Rajesh Verma
Kathmandu: The government is preparing to scrap the existing cash subsidy facility provided for goods exports.
With this move, it plans to offer incentives only for production rather than exports.
Through Clause No. 372 under the “Austerity” section of the upcoming fiscal year 2025/26 budget, the government has announced the formulation of a National Subsidy Policy based on production incentives. This will be applicable at all three levels of government and aims to target subsidies to the intended groups and eliminate duplication.
The government has also stated that the maximum subsidy will be capped at 50 percent of the product’s cost. Following this budget announcement, the Ministry of Industry, Commerce and Supplies is now preparing to eliminate the export subsidy scheme.
The ministry has started internal work to shift the subsidy strictly to production. The existing Export Subsidy Procedures 2022 (including the second amendment) will be repealed and replaced with a new mechanism, according to Ministry Spokesperson and Joint Secretary Jitendra Basnet.
“Obligations from the current fiscal year will be settled, and from the next fiscal year onward, the government will provide production-based incentives instead of export-based ones. Nepal is currently classified as a Least Developed Country (LDC), but by 2026, we will be upgraded to a Developing Country,” Basnet said. “Once Nepal is listed as a Developing Country, it will no longer be legally permissible to provide export subsidies.”
He stated that the government is preparing to transition to a production-based subsidy system due to this shift in Nepal’s international status.
However, all obligations incurred under the current subsidy scheme must still be settled. But the ministry faces budget constraints. As of the end of June, exporters have filed claims worth around Rs. 6 billion. These cover pending payments from FY 2022/23, 2023/24, and the current fiscal year 2025/26.
According to an official from the Department of Industry, due to budget shortages, large portions of past dues for FY 2022/23 and 2023/24 remain unpaid. “Exporters submitted documents for Rs. 6 billion in claims. Of this, Nepal Rastra Bank approved Rs. 3.17 billion after verifying the necessary procedures,” the official said. “But only Rs. 1.197 billion has been disbursed so far. This amount will now be distributed proportionally among selected exporters, and the rest will be settled as resources become available.”
Exporters, however, argue that removing the cash export subsidy will hurt export volume and reduce government revenue.
“Ending the cash subsidy will not only decrease exports but also significantly reduce government revenue,” said Pashupati Murarka, former President of Federation of Nepalese Chamber of Commerce and Industries and Chairman of Arghakhanchi Cement. “This policy will ultimately harm the government more than the industrialists.”
According to him, industrialists have been waiting for export subsidy payments for over three years. Delays in receiving the incentives mean that the support is essentially ineffective.
“What’s the point of exporting if there’s no timely benefit?” Murarka added. “The incentive is due for years, and even when approved, it’s a struggle to get it. The government should engage with industrialists and draft a clear, long-term policy.”
Naresh Lal Shrestha, President of the Nepal Export Council, confirmed that exporters are owed about Rs. 6 billion in subsidy payments. In case of a budget shortfall, he suggested the government at least offer tax exemptions to affected exporters.
“Production-based incentives are not bad in themselves,” said Shrestha. “But we’ve been demanding exemptions on raw material imports as well. The government must take this issue seriously.”
Murarka noted that exports of steel, cement, clinker, galvanized sheets, and plywood from Nepal to India have sharply declined. He cited India’s suspension of imports starting 12 March 2025, due to issues with the Bureau of Indian Standards (BIS) certification. This resulted in a five-month halt in exports of cement, steel, and plywood. The issue was resolved after Nepal’s diplomatic efforts led India to renew BIS certifications in late March.
Ministry in a dilemma over implementation
The ministry had proposed a “production-based incentive subsidy” in the upcoming budget. However, the Finance Ministry approved it under the title “export incentive subsidy,” creating confusion within the implementing agency.
“The ministry had proposed this based on Nepal’s graduation from LDC to a Developing Country,” said Spokesperson Basnet. “Since export subsidies are not permissible at that level, we suggested rebranding it as a production-based subsidy. But it was approved under the export subsidy title.”
As a result, the ministry is unsure whether to classify the budget under production-based incentives or maintain it under export-based programmes.
Nonetheless, Basnet clarified that the Export Subsidy Procedure 2022 (including its second amendment) will be repealed. A new policy will be introduced for the next fiscal year focused on production-based incentives.
“The export subsidy program will operate only until the end of this fiscal year. From the next fiscal year, we’ll provide incentives based on new procedures that support production only,” Basnet said.
What happened to the proposed Export Incentive Procedure 2024?
Last year, the ministry had prepared a revised draft to replace the existing 2018 guidelines (amended in 2022) with the Export Incentive Procedure 2024. The new guidelines aimed to simplify the existing cumbersome and confusing provisions and had been submitted to the Office of the Prime Minister and Council of Ministers.
However, it was never approved before the fiscal year ended.
The existing rules include a provision for up to 8 percent cash subsidy for export volumes above Rs. 500 million, but the ambiguous term “up to” caused confusion. The ministry had proposed to clarify and revise this in the new guidelines, which also sought to define product categories more precisely—such as specifying what kind of steel products qualify.
Despite approval delays, the ministry had hoped to implement the updated 2024 procedure by fiscal year-end.
Overview of the cash subsidy scheme (now being scrapped)
5 percent cash subsidy
Under the 2018 guidelines (with revisions), industries using 100 percent domestic raw materials with at least 50 percent value addition qualified for a 5 percent export cash subsidy. Products included processed tea and coffee, handicrafts and wooden items, processed leather and leather goods, handmade paper products, processed/semiprocessed herbs and essential oils (including Yarsagumba), bottled mineral water, precious stones and jewellery, allo products, turmeric, vegetables, honey, cardamom, ginger, dairy products, fruits and broom grass (if exported in convertible foreign currency to third countries)
4 percent cash subsidy
Products with at least 30 percent value addition, such as textiles, garments, carpets, wool products, pashmina, cashmere, Himalayan goat pashmina and their products, processed jute and jute goods, gold/silver jewellery, semiprocessed domestic leather, pharmaceuticals, felt products, footwear, yarn (polyester, viscose, acrylic, cotton), copper crafts and household items, clinker, cement, steel, catechu, rosin, turpentine, and plywood.
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