Wire factories shut down in protest against higher taxesThe manufacturers based in the Sunsari-Morang industrial corridor accuse the government of raising import and excise duties to protect a handful of factories.
More than 2,000 workers have been made jobless after half a dozen wire factories went offline in protest against higher taxes on raw materials.
The galvanised iron wire manufacturers based in the Sunsari-Morang industrial corridor accuse the government of raising import and excise duties to protect a handful of factories. The move will push other plants to the brink, they say.
Hulas Wire, Pioneer Wires, Premium Wires, Kamala Wire, Aarti Strips and Arihant Wire in the industrial heartland in eastern Nepal have shut down operations for an indefinite period. The factories have a combined investment of Rs10 billion, they say.
Khagendra Subedi, senior officer at the Labour and Employment Office in Biratnagar, said four factories had formally informed them last month that they would be laying off employees.
“We have requested them not to throw their employees out of work as the festival season is just around the corner,” Subedi said.
Presenting the budget statement for this fiscal year, Finance Minister Janardan Sharma announced a hike in the import duty on raw material for mild steel wires from 5 to 10 percent. He has also jacked up the excise duty from Rs2.5 per kg to Rs4.5.
Sharma has been dogged by controversy ever since his appointment on July 13 last year. A year into his term, he resigned on July 6 following a public uproar over charges that he had brought in two unauthorised persons to change the tax rates in the budget a day before its presentation on May 28.
A parliamentary probe committee absolved Sharma of the charge, and he was reinstated as finance minister on July 31.
Factories in the Sunsari-Morang industrial corridor claim that the government decision is a “protectionist” move that favours a few.
The duty hikes have come immediately after the Indian government imposed additional export taxes on the raw materials.
“We have been hit hard. It’s a double blow for us,” said Anil Sarda, general secretary of the Morang Merchant Association.
“We had actually asked the government to slash the customs duty to 1 percent and abolish the excise duty altogether as India had imposed a 15 percent tax on the export of mild steel billets,” Sarda said. “But the government’s response was just the opposite.”
"Following the tax hike, there was no alternative but to shut down the plants," Sarda said.
The higher taxes have hit manufacturers and consumers.
“The hike in taxes has adversely affected us,” said Yukti Golchha, director of Hulas Wire. “As we are unable to operate, we have laid off 300 employees so far.”
Hulas Wire has been producing 4,000 tonnes of galvanised wire and 700 tonnes of gabion boxes per month. The firm exports 3,000 tonnes of wire monthly.
Pawan Kumar Sarda, director of Premier Wires, seconds Golchha.
“The rise in taxes has made it cheaper to import finished goods than manufacture them by importing raw materials,” said Sarda. “We have sent home 350 workers so far.”
Premier Wires has a daily output of 100 tonnes of galvanised iron wire.
Pioneer Wires, which manufactures 2,000 tonnes of wire and 400,000 tonnes of gabion boxes monthly, has laid off 280 workers.
Around 340 workers at Aarti Strips and 180 at Arihant have lost their jobs.
In the last fiscal year 2021-22, Finance Minister Sharma removed the import duty on sponge iron, one of the raw materials for manufacturing billets.
The government has imposed a 5 percent import duty and Rs2.5 per kg excise duty on billets, according to manufacturers.
A 1 percent import duty has been levied on sponge iron from the current fiscal year, but no import duty is charged on scrap iron, pig iron and ferro alloys, which are the other raw materials required to produce billets.
Earlier, the government charged a 5 percent customs duty on them.
Before Sharma became finance minister, excise duty was levied on finished goods. The government began charging excise duty on raw materials after he assumed office, said manufacturers.
The wire factories have been protesting against the changes in taxes since June, days after the budget speech.
Sharma had promised to amend the tax rules after the budget was passed, but it has not happened, according to Sarda.
Naveen Rijal, president of the Morang Merchant Association, said the factories would resume operations only if the taxes were rolled back.
“The government had assured us to reconsider the taxes after the protests,” said Rijal. “We had to shut down operations after the government failed to keep its promise.”
The workers are having a hard time after the factories closed.
"The concerns of the manufacturers are reasonable, but it is wrong to lay off workers without considering the alternatives," said Sushil Koirala, chairman of the Nepal Trade Union Congress, Morang Chapter.
“The plants have been shut down and the workers have been laid off without coordinating with the trade unions,” Koirala said.
Dhundi Prasad Niraula, spokesperson for the Finance Ministry, said they were yet to determine if the higher taxes had seriously hurt the manufacturers.
“We have to compare the current import trend with that of the last fiscal year,” Niraula said.
Higher taxes have hammered many factories across the country, not only in the Sunsari-Morang corridor, insiders say.
"Around two dozen iron rebar factories have been pushed close to collapse because the taxes have been increased," said Kiran Saakha, director of the Saakha Group, one of the leading iron rebar manufacturers in the country.
"When Minister Sharma presented the bill for replacement in September in the last fiscal year, there were six plants producing billets and 24 factories importing billets to manufacture rebar," Saakha said.
"The import and excise duties on sponge iron were brought down to zero, but billets were subject to 5 percent customs duty and Rs2.5 per kg excise duty. The excise duty on the import of billets was even raised,” he said.
“The government’s move is discriminatory which protects one type of industry and pushes another to the verge of collapse. The government should understand that taxes on the import of raw materials, packaging materials and intermediate goods should be lower than those on the finished products," insiders said.
“Domestic industry can’t prosper if the government imposes taxes on the import of raw materials,'' Dinesh Shrestha, vice-president of the Federation of Nepalese Chambers of Commerce and Industry, told the Post.
"The authorities do not even understand the concept of excise duty. Excise duty should be imposed on finished products, especially goods such as cigarettes and liquor, not on raw materials for manufacturing wires," Shrestha said.
“We have heard that several new wire manufacturing companies are coming into operation in the country. If the tax provisions have been changed to force domestic plants to buy their raw materials from a few companies, it is policy deviation. It needs to be corrected as soon as possible.”