An Ordinance Made to Amend Acts Relating to Investment Facilitation: A Review

This ordinance was proposed for the amendment of various laws pertaining promotion of investment in business and industries. The ordinance has been enacted from the 16^th of Baisakh 2081 (28^th of April 2024). Major reforms made by such ordinance related to the amendment of the Lands Act, 2021, National Parks and Wildlife Conservation Act, 2029, Electronic Transactions Act, 2063, Special Economic Zone Act, 2073, Public-Private Partnership and Investment Act, 2075, Foreign Investment and Technology Transfer Act, 2075, Forest Act, 2076, and Industrial Enterprises Act, 2076.

The amendments so made in the aforementioned acts are as provided hereunder:

1. The Lands Act, 2021:

The ordinance has regulated the provisions regarding land ceiling exemption provided to businesses by amending The Lands Act, 2021.

1.1   The amendment made in the Act has enabled businesses to take approval for the requirement of land exceeding the prescribed ceiling from the Government of Nepal by making application to the Ministry of Land Management, Cooperatives, and Poverty within one year from the date of enactment of this amendment.

1.2   The amendment has so required the Ministry to keep records of the land exceeding the prescribed ceiling by maintaining a register.

1.3   The amendment has also enabled the business to obtain approval for sell or transfer the land for settlement of liabilities or settlement of loans acquired from banking and financial institutions, from land owned within the ceiling (does not apply for land exceeding the prescribed ceiling), subject to conditions put forward by the concerned Ministry, withstanding that such sale of land does not affect the employment or production of public organizations, industries, institutions, companies, projects, educational institutions, or other entities. Such approval could only be taken once as mentioned by the amendment. Also, the land owned in excess of the ceiling cannot be interpreted or calculated as the land within the ceiling after settlement of such liability. Meaning, the amendment intended to demarcate the difference between land in excess and land within the upper ceiling.

1.4   The amendment requires the banking or financial institutions to sell the land that is acquired from the inability to auction such land to a third party, if such land is in excess of the prescribed ceiling, within three years. The institutions may however acquire approval from Nepal Government in case of failure to sell such land within the prescribed time.

 2. National Parks and Wildlife Conservation Act, 2029

2.1   The amendment in the National Parks and Wildlife Conservation Act, 2029 has defined the designation of highly sensitive areas and permits the development of projects of national importance, or projects approved by the investment board, in the National Park or Buffer Zone areas except as designated as highly sensitive areas, by obtaining prior approval from the Government. Such highly sensitive areas shall be designated by publishing the same in the National Gazette and shall be considered as specially protected areas.

3. Land Acquisition Act, 2034

3.1   The Land Acquisition Act, 2034 has been so amended that it ensures the compensation provided is not more than three times the minimum valuated amount during registration of such land.

4. Electronic Transactions Act, 2063

4.1   New provisions have been added in the Act which has been considered one of the most necessary decisions for the betterment of IT and software industries in Nepal.

4.2   The amendment requires the Department of Information Technology to provide recommendations for foreign currency exchange to the Nepal Rastra Bank, in case such payment is to be made against the import of goods and services relating to software, hardware, or computer or information technology, which is used in computer network or in computer systems.

4.3   The amendment has further enabled a person, firm, industry, or company relating to IT, to register a branch office or unit in foreign country for the purpose of export of software or IT-related services and repatriation of earnings to Nepal. The Ministry of Communications and Information Technology may provide approval for registration of such unit or branch office subject to proof of such necessity pertaining to the business.

        The Ministry of Communications and Information Technology may provide a one-time recommendation for foreign currency exchange to such person, firm, industry, or company for the purpose of registration of such branch office or unit.

5. Special Economic Zone Act, 2073

5.1   The amendment has enabled the industries registered outside of the Special Economic Zone prior to enactment of the Act, to relocate the machinery, tools, or equipment being used by such industry to the premises of the Special Economic Zone (SEZ) and operate such industry therefrom.

5.2   The amendment now requires industries operating within the SEZ to export at least 15% of total goods manufactured for four years starting the date of operation and export 30% of total goods manufactured after the four-year period.

