LATEST RELIEF FOR BUSINESSES IN NEPAL TO COMBAT COVID 19
The global pandemic, COVID 19 is spreading rapidly all around the world. Nepal is also at high risk and with new confirmed cases of infection; the Government of Nepal is seeking to extend the lockdown, however amidst loosening the lockdown rules by some bits. Government has introduced some relief packages, though scarcely for business entities.
RELIEF FOR EMPLOYEES:
1. Government has made it mandatory for employers to pay salary to their employees for the month of Chaitra:
In our last article about “What are the Options of Employers Regarding Payment to Employees for the Lockdown Period?”, we discussed several provisions of Labor Act 2017 that implied that employers shall be liable to pay to employees (except for the laid off and retrenched ones) provided that the government does not decide otherwise. Now that the government itself has mandated compulsory payment to employees (for the month of Chaitra), irrespective of presence or absence of work being conducted from home, employees are now guaranteed payment; which is a relief to employees definitely.
2. Government made it mandatory for tourism industries to pay daily or monthly wages to their employees until Chaitra.
One of the first sectors to be affected by the pandemic in Nepal was the tourism sector, resulting in shutting down of hotels, travel, trekking and mountaineering agencies and restaurants. However, with no specific relief to such industries and their industries still closed down, they are yet asked to pay their employees even in current absenteeism. This is but a definite relief to the population employed in the tourism sector.
Implementation of these declarations however is highly doubtful as the government has not announced any strong sanctions for these violations. Further, with no proper sanction convened, implementation of this relief is totally dependent upon the employer. Employees are left with the tedious method provided by labor laws, which is highly inconvenient for them to follow for payment of a month’s salary.
RELIEF FOR EMPLOYERS:
Amidst this added burden to the business entities, the government has provided for a slight relief package to such entities as well; however not enough to cover the loss.
1. Employers may access the organizational level welfare fund to make payments to the employees until resumption of business.
What is the Organizational Level Welfare Fund?
Organizational level welfare fund is a fund established within the entity as per section 178(6) of Labor Act, 2017 (“Labor Act”), and operated as per rule 84 of Labor Rules 2018 and section 13 of Bonus Act, 1974 (“Bonus Act”) for the welfare and benefit of the workers/ employees of that entity. Organizational level welfare fund is under direct control and direction of labor relation committee in each entity.
What goes into the Welfare Fund?
Rule 84 of Labor Rules 2018 in line with section 13 of Bonus Act and its amendments provide that 70% of the amount remaining after distribution of bonus to the employees pursuant to Bonus Act shall be deposited to a welfare fund while 30% of such amount shall be deposited to a national level welfare fund established by government of Nepal against the interest of employees of entities. (Bonus here is the 10% of entities’ net profit of each fiscal year).
Is this enough?
It is definitely a relief for business entities with established organizational level welfare fund as employers will not have to pay from their pockets. But for entities without their own welfare fund, well, this is the heat for non compliance of law.
However, start ups or entities with insufficient funds in the welfare fund are yet to receive some bright lights from the government.
This relief however does not come from the government itself as it has just allowed the use of an organizational level welfare fund and still keeps silent about the use of national level welfare fund; keeping the entities with insufficient funds in the welfare fund and others in lurch.
2. The Government of Nepal to deposit the amount contributed by the employees and the employers to the social security fund for the month of Chaitra.
What is the social security fund?
Social security fund (“SSF”) is the fund established pursuant to Contribution Based Social Security Fund Act, 2017 to ensure social security of employees.
What Goes into the Social Security Fund?
Every month, 31 % of the basic salary of an employee is deposited into the SSF (20 % is contributed by the employer and 11% is contributed by the employee) against provident fund, gratuity, insurances as such. This is a mandatory provision under chapter 10 of Labor Act that added some extra liability to the employers.
Is this enough?
This is definitely a relief for employers to certain extent as now the government will share their duty to pay their employees to certain extent.
RELIEF FOR TAX PAYING ENTITIES
1. Government has deferred the deadline for tax filings. Organizations and businesses affected by COVID-19 can pay Value added Tax (VAT) of their respective tax period (monthly, bimonthly or once in four months) until 7th May 2020 (Baisakh 25, 2077 B.S.). Advance tax filing of 6 months and tax returns to be submitted under Income Tax Act 2002 can be done until 25th Baisakh 2077.
