Figure 37. Extent that high tax rate hinders business growth in the Construction Sector

6.4 Construction Sector: barriers to growth

6.4.1 Unstable supply, quality, and price of construction materials

Half of the respondents indicated that the unstable supply and price of construction materials posed a serious problem to their business while the remaining 50% said that it was a moderate problem.

The problem on price, quality, and supply of construction materials was exacerbated during the height of the COVID-19 lockdown when cement, concrete, and steel were not readily available and/or sold at very high prices. Importation of materials (wires, pipes, paints, steel, and coal) was suspended which disrupted the operations of factories of construction materials.

According to a news report in March 2021, there is a new wave of investment in the construction materials production sector especially in the Birgunj-Bara-Parsa Industrial Corridor (New Business Age 2021) . The new factories though were apprehensive that there may be an oversupply of materials if the government will not step-up spending on infrastructure projects given that most of the budget is being spent on containing the COVID-19 infection.

A USAID private sector landscape assessment indicated that quality assurance and control for construction materials is fragmented. According to the study, there is a lack of uniform standards and effective verification system which undermine consumer confidence and raises the risk exposure of Nepalese to adverse impact of disaster events on economic activities (Shakya, et al. 2020). The National Bureau of Standards and Metrology has standards for bricks, cement, and steel but none for sand and aggregates. There is no robust monitoring on the compliance of these standards. Likewise, there is a lack of standards and enforcement of proper product handling practices as the materials move across wholesalers and distributors which can cause the deterioration of product quality.

6.4.2 High tax rates

A greater majority of the respondents in the construction sector felt that high tax rates hindered the growth of their businesses.

Tax rate on business profits is a flat 30 percent but when other charges on corporate profit are added, the total rate goes up to 45 percent, which is higher than neighbouring countries like Bangladesh, Bhutan and India (Shah 2019).

High tax rates can compound cash flow problem of small construction firms as well as reduce their profitability and, hence, capacity to invest on upgrading.

Figure 37. Extent that high tax rate hinders business growth in the Construction Sector

6.4.3 Business development services

Respondents were generally satisfied with services geared for start-ups or early-stage businesses.

Services that received low rating were those related to upgrading of workers and technologies and market diversification.

Uptake of services was generally high except for environmental management and market information. None of the respondents acquired services that would help them address climate change impact.

For market information, contractors generally just monitored government and donor funded projects and biddings.