Clarity over hasty changesThe amended Foreign Investment and Technology Transfer Act is a necessity but it must be free from ambiguities
The government recently amended the Foreign Investment and Technology Transfer Act (FITTA), superseding the existing Act of 1992. The existing Act just touched base and was an introductory law to usher foreign investment in the country. But it had limited scope and many restrictions. Basically, until now foreign investment has been governed and regulated by the executive decisions of the government and by the timely directions and orders issued by the ministry and departments there under. The new Act, acknowledges and somewhat addresses the necessity of governing law for foreign investments, and at least to some extent, could be presumed to assist the policies of government and aid its agenda to attract foreign investment in the country. On the other hand, it is being challenged and opposed by many stating that lifting restrictions in small & cottage industries could hurt domestic investment.
The amended FITTA continues to impose restrictions on foreign investment in sectors like real estate, arms and ammunitions, local catering services, retail businesses and personal service business. Additionally, it reserves investment base amount for businesses like education consultancy, language consultancy, accounting, management and legal services, where foreign investment is capped at 51 percent equity shares. Also the new act and the old act contradict each other. For example, the old Act allowed foreign investment in travel and trekking. But the new Act, however, clearly restricts foreign investment in the travel, tours and trekking sector.
The new Act now opens doors for ivestment in industries, security transaction, lease financing and venture capital fund broadening its scope. The role of the Department of Industry and the central bank is further empowered, too. The department can issue approval to industries having capital up to 5 billion rupees and above this capital the Industrial Promotion Board is authorised to issue approval. But the new Act imposes restriction on compulsorily injecting investment capital within the prescribed date. Although there is no statutory provision to compel investors to bring in the committed investment amount within a due date, the central bank, without valid authority, has been imposing restriction under special condition, at the time of issuing approvals for capital injection. The Act delegates power to the government to limit the minimum investment amount and determine a final due date to bring in investments from the date of approval.
The prime intentions of the new Act as set out in its preamble is to attract foreign investment and to create investor friendly environment. To serve this purpose, this Act incorporates a ‘One Window Policy’, through which the government aims to deliver all the approvals, permits and facilities to investor from one place. It is, however, not a newly incorporated provision and is a part of the existing Act. Furthermore, the inclusion of national treatment provision enables foreign investment industries to be treated the same way as domestic industries. For example, foreign investors can avail benefits of tax concessions, incentives and facilities, just like domestic industries.
However, on the flipside side, one of the most repealing aspect of the law on foreign investment is its procedural aspect for approval/licensing regime. The lack of coordination among the government authorities, especially the Department of Industries and Nepal Rastra Bank, leads to increased paper work, not to mention the frustration going through bureaucratic hassles and excessive delays. There are many instances whereby an investor has withdrawn projects from Nepal due to unanticipated delays in getting the government’s approval.
The new foreign investment Act is necessity. Therefore, the role of government would be to enact rules to simplify the procedures and requirements for swift approval and permissions. It is high time that the concerned departments were upgraded with digital technology, much like facilities for online submission and processing of documents. It is redundant to re-submit all set of documents each time to get the same approval from the same department. Moreover, public service providers and the concerned government officials should be properly trained to assist and serve the general public for effective delivery of services thereby maintaining good governance.
Khatri is an attorney specialising in Corporate Law. He can be reached at email@example.com