December 2006
Economy & Policy

By Madhukar S.J.B.Rana

A new Nepal -- on the economic front -- can only be engineered if we move beyond the outmoded mixed-enterprise system. That has failed miserably to reduce the poverty level. It is causing greater political and social strains and stress because of the acute inborn inequalities that is symptomatic of economic injustice and exclusion. Reliance on the usual fare of policy interventions like structural adjustments, privatisation of national assets, subsidisation and support from the non-governmental sectors will not suffice as they have exhausted their potential for social change. Most of all, it is unlikely to succeed as Nepal's economic policies have to be formulated in the context of the WTO regime, as the international agreement is nationally binding.

New innovative interventions that encompass business models; technology; and products and services are needed. Most critically, the innovation calls for our big business houses to work in close partnership with the poor: the NGOs, CBOs and TVOs and, not least, local governments and development donors, says the visionary strategic management guru, Prof. C.K. Prahalad.

In short, seek 'people-public-private partnerships'. This concept was introduced for the first time in Nepal by the finance budget 2003-04 of Dr. Prakash C. Lohani; and re-emphasised and upgraded in the royal budget 2005-06 presented by this author. Fundamentally, for such an ideology to take root in Nepal, a climate of consensus building on public policy-making and implementation is a crying need. A national climate for garnering social trust and harmony is a vital must felt by all through firm application of the rule of law, and the practice of governance that is driven by the principles of accountability, transparency and competitive participation by stakeholders.

The goal of people-public-private partnership is to bring the market mechanism to 80 per cent of the people living below the $2 per day poverty line as: (a) consumers and (b) entrepreneurs -- on a mass scale that goes far beyond the current mini-and micro-scales that have been successfully promoted by NGOs. Markets empower the poor with choice and self-esteem while preserving consumer sovereignty generally through proper regulation of monopolistic behaviour amidst the business, labour unions and professional associations.

To begin with, businesspersons need to change their attitude about the poor. They need to see that there is a fortune at the 'bottom of the pyramid' (BOP) and to recognise the creativity, risk-taking abilities and organisational strengths within poor communities to contribute to double digit economic growth to keep in tandem with that of China and India. We must stop treating them as objects of development welfare handouts, and as political vote banks for periodical elections. We need them to participate in development and democracy as subjects and not simply objects.

In the very dynamic MAN-MDC forum, a recent discussion a presentation on public policy by Rajendra Khetan, of the Khetan Group, estimated that there are 6 million households in Nepal encompassing its 24 million inhabitants in 2006. Roughly 3 million depend on agriculture for their livelihood; 1.0 million within the private sector; 0.5 million in the public sector and 1.5 million on remittance income from foreign employment.

He estimated that 0.5 -1 million jobs will be required in the next five-10 years to meet the job demand from new entrants into the labour market. Given that most of the so called 'employed' are actually underemployed, it would be realistic to assume that up to 3 million jobs would be required during that time for full employment of the labour force. Such an employment (and productivity) drive nationally, led by the private sector, would be an optimum target to realise the fortune at the bottom of the pyramid based on the profit motive (not to be confused with rent).

In the above perspective, it is the private sector that not only creates economic growth; it also helps distribute income through job creation and effective, efficient and equitable supply chain management of product and services and judicious risk management. To achieve this aim, businesses must look to poverty eradication as part and parcel of their business objective - thus move beyond the usual paternalistic provisions for the poor as laid down in corporate social responsibility statements.

Prahalad believes that managers should imbibe a new philosophy of innovation and product and services delivery for the BOP markets. He offers a set 12 principles at the minimum. They are: (1) create a new price-performance envelope; (2) seek hybrid solutions to combine the new with the old; (3) innovations in one local market must be transferable across cultures and locations to be able to scale up; (4) conserve resources- reuse and recycle and eliminate waste; (5) product development must respect functionality and not form to suit the rural cultures ; (6) process innovations are as important as product innovations; (7) product and services designs must be adapted in cognizance of critical local constraints; (8) educating customers on product usage is key; (9) developing products to work in 'hostile' environments is also key as for example low quality of infrastructure, electricity, lack of water etc. (10) constant research on local consumer behaviour is fundamental; (11) designing low cost access by and to the poor is critical, and (12) always question and challenge existing assumptions and paradigms for their application to, and success in, the BOP markets.

Readers are strongly advised to read C.K.Prahalad's The Fortune At The Bottom Of The Pyramid: Eradicating Poverty by Profits, (2005); Wharton School Publishing, Pearson Education ( Singapore), Indian Branch, Delhi. There are 21 case studies drawn from India, Brazil, Mexico and Peru representing banking services, energy, housing, health care, personal care and agriculture detailing innovations in business models. Programming executive development training courses through the interface of South Asian Institute of Management (SAIM) and individual businesses or organisations like FNCCI, CNI and the national and local chambers of commerce and industries will go a long way in the application of the 12 fundamental principles and the way forward towards developing the businesspersons' vision, leadership, perspectives and strategies for social transformation with the poor.

