Customs Duty Exemption  
Industry  Benefits  
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 as prescribed in Nepal Gazette  
Industries not having bonded 
warehouse approval exporting 
goods through existing banking 
channel or letter of credit or selling 
such goods in domestic market in 
convertible currency   Raw materials or auxiliary raw materials as well as packaging 
materials that are not produced in Nepal can be imported by 
furnishing the required guarantees under prescribed conditions and 
procedures  
However, in case of packaging materials not produced in Nepal, a 
recommendation is required from IRD to enjoy such benefit  
The customs duty levied in the import of such raw materials, 
auxiliary raw materials and packaging materials required for 
production shall be one  level below the existing custom duty rate in 
import of finished goods using such materials  
Laboratories for quality assurance  Customs duty is levied in the minimum rate for the import of 
machinery and scientific devices that re being imported to ensure 
quality as well as such machinery and equipment imported by 
industries for research and development.  
All industries  Customs duty is levied in 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  
D . Customs Duty Exemption  
Notwithstanding anything mentioned in existing acts, no fees or charges is levied on registration of micro 
industry pursuant to this Act  
Micro -industries already under operation at the time of commencement of this Act are entitled to 100% 
income tax exemption for at least five years from the date of commencement of this Act  
Micro -industries registered and operating pursuant to this Act are entitled to 100% income tax exemption 
for at least five years from the date of commencement of commercial transaction  
E . Additional Benefits for Female Entrepreneurs. Industries registered under the ownership of 
female entrepreneurs only are entitled to following additional benefits and concessions:   
35% exemption in existing industry registration fees   
20% exemption in existing rate of registration of industrial property used inside the industries   
Female entrepreneur shall be prioritized while allocating the areas inside  industrial estate  
In case such industries require loan for exporting produced goods, export loan will be provided to the 
industry depending upon the financial status of the transaction of the industry.  
F. Other Exemptions and Facilities   
Industries based on forest products can be given possessory right pursuant to existing laws over forest in 
any region through lease or other promissory guarantee under prescribed conditions  
No fees or royalty pursuant to the existing laws shall be applicable in elec tricity produced by industry for its 
own consumption  
 
Such industry willing to sell surplus electricity to any other industry, may sell so pursuant to existing laws in 
the rate agreed upon by both parties  
Government of Nepal may provide additional exemptions and facilities to export based industries and 
prescribed industries established inside SEZ or inside Government or private industrial estate by publishing 
notice in Nepal Gazette  
Government of Nepal may provide additional exemptions and facilit ies by publishing a notice in Nepal Gazette 
to national priority industries or industry making optimum use of domestic raw materials, labour or skill or 
industries established by inventing new technology or goods inside Nepal upon recommendation of Industr ies 
and Investment Promotion Board  
Government of Nepal may provide exemptions in demand charge added in electricity cost under prescribed 
conditions and procedures  WT/TPR/S/ 381 • Nepal  
 
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  Fiscal concessions for different industries  
Government of Nepal may provide aid assistance as seed capital to cooperatives, micro industry, small and 
cottage industries to establish industries inside under developed region under prescribed conditions.   
Industries operating under Foreign Investment may be given approval to import goods produced by the head 
office located in foreign c ountries for production, market development and promotion of new goods for a 
prescribed period under prescribed terms and conditions.  
Note:  Industries based on tobacco, liquor and  kachha or kattha  are not entitled to any of the exemptions or 
facilities listed above. However, such industries may deduct actual expenses incurred in business 
promotion activities including long -term welfare and benefit of employees or workers, in reducing or 
controlling pollution, re -processing of waste materials, in technolo gies and devices used reducing 
environment effects, in machine or equipment used for reducing power consumption, research and 
development expenses.  In case an industry qualifies for more than one exemption in respect to similar 
income from among those list ed above, the industry is only entitled to one exemption. Such industry 
is entitled to select the applicable exemption.  
Source:  Industrial Enterprises Act 2016.  
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