In a move that would please the banking sector, the upcoming budget is going to relax the current provision of income source disclosure and allow Non Residential Nepalis (NRN)s to invest in the capital market and the realty sector.

Entrepreneurs had repeatedly been complaining that the income source declaration provision was hurting the realty sector, capital market and the banking industry.

According to Finance Ministry officials, the budget will put in place a provision of negative declaration of the income source.

> As per the provision, any individual, company or organisation making deposits worth Rs 1 million and above should declare that the amount has not been not generated from illicit activities such as terrorism, drug trafficking, human trafficking or other organised crimes. Henceforth, one is not required to declare income source while purchasing vehicles worth up to Rs 5 million and land and house up to Rs 10 million, they said.

> The government will also decrease the rate of the capital gain tax to address the problems of the capital market and the realty sector.

> Also, the principle loan amount can be renewed after the payment of outstanding interests.

> In a bid to increase investment in commercial and residential buildings, the budget will allow government certified NRNs to purchase apartments under certain conditions.

> Also, a foreign company or a foreigner will be able buy apartments worth more than $200,000. They, however, will not be allowed to sell the property for five years.

The realty sector had been demanding such a provision for quite some time. The Ministry of Land Reform will prepare an action plan in this regard within mid-November.

The Securities Board of Nepal (Sebon) will prepare an action plan within mid-November to introduce a provision enabling NRN to invest in the stock market. Stockbrokers had been demanding that NRN be allowed to invest in the capital market initially and gradually the market be opened for foreigners too. However, in the international practice, institutional investors from abroad are only allowed to enter the capital market. Also, to ease trading in the capital market, electronic transaction will be made easier. The sources also said the ‘Five-year Capital Market Development Master Plan’ prepared with the assistance of the World Bank will be implemented.

Likewise, the Nepal Rastra Bank (NRB) in collaboration with the Department of Cooperatives will make an arrangement to regulate and supervise credit and saving cooperatives whose annual turnover is more than Rs 500 million. To encourage merger among banks and financial institutions, the budget will waive registration fees. The sources said the upcoming budget has a programme to conduct a special study to merge government-owned banks.

Deposit insurance will be made mandatory for commercial banks as well. As per the provision, commercial banks will be required to insure individual deposits up to Rs 500,000. The government will invest Rs 500 million in the Deposit and Credit Guarantee Corporation.

The budget will also work on developing the Emergency Insurance Fund as a reinsurance company. As the country lacks such a company and the current fund not contributing much, the idea of converting it into a reinsurance company was afloat. Besides, the budget will introduce micro insurance in some hilly districts.

Source: Subedi, Bibek (2011),"Budget 2011–12: Income source disclosure provision to be relaxed ",The kathmandu Post, 14 july 2011
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