May 2005
BIZ NEWS

Agro-machinery Dealers Unite

The dealers and importers of agricultural machinery have formed an ad hoc committee to organize themselves into an association. At a meeting held in Kathmandu recently, they also discussed various problems of their business and came up with a number of demands related with bank finance, taxation, sales and imports.

About the bank finance, the meeting demanded the banks to follow uniform policy while providing finance for agricultural machines and other vehicles. It may be recalled that while financing other vehicles such as truck, bus, car and motorcycles, the banks do not ask for any collateral other than the vehicle itself, but in case of financing on tractors and power tillers, they ask for additional property, such as real estate, as collateral.

Another problem being faced in promoting use of agricultural machines like tractors and power tillers is caused by the restriction on the transfer of ownership of these machines till five years of the sale from the dealers. Because of this, banks and finance companies other than Agricultural Development Bank (ADB) are not willing to invest in these machines. Thus, the finance needed for this business is not enough, it is pointed out.

Similarly, the agricultural machine dealers have complained also about the unfair tax system on agricultural machines. For example, for the four-wheeled tractors with average price of Rs. 700,000, the annual tax is Rs. 2,300 whereas a power tiller with an average price of Rs. 100,000 carries a tax burden of Rs. 1,600 per year.

Another anomaly pointed out is about the customs duty that favours import of fully fitted agricultural machines and discourages local assembling of these machines. They have argued that if parts and components of such machines are provided similar concession on the import duty as available for importing fully fitted machines, it will encourage local assembling of such machines and thus help create additional employment opportunities.

Liquor Baron to Serve Six Month Jail Term

Sending jitters across the business community, particularly the liquor industry, Bharatpur Inland Revenue Office has decided to send Mathura Prasad Maskey for a six month jail term on the charge of cheating the treasury in terms of excise on some 1.62 million LP litres of liquor his company Shree Distillery (P) Ltd. did not show in its production and sales records.

Along with the jail sentence to its owner, the company is now ordered to pay Rs. 8.7 million to the treasury, thus making it the largest amount of revenue leakage involving an industrial firm so far. The amount includes Rs. 382 million as excise and the rest as interest, late payment fine and various other charges.

Despite the distinction of being the largest single contributor to the state revenue in terms of various taxes and duties, liquor industry as a whole has been charged of cheating the treasury frequently and some people involved in this business have been complaining of difficulty in competing with those who are able to avoid paying taxes. While this latest development may signal the advent of better transparency in the liquor industry still notorious for rampant corruption in complicity with the revenue department staff, people suspect whether this decision will survive the court trial if Maskey and his company approach the higher levels of judiciary seeking review.

Though the tax office has handed down the decision under such a provision of the law that does not allow for appeal, Maskey’s lawyers may invoke constitutional rights to move the Supreme Court where the government offices have very poor success record due to serious procedural lapses in their decisions.

Meanwhile, the revenue investigators have started action also against another liquor baron Rohit Shrestha and his company Triveni Distillery.

SAFTA Treaty Still Uncertain

The uncertainty about the future of the proposed South Asian Free Trade Area (SAFTA) is still persisting as the eighth meeting of the Committee of Experts (COE) held at Kathmandu late April concluded without making any significant headway to resolve the differences among the member states about four pending contentious issues.

According to the plan set by the Islamabad summit of the heads of the states and governments of the seven member countries of the South Asian Association for Regional Cooperation (SAARC), the COE was given a deadline to finalise these four issues by May 2005 so that the SAFTA Treaty would come into force by the beginning of 2006.

The four issues in front of the COE were related to the rule of origin (ROO), list of sensitive items, mechanism for the compensation to the loss of revenue and technical assistance to the least developed member countries (LDCs).

Now, the COE has decided to meet again late June at the SAARC Secretariat in Kathmandu to try and find solutions to the pending differences.

So far, the member states have narrowed some differences in their views on the issues of ROO and technical assistance. But in the remaining two issues they are still miles apart. The problem is in assessing the possible revenue loss as the general customs tariffs are already reducing in all the member countries. In ROO, they have agreed on a 40 percent value addition requirement with a 10 percent derogation for the LDCs.

The other positive development of the latest COE meeting was to prepare a list of areas in which the developing member states (i.e. India and Pakistan) would need to provide technical assistance to the LDCs.

Corporate Kaleidoscope

# NCC Bank Ltd. has opened branches at Butwal and Lagankhel of Kathmandu increasing the total number of its branches to 17.

# Sanima Hydropower (P) Ltd. has started commercial operation of 2.5 MW hydropower project that was developed on Sunkoshi river.

# Bank of Kathmandu observed its 11th anniversary by offering free ATM debit cards to the first 1,000 customers who open accounts with the bank beginning May 1, 2005.