Delayed filings would have caused the taxpayers to pay fines amounting from one thousand to more under VAT Act, 1995 (“VAT Act”) and Income Tax Act 2002 (“Income Tax Act”) along with interests where applicable. With the inconvenience the pandemic has caused in conducting business and running industries, this is a much awaited relief for taxpaying entities.
2. The time for tax returns to be submitted and the second installment to be paid in Chaitra under Income Tax Act 2058 has been extended till the month of Baisakh.
Penalty for delayed payment would have amounted up to thirty thousand and/or up to three months imprisonment under Income Tax Act. Time extension for filing documents and taxes definitely alleviates unexpected economical burdens due to the situation.
3. Documents to be submitted at the Office of Company Registrar, renewal of private firms and vehicles, route permit, pollution and driving licenses can be done by May 13 2020 (end of Baisakh) without fines.
Company Act 2007 levies fines based on company’s capital structure for late submission of documents. Likewise for private firms, exports and imports transactions could be cancelled through the order of NRB for non-renewal of firms on time. While businesses have been affected largely due to extended lockdown, and mobility strictly restricted, the government has definitely tried to relieve some stress related to timely submission of documents.
4. Amount contributed in the Coronavirus Treatment Fund shall be deducted in calculation of taxable income.
In this time of pandemic, stress and anxiety, contribution towards a better cause always provides satisfaction. Government has encouraged such humanitarian efforts by making such amounts tax exempt; another benefit for taxpayers.
However, government is yet to clarify whether contributions to such fund shall amount to fulfilling corporate social responsibility under the Industrial Enterprises Act, 2020 whereby each medium and large scale industries, and cottage and small scale industries with annual turnover of NPR 150,000,000.00 shall be required to spend at least 1% of their annual net profit to corporate social responsibility; though under general interpretation, it should qualify for corporate social responsibility.
5. No custom duty shall be levied for any government, private and community sector importing medical equipment.
Regarding the imposition of no custom duty for businesses on imports of medical equipment, taxpayers are at great advantage since a huge saving out of this tax exemption can be made. Further, one can increase their investments as well. This is a commendable relief as it contributes to the state and people while providing some relief alongside benefits to taxpayers.
Though these reliefs are not in the form of tax deductions, tax credits, tax exclusion or any other kind of tax relief, these are definitely some awaited reliefs to taxpayers. For taxpayers with significant tax dues, this gives them a month’s time to make use of that money and manage their working capital. This will leave some money in the economy at least for a month more thus aiding some economic activities.
RELIEF IN LOAN AND BANKING TRANSACTIONS
Governmental actions are required to prevent not just the spread of pandemic but also to prevent the slowdown in the economy. This has created an environment of fear among the investors, industrialists as well as the general public. To address this issue, the central banks of various countries have reduced the interest rates. The central bank of Nepal, Nepal Rastra Bank also issued a notice on March 29, 2020 for all the licensed banks and financial institutions and the government on 31 March 2020, which made some amends to existing rules and provide relief to service seekers. Some of the reliefs for service seekers are:
- Limitation of Refinancing Fund to be made NPR 60,000,000,000.00 and use that amount in the COVID-19 affected areas.
- Interest capitalization period up to Mid-January 2020 or Mid-April 2020 for borrowers has been extended up to Mid-July 2020.
- Banks have extended their bank guarantee time that ends on April 12 for a month without penal chargers or any kinds of additional fees. However, they will be subject to normal interest rates.
- Monthly or tri-monthly installments including the credit card dues to be payable till 12 April 2020 (during the month of Chaitra, 2076) has been extended till Mid-July 2020 (end of Ashad, 2077). Any kind of penal charges or penal interest shall not be imposed on such installments. However, it shall be subject to normal interest rates. If such installments are paid till 12 April 2020 (during the month of chaitra of 2076), the borrower shall be subjected to 10% discount in the monthly and tri-monthly payable interest amount for the month of Chaitra.
