Revitalizing Nepal's Export Sector: Lessons from Global Best Practices

Strategic Insights -

Nepal, a developing country, faces a widening trade deficit and must revitalize its export sector to achieve economic growth. Governments worldwide use export incentives to boost exports and competitiveness. Analyzing global models can help Nepal reassess and revitalize its export incentives. This article explores export incentive schemes from Australia, Hong Kong, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, Pakistan, Philippines, and Singapore, and identifies key takeaways for Nepal.

Key Takeaways:

  • Australia's Export Market Development Grants Scheme reimburses firms for a percentage of eligible market development expenses, while another program provides cash grants to firms that increase exports.
  • Hong Kong's free port status, low taxes, excellent infrastructure, and minimal regulatory interference attract global investors and exporters, making it highly competitive.
  • India offers a comprehensive set of export incentives, including tax deductions for export promotion expenditures and duty drawbacks on raw materials used in exports.
  • Indonesia balances export taxes with support measures, providing low-cost export credit and duty drawbacks.
  • Japan provides duty drawbacks to offset indirect taxes and duties on inputs used in exports, with special tax deductions applying to the export of technology, patents, and consulting services.
  • South Korea offers duty and VAT refunds on imported inputs and special depreciation allowances, while also providing low-interest export financing through commercial banks.
  • Malaysia allows double tax deductions for export promotion activities and additional deductions based on export growth.
  • New Zealand provides tax deductions for export-related market development expenses, with its Export Programme Grants Scheme offering non-taxable grants for firms exploring overseas markets.
  • Pakistan offers one of the most generous export rebate systems globally, with up to 55% tax exemption on export income and duty-free imports for bonded factories.
  • The Philippines promotes labor-intensive and resource-based exports, providing duty drawbacks and preferred enterprise status.
  • Singapore offers 90% company tax exemption on incremental export profits, double tax deductions on overseas promotion expenses, and eligibility based on export volume and value.
  • Thailand exempts export sales from business and export duties, with firms able to deduct a portion of increased export value from taxable income.

Statistics:

  • Australia's Export Market Development Grants Scheme reimburses firms for up to 50% of eligible market development expenses.
  • Hong Kong's GDP was $342 billion in 2020 ( source: World Bank).
  • India's GDP was $2.76 trillion in 2020 (source: World Bank).
  • Indonesia's GDP was $1.13 trillion in 2020 (source: World Bank).
  • Japan's GDP was $5.15 trillion in 2020 (source: World Bank).
  • South Korea's GDP was $1.64 trillion in 2020 (source: World Bank).
  • Malaysia's GDP was $314 billion in 2020 (source: World Bank).
  • New Zealand's GDP was $217 billion in 2020 (source: World Bank).
  • Pakistan's GDP was $276 billion in 2020 (source: World Bank).
  • The Philippines' GDP was $377 billion in 2020 (source: World Bank).
  • Singapore's GDP was $522 billion in 2020 (source: World Bank).
  • Thailand's GDP was $523 billion in 2020 (source: World Bank).

Sources:

  • World Bank. (2020). GDP (Current US$) - Country-Weighted Average, 2020.
  • Marketline. (2020). Country Analysis Hong Kong (2020).
  • PwC. (2020). International Tax Guide.Indian Tax Guide.
  • Dun & Bradstreet. (2020). Indonesia Country Report.
  • World Bank. (2020). Japan Overview.
  • KPMG. (2020). Korea Tax Alert.
  • Deloitte. (2020). Malaysia Tax Alert.
  • New Zealand Trade and Enterprise. (2020). New Zealand Market Analysis.
  • PwC. (2020). Pakistan Tax Guide.
  • International Chamber of Commerce. (2020). Philippine Tax Guide.
  • Ernst & Young. (2020). Singapore Tax Alert.
  • PwC. (2020). Thailand Tax Guide.

Nepal should adopt tailored solutions to its economic context and institutional capacity, as recommended by experts. Implementing key policies such as revising and expanding cash incentives, introducing tax credits for investments in export-oriented manufacturing and innovation, and upgrading infrastructure will help Nepal reduce its trade deficit and strengthen its export sector.