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October, 2002 |
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Biznews |
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Surya
Tobacco Diversifies Surya Tobacco Company (P) Ltd., one of the largest private sector companies of Nepal, has diversified into readymade garments and changed its name to Surya Nepal Pvt. Ltd. (SNPL) to reflect the diversification. This is taken as a surprise move as it comes when the garment sector in Nepal has been experiencing a sharp decline. It is being feared that the imminent expiry of Multi Fibre Agreement in 2005 will cause a shut down in the Nepali readymade garment industry. But SNPL officials say that their company is planning to capitalize on its international connections and managerial efficiency to win larger amount of orders and to improve the efficiency of cheap Nepali labour. Moreover, this Nepali joint venture company of India’s tobacco major ITC Ltd. is also planning to benefit from the existing production facilities of other companies which are going to be available at cheap price for its operation. Though
Surya Nepal was already diversified into seeds exports for some years,
it was not able to achieve significant volume in that business. The
recent diversification seems to be serious as the company has changed
the name itself to suit the expansion. In
early 1990s, an estimated 90% of the readymade garment export from Nepal
was under quota arrangements. That share has decreased to around 75% in
2000-01, according to a recent study, indicating that Nepali garment
sector is gradually weaning away of quota facility. Sri
Lankan Withdrawal Bank
of Ceylon of Sri Lanka has withdrawn its financial and managerial
involvement from Nepal Bank of Ceylon Ltd. (NBOC), a Nepali commercial
bank, selling its stake in the bank to its co-promoter NB Group of
Nepal. Meanwhile,
the Nepal Bank of Ceylon has also changed its name to Nepal Credit and
Commerce Bank Ltd. to reflect the change in the ownership structure. The
swift decision taken by Nepali authorities in allowing the Sri Lankans
to divest from this bank reflects the improvement in the capacity of the
Nepali authorities, say observers. The other latest instance of
withdrawing foreign investment from the Nepali bank was that of the
withdrawal of Credit Agricole Indosuez from what was then Nepal Indosuez
Bank Ltd. (now Nepal Investment Bank Ltd.) in which case the authorities
had dillydallied for over two years. Though
sources close to the Sri Lankan party say that the foreigners had
suffered massive psychological pressure on the hands of the Nepali
partners, the Sri Lankans have stated that their withdrawal is in line
with the changed corporate policy of Bank of Ceylon to concentrate at
home, meaning that this decision has nothing to do with the condition in
Nepal or the relations with Nepali partners. Set
up in the year 1996 with a paid up capital of Rs. 350 million that made
it the largest bank of the country in terms of paid up capital, NBOC had
not been successful in business. According to the unaudited financial
statement as of July 16, 2002, the bank had a negative retained earning
of Rs. 249.51 million. This is the only private sector bank in Nepal
which is continually in loss. CSE
Partners Part Ways The
partners in College of Software Engineering (CSE), the most successful
case of a Nepali brand in IT training, have parted ways in an amicable
manner, each of them focusing in a business that does not directly
compete with the other. While
President of the company Yogesh Mishra now owns 100% of CSE and its
affiliates, Vice President Arjun K.C. has left for USA for further
studies and Rajesh Shakya has set up his own company Hitech Valley
I-net. Though
Vivek Anand, the other partner is still working for CSE, he is waiting
for his replacement to arrive before he can devote to his own business
which is to be focused in training in hardware and networking – an
area which is still virgin in Nepal. The Vivek Anand company is to carry
CSE brand and is called CSE Hardcore for which CSE will receive royalty. As
the reason for the split after five years of joint operation, some of
the CESs former partners cited the differences among them about the
issues of putting in more investment and about the strategic business
focus of the organization which is at present in IT training, software
development and R&D. One of the ex-partners of CSE however does not
rule out the possibility of a merger again among the departed partners. Tricking
to Raise State Revenue Trying
to make the taxpayers pay more taxes may be a pious duty of the tax
administration as long as such attempts are made honestly. But what do
you say, when the tax administration itself starts trickery? Whatever
may be the answer one gives, it is true that such tricks from the
administration do not succeed as the businesses are smarter than the
administration. Here is one such latest example; This
in fact has its roots in a nearly two year old incident. The government
authorities then had come up with a rule that all the retailers of
alcoholic beverages should have excise licence, otherwise any sale to
the retailers by the wholesalers was to be treated for tax purpose as
the final sale to the consumer. That meant, if the wholesaler sells to a
retailer which does not have the excise licence, the wholesaler will
have to pay higher taxes on his sales. Hence there was an expectation
that the wholesalers would encourage the retailers to get themselves
registered under the tax net. But
the retailers were not interested to get themselves under the net, for
their own reasons – some valid ones some dubious ones. So the
wholesalers went to FNCCI asking for help by making representation to
the government to remove that clause in the rule. But FNCCI did not
listen to it because it was a problem related only to the FMCGs,
particularly the alcoholic beverages (beer and liquor), and it did not
bother the majority. However, the government was not that successful in
its target of forcing the retailers to come under the tax net. Now
nearly two years later and after the Fiscal Ordinance for the Fiscal
Year 2002-03 was announced, the Inland Revenue Department (IRD) made a
similar try by issuing a notice in the newspapers which said in effect
that if the wholesalers sold to a retailer who does not hold the
Permanent Account Number (which is also called the PAN card), and thus
is out of the tax net, the wholesaler himself will have to pay the tax
on the retail price of the product so sold. Though the original rule
requires the wholesaler, importer and producer to record the PAN card
number in its invoice, it also says that if the buyer has no such
number, the requirement to mention the PAN card number is not
compulsory. But as the IRD notice deliberately missed the second part of
the rule that makes the mentioning of PAN number optional, the effect of
the notice was such that the wholesaler would have to pay 25% income tax
and 10% VAT on the 15% margin that he would receive from the company.
