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Nepal- Country Report : Labour Laws, the Business Environment and Growth of Micro and Small Enterprises
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This study is based on a survey of micro- and small enterprises (MSEs) in Nepal and provides a better understanding of the legal and regulatory factors that can aid or inhibit growth, quality of jobs and employment creation in MSEs in Nepal. It is a part of the four country studies carried out in South Asia, covering Bangladesh, India and Sri Lanka as well. These countries broadly share the same approach towards the application of labour and labour-related laws in MSEs: generic or partial exemptions for enterprises below certain threshold sizes. The core questions of the research are as follows: (a) whether these exemption thresholds, of both labour as well as other business regulations, are associated with certain types of avoidance behaviour of firms and, if so, to what degree; (b) whether regulations without such exemptions are also associated with certain TYpes of avoidance behaviour and, if so, to what degree; (c) what are the important variables that affect such behaviour (e.g. inspection coverage); and (d) whether these findings support the perception-based rating of factors that affect the growth of MSEs.
The study first reviewed and prioritized those laws and regulations from labour and other
regulatory issues that are perceived to have high probability of becoming growth traps (e.g. incentivizing businesses to stay smaller than the set threshold or remain unregistered). Nepal’s labour laws are applicable to enterprises with ten or more employees, except universally applicable provisions like minimum wages, prohibition of child labour, and protection of children and women, and a few provisions on crèches, rest rooms, and health and medical personnel and facilities that apply to enterprises with 50, 400 and 1,000 or more workers. The labour regulations that apply to enterprises with ten or more employees which have a high probability of creating growth traps are contribution to provident fund, payment of gratuity, compensation for injury or death, and annual paid leave. Despite having the same threshold level, the Trade Union Act of 1993 allows enterprises employing less than ten workers to join a union formed in other enterprises, making the Act practically applicable to all sizes of businesses. Besides labour regulations, income tax and value added tax (VAT) in Nepal also have exemption thresholds in terms of annual earnings/turnover. Besides the original assumption of firms staying below the threshold level, several other avoidance strategies were presumed and the survey questionnaire was designed to capture them.
The survey collected data from a sample of 409 enterprises with between five to 70 employees, covering four sectors (agro processing, carpet and garments, tourism, and information technology [IT]). Given the importance of ten employees as the threshold, the survey stratified them into those employing less than ten workers and those employing ten or more workers. It asked the owner/manager of these businesses about their knowledge of, and actual compliance with, each of the labour and business regulations perceived important in Nepal, then asked for the transaction cost of compliance and, if applicable, reasons for non-compliance. For the legal requirements linked to thresholds, the survey had a different set of questions for those below the threshold level and those above it in order to precisely identify avoidance and non-compliance behaviour and the reasons behind it. The questionnaire also captured information on registration, licensing, precise
knowledge of the obligations and penalties of the labour regulations as well as the frequency of inspection, and access to incentives and informal payments.
Publisher:
Norad, ILO ,   (2014 )
Type / Script:
Progress Report in English
Keywords:
LABOUR, LABOUR LAW, LABOUR INSPECTION, HUMANITY, POVERTY, ENVIRONMENT, TAXATION, ENVIRONMENTAL STATISTICS, BUSINESS, EMPLOYEES, FORCED LABOUR, LABOUR SUPPLY, LAWS, REGULATIONS, SUSTAINABLE DEVELOPMENT, LIVELIHOOD, DISCRMINATION, LABOUR POLICY, CHILD LABOUR, EMPLOYMENT
Thematic Group:
 ILO : International Labor & Labor
Thesaurus:
01.07.00  -  General And National Law
Reference Link:
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