Borrowers who are affected by the pandemic shall be relieved by this decision as they shall have time to arrange for the repayment of the loans which otherwise would have been smooth if not for the pandemic. Borrowers should however keep in mind that this is a relief of time extension and not about reduction in their dues or interests owed to the banks. Their interests are not relieved yet.
5. It has also decided to prioritize the small and medium enterprises affected by COVID-19 through refinancing. This kind of refinancing services is also applicable for working capital loan.
6. After the risk of pandemic has been over, necessary arrangements shall be made for providing concessional loans, within 7 days of filing the application, for those workers having permit for foreign employment, but are unable to go there and now willing to operate an industry through it.
The banks have also been enhancing the e-payment system to encourage the cashless payment system. Doing so would create a more effective hygiene routine. The risk management of necessary services for online transactions such as service enabling, resetting pin and password, authentication, verification, cash renewal shall be done for access of a larger number of people to the services. Also, the customers can request through email and telephones to the banks in regard to online transactions which will be dealt by the banks. Such online services shall be free of cost till Mid-July 2020 (end of Ashad, 2076).
- Telecommunication: In order to ensure regular flow of information during the lockdown:
- Government announced a 25% discount to the internet and data package users in Nepal Telecom, to be applicable during the lockdown period, making arrangements for similar discount provision from private telecommunication companies.
- Payment deadline for Telephone Ownership Charges pursuant to Section 14(2) of Finance Act 2019 and Telecommunication charges pursuant to Section 15(3) of Finance Act 2019 extended to 7 May 2020.
Therefore, there shall be charges for delay till the stipulated date. Business entities shall therefore hold onto their monies for certain extent and also enjoy a discount in price.
2. Tenancy: The Government of Nepal has made an appeal to the house owners in the city areas to exempt the rent of 1 month to the tenants working in various unorganized sectors. House Owners shall not be required to pay the tax on such amount.
This however is only a request and not a mandatory requirement and that too applicable for employees of unorganized sectors. Business entities, industries shut down and unable to run their regular income generating activities owing to pandemic will not be able to exercise this relief.
3. Essential Food Supplies: Addressing the efficient supply of food, the government has committed to arrange for a 10% discount on basic food items including rice, flour, lentils and pulses, sugar, salt, cooking oil, among others supplied through Food Management and Trading Company Ltd. and Salt Trading Corporation Limited. This is relief to the daily wage earners, the most vulnerable ones to this pandemic, who heavily rely on subsidized food items from these companies.
Though the government has committed to arrange for funds to feed the people in quarantine, hundreds of Nepalis are still across the western border of Nepal and at the mercy of Indian government as the Government of Nepal fails to provide proper quarantine for them.
4. Health: Government has committed to arrange for additional budget to the Ministry of Health and Population for import of medicines, health equipment, sanitizers, PPE as such used in the treatment of Covid-19 and further exempted custom tax on import of such materials. Government has committed to arrange for institutional private health service providers to provide a 20% discount in all services and import required equipment and keep their service open.
5. Insurance: Government has provided for the following:
- Renew insurance policies as per written requests (emails included) during this lockdown period.
- Extend the deadline for payment of life insurance premium till the month end of Baisakh and release any applicable interests for the time period.
- Agent and Surveyor License Renewal deadline for Chaitra extended to the month end of Baisakh without any late fines.
- Payment of claims in non life insurance after normalcy and survey by the surveyor, if claims are made through electronic medium during this period.
In addition, the Government has also decided to allow the industries to operate their industries on the condition that they provide boarding service to their employees and that quarantine rules are maintained in the industrial area itself. Though it may be a relief for some industries, the uncertainty as to who shall bear the cost of boarding provided to the employees may create employment disputes in the days to follow as for now employees shall be under pressure to join the work upon command from their employers and that too without much protection and safety against the prevailing danger of spread of COVID-19 virus.
Though the government has announced these reliefs, much of them are dependent on entities other than the government and with no concrete sanctions for non fulfillment of the decisions of government, implementation of many of these announced relief packages is highly skeptical.
Government should also consider the loss incurred by the business while introducing any new relief package in order to protect the country’s economy for the future. Reliefs targeted to small scale businesses should also be introduced.