This would roughly come to be 5% of his profit. So after the notice was
published, the wholesalers did not sell the FMCG, particularly beer and
liquor, for some time. Though
the notice was clearly not as per the rule, the business responded
immediately not by making complaint anywhere, but by changing the price
list of the commodities covered by the notice. The result is that, at
least on record, the margins to the wholesaler, dealer and retailers are
now reduced drastically. Mt.
Everest Brewery was perhaps the first to react. It reduced the wholesale
margin from 15% to 5%. Then followed Gorkha Brewery (P) Ltd., which
reduced it still lower – to 1.5%. While Mt. Everest Brewery has fixed
the retail price, Gorkha Brewery has not. The latter has stated that the
retailers can charge any price they like. The effect on government
revenue is that the retailers do not need to take PAN number and they
are now completely out of the tax net. The
reaction was pronounced from breweries because, as the trade circle
says, almost 40% of the trade in liquor is always outside the legal
channel. Therefore, the liquor companies could not follow the trick that
the breweries followed. The result of this is that beer sales increased
by almost 20% in the following week of the price revision by the
breweries. This increase in beer sales is estimated to have come at the
cost of liquor. Though
the IRD revised the notice later to incorporate also the latter part of
the rule into it, the companies have no compulsion now to revise the
prices again back to the old level. The damage on the revenue is already
done, thanks to the dishonest strategy of the revenue administration. The
Fulbari joins UTELL The
Pokhara-based Fulbari Resort & Spa, has signed a service agreement
with “UTELL”, one of the world’s leading hospitality market and
distribution service network that includes nearly 5,500 independent and
chain hotels located in 150 countries. Under
Utell selection, The Fulbari is classified as “Superior First
Class”, and the company officials sound upbeat as this news comes soon
after this only 5 star deluxe resort of Nepal was made a member of Great
Hotels of the World club. StanChart
Nepal Awarded The
Banker, a magazine affiliated to London-based Financial Times Group, has
honoured Standard Chartered Bank Nepal Ltd. (SCBNL) with the “Bank of
the year 2002” award. One
bank from each of over 140 countries across the globe were selected for
this award this year and from Nepal four banks were invited to
participate in the contest this year, according to the information
collected by NBA. It was the first time that the Banker, established in
1926, had asked Nepali Banks to do so. SCBNL’s competitor Himalayan
Bank Ltd. (HBL) was the first runner up from Nepal for this year. SCBNL
and HBL were also rated as two of the largest 500 banks in the Asia
Pacific region last year by the newsmagazine Asiaweek. While StanChart
Nepal was placed at 480 by Asiaweek, Himalayan Bank was placed at 488.
Another Nepali bank Nabil Ltd. was placed at 491 by Asiaweek last year. Chamber
Activities
The
new executive committee of the Association has Manoj Goyal (CEO, Bank of
Kathmandu Ltd.) as the Vice President. Basu Deb Ram Joshi (Executive
Chairman, Rastriya Banijya Bank), Rajeev Kulkarni (CEO, Standard
Chartered Bank Nepal Ltd.), Shahid M Loan (General Manager, Himalayan
Bank Ltd.), Sudhir Khatri (President, Development Credit Bank Ltd.) and
Surendra Bhandari (CEO, Kumari Bank Ltd.) are the members.
Lever
Profits Reduced Nepal
Lever Ltd. (NLL), an 80% subsidiary of India’s Hindustan Lever
Ltd. (HLL), has reported nearly 38% decline in its profit after tax for
the year ended on mid-July 2002 over the previous year. This
is the second consecutive year that the company reported reduced
profits. Though the company board in its meeting that approved the
annual report for the year 2001-02 has proposed to distribute dividend
to shareholders at a rate of 40%, this is considerably less than in the
last year when the dividend rate was 55%. Though
the domestic business of the company recorded an impressive growth of
25% to reach Rs. 881.5 million, the export turnover was lower by a
whopping 58%. For the decline in exports the company officials blamed
the Nepali government’s withdrawal of the income tax rebate on profits
earned from exports and imposition of new special tax. However, Gurdeep
Singh, an HLL official who is a director in NLL board, said that the
decline in exports was as anticipated in the previous year itself due to
the fiscal changes announced in the Indian budget in February 2001.
However the officials described the 25% growth in the company’s
domestic business as “spectacular” comparing it with the paltry 0.8%
growth in Nepal’s GDP during the year. According to company officials, Nepal Lever Ltd. is now a zero-debt company and they attributed this turn around to “the recovery of dues from the government”, indicating to the reimbursement received from the government on account of duty drawback. But they also complained that Rs. 120 million are still blocked with the government as duty drawback dues causing pressure on the working capital of the company. |
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