Kathmandu: Nepal government has decided to release Rs 5.34 billion to clear long-outstanding cash incentive payments owed to exporters, ending years of uncertainty surrounding the export subsidy scheme.
Acting on a proposal from the Ministry of Industry, Commerce and Supplies, the Ministry of Finance has agreed to disburse the amount to settle unpaid export cash incentives accumulated up to fiscal year 2023/24.
The move follows prolonged confusion over the fate of the cash incentive programme that covered exports of more than three dozen products. Officials say the decision opens the way for resolving legacy dues that have weighed on exporters for years. Jitendra Basnet, spokesperson for the Ministry of Industry, Commerce and Supplies, confirmed that the finance ministry has moved the payment process to its final stage.
According to Basnet, the industry ministry had formally requested budgetary assurance to clear payments pending under earlier guidelines. Once the Rs 5.34 billion is released, all verified dues up to fiscal year 2023/24 will be settled, effectively closing the old accounts.
The Department of Industry estimates that total pending liabilities stand at around Rs 5.5 billion. While Nepal Rastra Bank has already completed verification for payments worth about Rs 2 billion, the remaining claims are still under review. Officials say the verification process for outstanding applications is continuing.
While old dues are being cleared, the government is preparing to fundamentally change how export incentives are provided going forward. Instead of cash incentives tied directly to export value, future support will be based on domestic production. The new approach is being developed under the current fiscal year’s policy framework, which emphasizes a “production-based incentive system.”
For fiscal year 2025/26, the government has committed to drafting a new operational guideline in line with the budget announcement to create a National Subsidy Policy. The aim is to ensure subsidies reach targeted beneficiaries, eliminate duplication across federal, provincial, and local levels, and improve efficiency in the use of public funds.
Officials say the traditional “cash incentive on exports” model will be replaced by an “export promotion programme,” with a focus on exports to third countries that earn convertible foreign currency. The Department of Industry is drafting the new guidelines in coordination with agencies responsible for small, cottage, and medium enterprises, following consultations with private-sector stakeholders.
Department Director Suresh Dahal said the drafting process is nearing completion and could be submitted to the ministry within days. After further consultation and feedback, the ministry is expected to finalize and approve the new framework.
Despite progress on policy reform, officials acknowledge practical challenges in the current fiscal year. Although a new guideline may be approved, payments could be difficult because budget allocations are scattered across different headings. The current budget includes only Rs 10 million under one cash subsidy heading and Rs 909 million under another, far short of what would be required for full implementation.
Exporters say the backlog has been substantial. According to Pashupati Dev Pandey, vice-chair of the Export Promotion Committee at the Federation of Nepalese Chambers of Commerce and Industry, around Rs 5.5 billion in export incentives remains unpaid, reflecting years of partial and delayed disbursements.
Nepal introduced export cash incentives in 2011 to encourage exports of domestically value-added goods, reduce the trade deficit, and earn foreign currency. The operational guideline governing the scheme was first issued in 2018 and amended in 2019 and 2022. Under the rules, exporters were required to certify value addition, after which the government provided cash incentives of up to 8 percent of export value, based on product type, trademark, and volume.
Business leaders maintain that export incentives, while modest, have helped offset Nepal’s structural disadvantages, particularly high transport costs that studies show are 25 to 30 percent higher than those of neighbouring countries.
However, uncertainty arose in the previous fiscal year after the budget replaced the explicit “export cash incentive” provision with a differently worded policy goal, without an accompanying guideline. As a result, the Department of Industry halted the collection of self-declared export details for fiscal year 2024/25, despite Rs 1.197 billion being allocated for export incentives that year.
Only partial payments of older dues were made before the end of fiscal year 2023/24, leaving roughly Rs 5.5 billion still outstanding. Exporters argue that clearing these arrears is essential, especially at a time when Nepal’s exports remain weak and the trade deficit continues to widen.
Business leaders maintain that export incentives, while modest, have helped offset Nepal’s structural disadvantages, particularly high transport costs that studies show are 25 to 30 percent higher than those of neighbouring countries. They argue that such support remains necessary for Nepali products to remain competitive in international markets.
Under the previous system, products such as clinker, cement, steel, plywood, pashmina, zinc sheets, and certain animal and herbal products received incentives of up to 8 percent. A wide range of processed agricultural goods, handicrafts, tea, coffee, leather products, handmade paper, medicinal herbs, mineral water, fruits, vegetables, spices, dairy products, honey, and essential oils were eligible for incentives of around 5 percent, particularly when exported to third countries in convertible foreign currency.
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