        The amendment further allows the industries operating within the SEZ to sell their products and services in the domestic market for up to three years from the date of commencement of operations.

6. Public-Private Partnership and Investment Act, 2075

6.2   The amendment has included the participation of the Secretary of the Ministry of Finance as a member of the Investment Approval Board.

7. Foreign Investment and Technology Transfer Act, 2075

7.1   The amendment has included non-resident Nepali identity cardholders (also known as non-resident Nepali citizenship certificates) within the definition of Non-Resident Nepali.

7.2   The process of technology transfer has been expanded to include 'reverse engineering' as a permissible subject for agreement.

7.3   A new provision has been added, allowing companies established and operating in Nepal to transfer technology to foreign companies. Earnings made from such transfer of technology should be repatriated to Nepal with prior approval from the Nepal Rastra Bank.

7.4   The amendment has also enabled businesses to open branch offices or units in a foreign country for the purpose of technology transfer to entities in such countries.

7.5   The amendment now allows industries with foreign investment to obtain loans or project financing with the approval of Nepal Rastra Bank, and without requiring a recommendation from the line/relevant Ministry.

7.6   The amendment further allows industries with the same objective to enter into contracts or sub-contracts for the production of any goods or services, instead of the previous provision of allowing only the production of auxiliary goods or services required for the main product.

7.7   A new clause has been added to the schedule (the Negative List), listing "Ride-sharing services exceeding seventy percent foreign investment", whereby Ride-sharing businesses may be established with foreign investment less than 70%.

8. Forest Act, 2076

8.1   The amendment has removed river-based and mineral substances from the category of forest products.

8.2   The amendment has broadened the definition of mineral substances. Except for the use as raw materials in nationally prioritized projects, projects approved by the Investment Board, projects of national pride, or industries meeting the criteria set by the Government of Nepal. However, the extraction of minerals within forest areas still remains prohibited for other purposes.

9. Industrial Enterprises Act, 2076

9.1   The Industrial Enterprises Act now defines "startup industry or business" as businesses that utilize creative thinking and innovative research with less than 10 years of operation, potential for rapid growth, and annual turnover below 15 crore rupees.

9.2   The amendment has now removed the mandatory requirement to inform the Department of the extension of the industrial commencement deadline, 30 days prior to the expiry of such deadline.

9.3   The Department may now set norms on quantities of raw material wastage based on industry consumption capacity.

9.4   The Government of Nepal may now provide incentives and facilities to information technology-based industries established with a capital investment of NPR 1 billion.

9.5   Both the Government of Nepal and Provincial Governments, along with local bodies, have the authority to offer incentives, exemptions, concessions, and financial facilities to startup businesses.

9.6   Industries that have obtained permission to hold excess land beyond the prescribed ceiling may now use 50% of their land purchased beyond the ceiling as collateral with Banks and Financial Institutions. This collateral can be used to obtain loans based on the detailed project reports (DPR) for capacity increment in areas determined by the Department. However, this limitation does not apply to obtaining project financing.

9.7   This amendment also includes the notion of contract manufacturing by entering into contracts or sub-contracts with industries bearing similar objectives.

9.8   The amendment has also defined the concept of a Business Incubation Center.

9.9   The amendment has added industries relating to Domestic and International Airlines and Cable Cars as industries of National Priority.

A.H.N. Impressions:

The recent amendment appears favorable for investors, both domestic and foreign. It not only streamlines ease of business for investors but also facilitates infrastructural development. The provision allowing the Department of Industries to provide startup loans is a commendable initiative. The amendment recognizes emerging technology-driven sectors like ride-sharing apps as industries, a progressive move accommodating modern business models. The amendment seems rushed for presenting it at the third investment summit, as many grey areas still remain unclear and modern types of industries have not been categorized under the schedules of the Industrial Enterprises Act, 2076. If implemented effectively, the amendment could potentially boost Nepal's position in global rankings that assess the ease of doing business, such as the Business Ready Index.