Automobile industry in Nepal marred by 234% import duty on private 4wheelers

reogma|Automobile industry in Nepal marred by 234% import duty on private 4wheelers
6 mins read

Besides the price, the lack of good policy, political instability, and weak infrastructure of roads; the Automobile industry has not been able to flourish as it should have been.

Despite these facts, Nepal has got a massive potential of market for Automobile. Very few people in Nepal own vehicles and the trend for owning vehicles is increasing.

Definition / Scope

In context of Nepal, Rane prime minister Juddha Shamsher Rana introduced vehicle for the first time in Nepal on 1958 B.S. Nepal with an area of 147,181 square kilometers (56,827 sq mi) is landlocked by India on three sides and china’s Tibet autonomous region to the north. Most of the automobiles are imported from India.

Nepal has a diversified geological structure and automobiles have been slowly growing as an important aspect of society.

The automobile technology was new in Nepal and the market and the development of market was sluggish. Most Nepalese didn’t own the car then but the scenario has changed now.

The data of the department of Transport management (DOTM) shows that the trend of buying vehicles in Nepal have significantly been increasing. According to the data of DOTM more than 2.5 million vehicles up to fiscal year 2063/64 were registered in Nepal (2,783,428 to be exact).

The data up to a year ago during fiscal year was two million three hundred thirty-nine thousand one hundred sixty-nine. This shows that the automobile industry in Nepal is flourishing.

But still, the fact remains that in Nepal the market is very small and hardly 0.5 per cent of the population owns a car. Looking at that, it also means there is huge potential for growth in the automobile industry and Nepalese automobile market still have a long way to go.

Market Overview

The Earthquake in April 2015 shook the automobile industry of Nepal for a while. There was a huge downfall of the automobile industry during that year.

But according to the news article published in the Himalayan Times even after series of challenges in 2015 the domestic automobile of market accelerated a growth of around 50 percent in fiscal year 2016/17. Likewise;

  • Vehicles and spare parts worth Rs 25.4 billion were imported in Nepal in the first three months of fiscal year 2016-17 (mid-July to mid-October).
  • It was reported that due to the earthquake and the border-blockade last year, only Rs 10 billion worth of vehicles and spare parts were imported in the country during the same period of fiscal year 2015-16, as per the statistics of the Department of Customs (DoC)
  • The government collected almost one-third of its customs revenue from the import of vehicles and accessories.
  • According to the Department of Customs, it collected Rs60.46 billion in revenue from vehicle imports, which is equivalent to 31.42 percent of the total customs revenue collected by the department.

Though the fiscal year 2016 have been a successful for the automobile industry in Nepal the fiscal year 2017 have not been able to keep up to the standard set in year 2016. According to the Census and economic center in Nepal (CEIC);

  • The vehicles sales were recorded 3,670 units in December 2017 which was low in comparison to 9300 units in the previous year.
  • Nepal’s Motor Vehicles Sales dropped 60.5 % in Dec 2017, compared with a growth of 57.6 % in the previous year. Also,
  • As per the data of CEIC the maximum units of vehicles sold between 2005 to 2017 is 9,300 units in 2019 and with 1,400 units in 2005.

Market Risks

There are more than twenty different brands of Auto dealers in Nepal. But in comparison to other nations, Nepalese market is very small as the whole area of a country is only 1,47,181 sq. km. and the market in Nepal is scattered too.

Nepal is also in a phase of developing. The literacy rate of Nepal as per census of 2011 is 65.9 and also there are people in Nepal who are still under the poverty line. It will be a very competitive market for auto dealers to attract potential loyal buyers to their company. Most people of Nepal mainly depend on agriculture for livelihood.

Most of vehicles in Nepal are imported. So generally, most people are unaware of automobiles industry in Nepal. So the key factors like, lack of knowledge, low income, scattered market and already established automobile companies makes it risky for the competitors to invest and earn profit through it.

