June 29: Stakeholders have warned that the exports of carpet will decline after the government imposes value added tax (VAT) on carpet industry from the upcoming fiscal year (FY 2023/24).

So far, the government has not imposed VAT on the spinning, dyeing, washing and weaving of yarn used for making carpets. However, government will levy VAT on all these processes from the upcoming fiscal year.

The Nepal Carpet Producers and Exporters Association held a press conference in Kathmandu on Wednesday and claimed that the current exports would decrease by 30 percent due to the proposed provision of VAT.

Tenzing Sherpa, president of the association, small businessmen will not be able to make up for the VAT paid to the government and therefore urged the authorities to give continuity to the existing facilities given to this sector.

"Exports increased due to the concessions and facilities provided by the government," said Sherpa, "But now, the government has decided to impose VAT, and it will affect the export."

He said that he didn't get positive answer during a meeting with finance secretary, finance minister, and even the prime minister, regarding the issue.

“The officials made it clear that the provisions in the budget cannot be removed but they assured us that the Council of Ministers can waive VAT under a special arrangement,” said Sherpa.

He claimed that the new arrangement introduced by the government would reduce exports and increase the price of Nepali carpets. Usually it takes 3 to 6 months to make a carpet. It takes up to 1 year when of a better quality. Businessmen said that VAT is charged in every process, and it takes months to prepare the goods. 

"Implementation of VAT is not possible," said Sherpa, "There will be a problem because it will reduce exports and the ability to compete in the international market.”

Sherpa said that although it is relevant for the government to bring all businesses under the scope of VAT and regulate them, it is impractical to bring the small units of scattered carpet producers under the scope of VAT.

Balram Gurung, general secretary of the association, said that if the government does not maintain status quo, the existence of the carpet industry will come under crisis.

“There is a possibility that thousands of laborers will become jobless,” warned Gurung.

He also said that if the government does not address their demand, the carpet industry will be closed.

According to the association, more than 200,000 people have been directly and indirectly employed by the carpet industry.

According to the association, the carpet industry is providing employment to mostly uneducated people who are living below the poverty line and the marginalized groups of Nepal. Carpets are being produced in small units by the rural households in the various districts. In this context, it would be unfair to impose VAT on carpet industry, according to the stakeholders.

The association argued that if VAT is imposed on carpet industry, it will result in rise in unemployment.

The export of carpet decreased by 16.5 percent with the onset of Covid-19 pandemic in 2020. The exports increased by 31.43 and 33.17 percent in in the following years. The association said that in the ten months of the current fiscal year, carpets worth Rs 9.44 billion were exported from Nepal.