(Rana is a former Finance Minister of Nepal)

E-governance & Tax Authorities

by Subhash Khandelwal

"E-Governance Master Plan will be initiated to reduce costs and the time of service-recipients by improving public service delivery. Prerequisite work will be initiated to convert the present citizenship certificate into the national identity card."

Finance Minister Dr. Ram Sharan Mahat
to the House of Representatives on 12 July 2006
Budget Speech F/Y 2006/07

During the last two decades, the pervasive use of technology has created a critical dependency on IT in the private sector worldwide. Consequently, governments have had to adapt to this change through the concept of e-governance (also called IT governance). E-governance means that governments are able to monitor the behaviour of their citizens and better facilitate services like tax payments through the use of IT. This concept is slowly being introduced in Nepal and the government in recent years has announced various measures to initiate e-governance. But there have been many hurdles in this process and the government has to tread very carefully if it is to make e-governance a success in the future.

In his budget speech in the House of Representatives on 12 July 2006 for F/Y 2006/07, Finance Minister Dr. Ram Sharan Mahat has said "…Arrangements will be made for electronic correspondence among ministries on a pilot basis for improving job performance". This shows that the IT system in the government is still at a very nascent stage. In fact, currently most government departments are using IT only to run their websites.

However, exceptions to this scenario are the tax authorities. Over the last couple of years, IRD (Inland Revenue Department/ Income Tax Department) and the Department of Customs have taken various steps forward in the implementation of IT in their offices. IT has been used to modernise and improve the efficiency of tax collection, to expedite the recovery of old dues, to widen the tax-base, to expand the taxpayer net and to provide better overall services to taxpayers. For such purposes, the relevant provisions of tax laws have also been amended. Electronic Cash Register is mandatory for some category of taxpayers and there is a set process for validation of software used by taxpayers and for approval of software vendors to sell the software. E-TDS is also in operation now.

The Customs Department is in the process of strengthening the present IT system called ASYCUDA and it is also going to fully computerise the customs clearance process. Also proposed is a system through which exporters and importers would be able to submit a single electronic document for custom clearance. Similarly, there is a proposal to launch a new software for quick refunds of DRP amounts. There is also a proposal to make taxpayers able to submit tax returns at any Inland Revenue Office. In order to make tax payments more effective, information about the tax system will be available through a Voice Message Service.

These steps taken by the tax authorities show that Nepal's tax authority is fast entering into the e-governance era.

E-Governance: The Indian Experience

In India, the Department of Company Affairs has successfully started accepting tax returns electronically and the data is authenticated by the digital signature of the applicant. Similarly, the Indian Income Tax Department is accepting e-filing of returns for income tax and fringe benefit tax by the corporate and the non-corporate sectors from F/Y 2005/06.

According to a recent notification by the Central Board of Direct Taxes, the forms to be filled before the filing of returns have been designed for electronic filing. Even if a taxpayer does not use a digital signature, a two-step procedure has been prescribed for furnishing these forms electronically. The first step is to transmit the details of the returns and schedules electronically without a digital signature in the designated website. The second step is to file a paper return later. If the return is furnished electronically under a digital signature, it will not be necessary to furnish the paper returns. However, there are many obstacles in the present system of e-filing of Income Tax returns because the database of the IT Department has not been fully updated and double PAN numbers have been allotted. Due to this, forms may not be properly uploaded while filing e-returns.

Nepal's Legal Provisions

Under the current Nepali tax laws, returns and documents filed electronically are legal. A separate Information Technology Act to this effect has also been passed and this reiterates the legal validity of the documents submitted electronically.

But unfortunately, Nepal's infrastructure is still inadequate for e-governance. The system to authenticate users is still not fully in place. Also the existing IT system is not adequate. Moreover, skilled manpower to run IT departments is scarce too.

Challenges for E-governance

Even though the IRD has announced the ECR, the software for it is still incomplete. There isn't sufficient hardware to support the IT system in the IRD also. This is evident from the fact that the tender for hardware was announced in Aswin 2063 - when the date of implementation of the ECR was already over (although this has been extended). There is a centralised maintenance system for hardware and in case of any breakdown in the system, support is not immediately available. The data transfer rate of the local ISP is very slow and IRO does not have its own V-SAT, so the ISPs are also centralised in most cases. The database of the IRD is also not up to date and various discrepancies exist.

Even though the ASYCUDA project has been implemented in the Customs office, the process was isolated. So, the expected outcomes have not been achieved. In this context, the strategic planning report of the Ministry of Finance (2001) and the report of the government's fiscal reform working group have both stressed on the need for long-term reform. The budget speech of the current fiscal year has mentioned that Customs will be reformed and modernised in three years but it will take a lot of hard work to reach this goal.

Conclusion:

If properly implemented, e-governance can be a full-proof method of ensuring transparency and efficiency in public service delivery. Taxes can be paid easily, licenses can be given faster, trade can be expedited and decision-making will be more effective on the basis of better information. These are only a few benefits of a good e-governance system. But false and incomplete databases can only harm the nation's finances. Before this process is taken further, the government needs to scrutinise the challenges and move forward - otherwise there will be more harm done than good.

(Khandelwal is a Chartered Accountant based in Birgunj)