Top Market Opportunities

Though, the Nepalese market is small, very few percent of total people owns vehicles in Nepal which means there is still a huge potential for the automobile industry in Nepal.

The possibilities of potential buyers are still limitless. With growing affordability and disposable income the demand for automobiles is growing in the country. This is supplemented by the fact that a large part of the country is now accessible by road which was not the case a few years ago.

Market Trends

  • The government has decided not to levy any import duty on private motor vehicles and taxes. Presently, the government levies 234 per cent import duty on private four-wheelers
  • The 28 commercial banks of the country today decided to halt loans for automobiles, real estate and loans against collateral of stocks (margin lending) temporarily
  • Nepal’s membership in the world trade organization has also boosted the growth of Automobile industry.
  • Development of the infrastructures like roads in the country in recent years is also driving increase in the automobile market in the country.
  • The increase in the per capita income of people in Nepal and increasing trend of buying vehicles for increment in self production and productivity is also acting as a market driver for the automobile industry.

While high taxes have long been a complaint of auto dealers, they said that the government’s failure to spend the capital budget for road infrastructure and poor maintenance had also prevented the sector from realizing its full potential.

The government charges import duty of up to 200 percent on motor vehicles which makes them expensive in the country. The excise duty levied upon the import of the Automobile is very high too. Nepal has high tax duties compared to other countries.

Likewise the constant growth that keeps up on the price of the fuel is also affecting automobile industry and the political instability also has impact on growth of automobile sector of the country.

The recent blockade problem happening a few years which blocked the usual port for import also had an impact on Automobile industry. Other trends that restrain the growth in the market are increment in road Tax and weakness of government to strengthen the transport system in the country.

Technology Trends

With the rise in the popularity of the electric vehicles, Nepalese market of Automobile is also shifting toward the fuel free driving experience. In the recent year many distributors have already introduced electric vehicles in Nepalese market.

Due to its feature of using electricity instead of fuel, these types of vehicles are gaining popularity among people. These vehicles are eco-friendly and cost effective too.

Hybrid car in Nepal as a new technology is also getting popularity. The government has even slashed 25% off the import duty on Hybrid vehicles.

Regulatory Trends

According to import regulations of Nepal in order to import product in Nepal following documents are required:

  • Banking document for payment
  • Invoice
  • Package list
  • Bill of lading or Air way bill
  • Production certificate
  • Document related to custom clearance if it is imported via Indian transit point
  • Document of delivery order
  • Certificates or licenses issued by concerned department

Market Outlook

The latest changes brought in the policies of Nepal to deduct import tax and vehicles tax have made it cost effective and affordable for people to own a car.

The trend of buying vehicles in Nepal has already been increasing and with these changes in policies is surely to bring increase in the potential growth of the market in the future.

One of the problems for automobile industry is the problem transportation like lack of road and bridges, but the scenario regarding Roads are changing too.

Different projects related to construction of roads have already been implemented and many more are to be implemented. I.e. most of the customers for automobile industry in Nepal are from urban areas mainly developed cities like Kathmandu valley.

But with the steady development and advancement in the transportation roads and bridges the potential customers from such places are also increasing. And if this continues and if all the places in the Nepal are connected via roads then the market will dramatically increase in the future.

Industrial sector or business sector in Nepal’s contribution in the GDP of a country is slowly increasing which means the industrial requirement for vehicles are also increasing.

Transportation is a backbone of a nations development, Nepal is slowly on its way to the realization of the fact. The living standard of Nepalese people is increasing too. The data shows that the poverty rate in Nepal have declined in a dramatic manner.

As the living standard is developing people are also looking after the needs for easy and comfortable life for themselves and their families, which are also causing a change in the idea of people toward Automobile industry.

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reogma|Automobile industry in Nepal marred by 234% import duty on private 4wheelersreogma|Automobile industry in Nepal marred by 234% import duty on private 4wheelers



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