# Siddhartha Bank held a special AGM recently at Butwal. The AGM approved the proposal to amend the statute to increase paid up capital to Rs. 50 million. It also approved the plan to expand the bank's network to 10 districts in the near future.

# Hulas Motors (P) Ltd. has signed a MoU with Kathmandu Electric Vehicle Alliance to manufacture electricity powered mini-vans.

# Lomus Pharmaceuticals (P) Ltd. is shifting its production base to its new factory building in the near future. The new building has facilities as per WHO-GMP standards, says the company. Meanwhile, the company has formed a new division, called Nimbus, for fast marketing of its products so as to reduce the time difference between the production and final sale of the products to the user.

Briefs

# Kathmandu-Lhasa direct bus service started on May 1, 2005 linking the two ancient centres of intrepot trade between China and India. With both India and China opening up their economies for products from each other, there are growing expectations for Kathmandu to regain its old importance provided the road linking Kathmandu and Lhasa is upgraded and the rail connection from Lhasa extended to nearer the Nepal border.

# Cell phone connection from Nepal Telecom has been reactivated in Kathmandu from early May after being suspended since the February 1 political change. Out of 55,000 post-paid cell phone connections subscribers in the capital, 45,000 had registered themselves for security screening and in the first phase of resuming the service Nepali Telecom has reactivated 34,000 connections. The service will be activated outside Kathmandu valley gradually, say reports quoting Nepal Telecom officials.

# Tourists are now able to get a refund of the VAT paid by them while purchasing mementos. State owned Rastriya Banijya Bank opened its counter at Tribhuvan International Airport early May for this purpose. The revised Finance Ordinance issued at mid-January had made the provision for refunding to the tourists the VAT amount they had to pay while purchasing goods they would carry home at the end of their Nepal visit. The tourist can get the refund if the purchase value is Rs. 15,000 or more inclusive of VAT and the purchase bill is not older than 60 days.

Corporate Scorecard

Union Finance Company (UFC) Ltd. concluded its 10 th Annual General Meeting (AGM) recently reporting a net profit of Rs. 14.39 million during the fiscal year 2003-04. This is a 19.55 percent growth over the previous fiscal year. The AGM approved to distribute a 10 percent stock dividend and a three percent cash dividend to the shareholders. In the previous fiscal year also the company had distributed 10 percent stock dividend.

World Merchant Banking and Finance Ltd. recently concluded its AGM of the fiscal year 2003-04. During the year the company earned a net profit of Rs. 7.14 million, a massive 111 percent growth over the previous fiscal year. The company, which was recently enlisted in the NEPSE, succeeded in minimising its employee and operating expenses during the year and increased the deposit collection by 66.1 percent over the previous fiscal year.

Bhajuratna Finance and Saving Company Ltd. held its AGM of the fiscal year 2003-04. During the year the company suffered a loss of Rs. 2.41 million as compared to a profit of Rs. 4.57 million in the previous fiscal year.

Alpic Everest Finance Ltd. earned a net profit of Rs. 8.7 million during the fiscal year 2003-04. During the year the company collected deposits of Rs. 470 million and granted loans of Rs. 48 million. The company has reduced its non-performing asset to 5.70 percent.

Malika Development Bank earned an operating profit of Rs. 9.06 million during the fiscal year 2003-04. The bank increased its deposits by 81 percent and loan and advances by 96 percent during the year over that of the previous year.

Everest Insurance Company Ltd. recently concluded its 10th AGM. The company earned a net profit of Rs. 30.17 million during the fiscal year 2003-04. It collected Rs. 274.31 million as gross premium which is about 10 percent of the total premium earning of the country's general insurance business for the year.

Nepal Development Bank concluded its 6th AGM recently. During the fiscal year 2003-04, the bank had borne a net loss of Rs. 302 million. The main reason behind the great loss is the provisioning for possible loan loss.

Goodwill Finance Company Ltd. earned a net profit of Rs. 3.9 million during the fiscal year 2003-04. This profit comes to be a 63.92 percent increase over the previous fiscal year. Similarly, the company increased its deposit during the year by 14.04 percent.

The Company's Board of Director had proposed a 10 percent cash dividend, however, the company could not distribute it as Nepal Rastra Bank asked the company to make enough provisioning for non-banking assets before distributing dividends.

Nepal Credit and Commerce (NCC) Bank Ltd. recently held its 1st AGM after flotation of its shares to the general public. The bank earned a net profit of Rs. 3.41 million during the fiscal year 2003-04 and this is 95.83 percent less compared to the previous year. A huge provisioning for non-banking assets and possible loan loss, deteriorated the profitability of the company. Though the bank has earned a profit during the fiscal year 2003-04, it still has a cumulative loss of Rs. 439.61 million.