Shadow Economy in Nepal - 65 Billion Dollar ?
The amount depossed in Swiss banks until 2020 is 46 arba 64 cor, 35 lakhs, and 31 hajar.
The size of Nepal's informal economy is estimated at 33.2% of GDP, which represents approximately $65 billion at PPP levels.
"Informal sector" or "shadow economy" refers to any part of the economy that is not taxed or regulated by any form of government.
The informal economy is a common phenomenon in developing countries, where a significant portion of economic activities take place outside the formal sector. It often includes unregistered businesses, self-employment, and casual labor, which are not monitored by the government and are not taxed. This results in a loss of revenue for the government and limited protection for workers and consumers.
This is of special concern as we investigate Nepal’s economy, where, in an atmosphere of unchecked corruption, money laundering, and rampant impunity, a shadow economy has been flourishing for a while.
And the major part of the shadow economy involves companies escaping billions in tax, remittances coming from informal sources, real-estate transactions, and corruption under the table. And a small amount of black money is converted into white money through real estate purchases or any other business setup.
But companies are escaping billions in taxes. These funds are typically transferred out of the country, most often to tax-free jurisdictions. And a businessman or politician buys houses or sets up business in that particular country and brings that money back into the country in the form of FDI.
As per its report, foreign direct investment (FDI) worth a total of Rs 137.68 billion had been endowed to industries currently operating in Nepal. More than 60 percent of the FDI share, amounting to Rs 82.65 billion, came from tax haven countries, of which only 17 have been approved to invest by the Nepal government, according to the report. Investments from the British Virgin Islands and nearby countries in the Caribbean alone comprise $62 billion.
Additionally, the report also reveals that Nepal has received FDI from the Cayman Islands and Brunei, two tax haven countries that do not have approval from Nepali authorities for investment in the country. Nevertheless, according to the report, Nepal has received Rs 160 million from the Cayman Islands and Rs 30 million from Brunei.
Nevertheless, this trend is increasing, mostly due to factors including the informal nature of Nepal’s economy, the predominance of cash transactions, an open border with India, an unstable political climate, and rampant instances of predicate offenses such as corruption, bribery, smuggling, tax evasion, human and drug trafficking, the use of counterfeit currency, and now money laundering through cryptocurrency.
The World Bank emphasizes that combating the shadow economy is about more than just enforcing laws and punishing offenders; it is also about making the formal sector more appealing and changing social norms around paying taxes. Building trust in the government is a key factor in convincing citizens that paying taxes is useful.
It is unusual to see people spending tens of millions of dollars on SUVs, marriages, or other occasions, but it has become the norm in the country, where the GDP per capita is less than $2000.
Finally, there may be a cultural element to the shadow economy in Nepal, with some people viewing tax evasion and informal economic activity as acceptable or even necessary. Changing these attitudes will require a sustained effort to promote the benefits of participating in the formal economy and to build trust in government institutions.
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