Foreign Currency Exchange

Background

In order to facilitate the arrangement of the provision mentioned in Monetary Policy of the Fiscal Year 2077.78 (2020.21), the proposed arrangement has been recently issued by NRB (Nepal Rastra Bank) in January 2021 for public consultation with the idea of implementing the system of providing foreign currency exchange facility for import of foreign services through online.

The following are the highlights of proposed provisions of the arrangement.

  1. Any person, firm, company, or organization willing to get a prepaid card on foreign currency can get it by converting their existing fund in NPR to the foreign currency from the banks. For issuing this card, users must have updated their Know Your Customer (KYC) from the respective banks and should have a Permanent Account Number (PAN).

  2. The Commercial Banks load the funds in the name of users of such cards to the extent of USD 500 or equivalent foreign currency. Withholding taxes has to be deducted and deposited at the time of loading the funds into the cards in advance.

  3. The users can use such amount of USD 500 at once or at the time intervals over the period of one year. The users can purchase the legally unrestricted services from abroad using such cards staying in Nepal through online.

  4. If the users submit the proof of documents stating that they have generated the income by using such card double in amount, Commercial Banks can provide the additional foreign exchange facility by adding the amount based on reasonableness and necessity.

  5. The person willing to take such prepaid card shall have to self-declare that he has not availed such facility from other banks.

  6. While loading funds in the form of foreign currency on such prepaid card, it cannot be loaded in the name of other person and in the name of card of any other person.

  7. If the users avail such facility from more than one banks, such users are liable for penalty as per Foreign Exchange Regulation act. Also, the users are obliged to comply with the prevailing applicable laws, regulations, and directions including Money Laundering Prevention Act, 2064 (2008 AD).

Reanda Biz Serve Comments

The arrangement of facility of Foreign Currency Exchange for Import of Foreign Service Online is a commendable step by Nepal Rastra Bank. This will ease out the payment of foreign currency on the purchase of necessary services for the needy users.

We enlist few suggestions and recommendations on the draft consultation paper issued by NRB as below.

        1. The requirement of PAN for users in order to utilize such service seems to deprive general student groups, self-employed people and other groups of people from utilizing said services. The demographic of people importing service from foreigners is largely made up of general student groups and self-employed so it seems necessary to facilitate such service for the above-mentioned people as they lack the necessary employment certificate for registration of PAN.

        1. The provision of paying tax on receipt of the card imposes the users to pay tax before the transaction is made, and if one does not make any transaction with the prepaid card, it is difficult to determine for what purpose the tax was paid and how to refund the tax in case of refund at a later date. Therefore, arrangements should be made as per tax laws to deduct and deposit the tax at the time of transaction.

        1. In order to bring the uniformity in reporting, the provision of “one year” mentioned should be modified to “one fiscal year”.

        1. The provision to import online from abroad by “staying in Nepal” seems to compress the provision. It would be appropriate to simplify it only by saying “online”. As one should be technically able to identify the fact that the transactions have been done inside or outside Nepal hence it is appropriate to remove the word “staying in Nepal” as the limit imposed on the amount will be automatically controlled.

        1. It is mentioned to have proof of documents earning the foreign currency by double the amount. The demand for certified document does not seem to be reasonable in itself as the proposed provision is to pay online and when it comes to pay online the income is earned online. Therefore, further facilitation is needed in this regard.
        1. There is no doubt that the proposed provision will facilitate the payment for foreign services to general public. Point no. 6 of Draft Consultation Paper addresses about foreign currency to be brought from outside to some extent, but no further provision has been made in this respect. Therefore, necessary provision is required for self-employed individuals, companies and institutions who want to get paid not in foreign countries but also in Nepal by providing various services abroad. We suggest for arrangements to verify the existing international payment gateway such as PayPal, Payoneer or any other medium in Nepal in order to ease remittance of foreign currency earned abroad. If such gateways can be made as a channel for depositing such amount directly in Nepali banks, there is a possibility that the huge amount of income of Nepalese will enter into Nepal. Furthermore, after linking the gateway with Nepali bank account, it will be possible to accurately identify the income from abroad which will help to implement point no. 6 in practice.

        1. Although the quarterly monetary policy review explicitly mentioned about facility for services and goods, it should be noted that the current proposed provision is aimed only at importing of services.

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