Purchases from India
1. Purchases from India are normally paid for in Indian Rupees since the currency is fully convertible in Nepal. When Indian suppliers sell their products to Nepalese importers, Indian excise duty must be paid and included in the sale price by the supplier. The rate of excise duty varies widely from product to product. However, if payment is made in hard currency, the goods are exempted from payment of excise duty in India, i. e. the supplier does not have to charge it.
2. Government of Nepal also allows imports of specified products from India with payment in foreign currency. The Nepal Rastra Bank (NRB) currently enlists 29 such products (Annex 1) for importation from India by Nepalese industries against payment in foreign currency.
Purchases from Third Countries
3. All 13 commercial banks deal in foreign exchange transactions in accordance with the Foreign Exchange (Regulation) Act 1962, Foreign Exchange (Regulation) Rules 1963 and directives issued from time to time by NRB. The policy of liberalization allows open imports without a licence. NRB issues general directives with modifications from time to time to the commercial banks on the opening of Letters of Credit (documentary documentary credits-L/C) and the release of payments for imports accordingly.
4. Advance payments for goods and separate payments for freight are not allowed. Therefore, the normal type of purchase is CIF/C&F Calcutta for sea and CIF/C&F Kathmandu for air. Project cargo and public sector purchases by sea are imported also on CIF Nepal basis. Only by opening an L/C through an authorized bank can payment be made in hard currency. The banks at the both ends normally mention in most L/C documents that the credit is subject to the ICC Uniform Customs and Practice for Documentary Credits-UCP 500 (1993).
5. With the exception of prohibited and quantitatively restricted goods (Annex 2), there is no restriction on the release of foreign currency for importing any type and quantity of goods. But to obtain foreign currency from the commercial bank the importer has to open a documentary credit (L/C) by fulfilling the requirements of the bank. Irrevocable L/C is the commonly used documentary credit for the settlement of payment in imports from third countries. Under the usual terms of L/C, the correspondent bank normally releases payment to an exporter or beneficiary on production of shipment documents.
Procedures for opening and paying L/C in a commercial bank.
6. An importer has first to open an account with a commercial bank.
7. It is customary for a bank to sanction total amount of credit limit to the importer on different headings/transactions like loan, overdraft and L/C payments on an annual basis. For other type of customers/importers requiring only casual transactions, the bank fixes a credit limit on ad-hoc basis for L/C purpose.
8. An importer fills in a foreign exchange control form BBN 3 (Annex 3) requesting the bank to open a L/C in the name of a nominated overseas exporter. Then the BBN 3 is submitted along with an undertaking of the importer indemnifying the bank against any liability, and other supporting documents like pro-forma invoice, Registration Certificate of Department of Commerce (Annex 4) or Department of Industry (Annex 5) or Department of Cottage and Small Industry (Annex 6) or Company Registrar Office (Annex 7), Registration Certificate of Department of Income Tax (Annex 8) and Registration Certificate of Department of Value Added Tax (Annex 9). Since November 1999, Kathmandu Tax Payers Service Centre is issuing computer-based Permanent Account Number (PAN) Card to all the tax payers of Kathmandu valley for gradual extension later to other districts. PAN is issued with a new tax certificate (annex 9a, 9b & 9c) for identification of all taxes including VAT & Customs. For importing raw wool, the Carpet and Wool Development Board (CWDB) issues a recommendation letter specifying the quantity and standard of wool to be imported by an applicant/importer in the name of the concerned bank.
9. Depending upon the credit limit sanctioned by the bank for L/C purpose and the relation with the bank, the importer is generally required to deposit an amount ranging from 10 to 100 percent of the L/C value at the bank.
10. As negotiated with the importer, the bank contacts its corresponding bank located at the exporter's place for opening L/C based on sight payment or deferred payment terms.
11. Under the widely used 'Sight L/C', full payment is made to the exporter by the correspondent bank at the time of submission of shipment documents as specified in L/C. Similarly, the Nepalese importer is also required to make full payment to his bank at the time of release of shipment documents.
12. Another type of L/C payment is called 'Usance or Time L/C' under which terms the payment is deferred for a certain period of time as specified in the L/C. Under the term the correspondent bank is required to release payment to the exporter only after 30 days or 60 days or 90 days from the date of receiving shipment documents. This L/C is also named as 30/60/90 days Sight L/C.
13. The customs entry point in Nepal has to be stated in the L/C. The bank can make necessary agreed amendments in L/C clauses except the customs entry point. In order to change the customs entry point in L/C, the importer has to apply substantiating reasons for the change to the Department of Commerce, which then issues a letter to the concerned bank with copies to the applicant and the concerned Customs. The process for changing the customs entry point costs NPR 5 as postage stamp and NPR 10 as application fee to apply to the Department.
14. After the overseas exporter sends documents through the correspondent bank on the completion of shipment of goods, the importer collects the documents from his bank and confirms that the documents are complete and free of any discrepancies. When the importer had not made full payment at the time of opening L/C, the bank instructs its correspondent bank through stipulation in the L/C a clause to consign shipment documents particularly the air waybill or bill of lading (B/L) in the bank's name or to show the bank as consignee in the documents. In such case the importer obtains the bank's endorsement on the documents or a delivery order to the concerned agencies at the time of releasing the documents from the bank.
Data Source : Trade and Export Promotion Centre