December 6: Domestic leather manufacturers of Nepal have urged the government to remove all kinds of tariffs on import of raw materials stating that competition in the international market has become difficult due to the high tariffs. They argued that their business is on the verge of closure due to the stiff competition after India reduced the import duty on all types of raw materials required for leather to zero to protect its industry.

The manufacturers say that their industry is on the verge of closure as they cannot compete with the Indian leather. The main markets for leather manufactured in Nepal are India and China.

Mohammad Junaid Iftikar, general secretary of the Nepal Leather Tanners Association, said that since most of the leathers produced are exported, the government should waive customs duty and VAT to help the industries survive and compete in the foreign market.  He said that the cost of production has gone up due to a surge in the price of raw materials and transportation costs, along with tariffs on imports.

The industrialists collect the main raw material, rawhides, from the domestic market. Other auxiliary raw materials required for leather processing are dependent on imports. According to the industrialists, they pay around 30 to 35 percent of tariffs at the customs point for the import of such raw materials.

Iftikar also opined that the incentive policy implemented for promoting the leather industry is cumbersome and discourages industrialists. Secretary-General Iftikar expressed concern over the high risk of investment in the raw material industry and the difficult process of getting incentives.

Most of such industries are operting in the Bara-Parsa corridor. There are nine industries in this corridor and four in Biratnagar.

The association claims that no industries have benefited from the government incentives due to the cumbersome process even though the government has a policy to rebate the value-added tax paid on exported raw materials. Manoj Chachan, the operator of the Narayani Leather Manufacturing Industry, said that it is very difficult to get incentive from the government.

According to the industrialists, the low customs duty on raw materials for the leather industry in India, Nepal's high rate of customs duty, and the inconvenient process of receiving incentives have increased the cost of domestic production. "The leather we produce is up to 35 percent more expensive than the leather produced in India. We have not been able to compete in the external market,”said Iftikar.

According to the association, leather exports have been declining every year due to the inability of the domestic industries to compete in the international market.

According to the association, up to five years ago, Nepal used to export leather worth Rs 750 million annually. In the last Fiscal Year 2077/78, the size of export dropped to Rs 150 million. Nepal exports wet blue, crust, and finished leather.

The manufacturers claim that the industries won't have a significant contribution to the promotion of home-grown products and creation of employment opportunities unless the government adopts a leather industry-friendly policy.