Emerging business | Legal lacuna | e-commerce | bureaucracy | laws | parliament

Image Source: Ministry of Industry, Commerce and Supplies
Image Source: Ministry of Industry, Commerce and Supplies


Emerging businesses midst legal lacuna

Globally, business models and technologies are changing rapidly leading to a plethora of new commercial opportunities, new jobs and economic efficiency but Nepal’s lawmaking has failed to keep up with enacting required laws. The absence of laws means ambiguities for businesses and innovators.

By Pallavi Maheshwari | Sabin Jung Pande |

Earlier in April, news broke out that users of Yatri, a Nepal-based EV bike producer, were denied vehicle registration by the Department of Transport citing a lack of relevant legal provisions.

Motor Vehicles and Transport Management Act, 2049 (1993), accompanied by a revised mandate that required a complete customs declaration form and receipt of customs duty for registration, didn’t recognise ‘made in Nepal’ vehicles at all.

The public outcry in the media forced the government to quickly amend the Transport Management Working Procedure Guidelines 2060 [BS] to pave the way for the registration of Yatri bikes. Yatri has been working on manufacturing EV bikes locally for over four years now. 

Yatri, however, is not the only case where businesses, innovators, and consumers face legal dilemmas. The absence of contextual laws, policies, and regulations remains a significant barrier to tech-based businesses and the whole ecosystem. Legal frameworks are either absent or obsolete, causing problems for innovators and service providers, and even consumers.

Even when laws are legislated, working procedures and regulatory mechanisms are missing. Businesses thus are compelled to operate in grey areas in all ambiguity or refrain from starting at all, which deters the national economy from potential investment.

The case of missing laws

A glaring example is the bill on E-Commerce which has been in limbo for a few years now. Although e-commerce is a more than decade-old industry by now, the country still struggles to find a legal structure for it. 

In an interview with the_farsight in February, Roshee Lamichhane, Assistant Prof. at KU School of Management, suggested that the absence of required laws and policies is impeding the growth and development of startup culture in the country. “The draft E-commerce Bill has been languishing in the parliament for the last two years,” she emphasised.

In June 2020, the Ministry of Industry, Commerce, and Supply (MoICS) drafted an E-commerce Bill to regulate online trading, seeking reviews from key stakeholders, experts, consultants, and developmental organisations.

The bill that had provisions relating to order placement policies, consumer rights, sellers, multiple payment methods, compliance, and compulsory registration of online businesses, among others, couldn’t be enacted until the previous parliament’s tenure was completed.

Similarly, the app-based ride-sharing business has been facing the heat from a lack of legal framework since 2017 when Tootle emerged followed by the entry and rise of Pathao. Other newly added players sharing the market are inDrive and Bolt. The business still operates under legal uncertainties and anxieties surrounding what may come next.

These apps changed the way people commute in the Kathmandu Valley where public transportation is still in a mess and private solutions are costly, but the state has failed to develop operating and regulating laws. There have been instances, attributed to the syndicate of local transport operators when these app-based services faced bans from the government. Each time the ban has been lifted after widespread public backlash. 

The legal uncertainty for these services comes from the almost thirty-year-old Motor Vehicles and Transport Management Act, 1993 — the same act that prevented Yatri’s vehicle registration.

Article 8 (1) of the federal law states that privately registered motor vehicles cannot be used for transport of goods and passengers. This provision has often hindered privately registered two-wheelers offering rideshare albeit taxis.

The management of transportation (four-wheeler and two-wheeler) is on the list of the province’s rights in the schedule of the constitution. Following this in June 2022, the Bagmati government, through its Province Vehicle and Transport Management Act, legalised ride-sharing apps within its administrative boundary. Article 13 (4) of the Act states, “Four-wheelers and two-wheelers with a registration certificate for non-commercial purposes will be able to transport passengers by completing the prescribed procedure and ensuring passengers for the prescribed fare on their route.”

The provincial act required the ride-sharing apps to get registered at the Province Transport Office by the end of mid-April (Chaitra 2079). However, no further policies and directives have been made so far with confusion hovering as to whether the federal or the provincial government should deal with it.

Although the government quickly paved the way for Yatri, making mere ad hoc arrangements is not a permanent way out, in lieu of completely amending the act or introducing a new one. For instance, the same federal act also does not recognise hydrogen automobiles if the country were to allow operating hydrogen fuel automobiles in the future.

Similarly, the Information and Technology Bill drafted in 2019, which is expected to have implications for businesses, is yet to see the light of day. Widespread criticism relating to some of the provisions that could allow government censorship led to its delay.

The missing legal structures also extend to potential fields like artificial intelligence, Internet of Things (IoT), data, biotechnology, cybersecurity, and hydrogen fuel. 

An undeniable fact is that new laws have to be promulgated and old laws have to be revised, including for sectors that are at nascent stages to encourage and translate ideation into economic opportunities. The absence of laws means it will delay or hinder innovation. 

Startups and businesses, which can be instrumental in widely easing lives, also face policy gaps. Startup policy is one of them.

In 2017, the government initiated drafting the Startup Policy to support innovations and encourage startups. A committee was set up and discussions were held while entrepreneurs hoped for policy support. However, the policy was never put into effect.

The government finally introduced a draft National Startup Enterprise Policy early this year but is still under discussion. Reportedly, the draft incorporates more than 15 sectors such as science, agriculture, forestry, tourism, infrastructure, and more under the definition of the startup sector. This would mean businesses not falling under the defined sector would not be able to reap policy benefits. Criticism was also leveled for its centralised and control-oriented traditional approach in other sectors as well.

The government had made another promise of a startup fund in 2015/16, but delays persisted for the next eight years. Finally, a working procedure was introduced this year with the government inviting applications for proposals where reportedly 382 startups have filed applications and are currently at the stage of evaluation.

Why the delays?

Building a strong legal framework is crucial to guide an emerging sector, ensuring that there are no loose ends with unclarified clauses. Lawmaking, on the other hand, is a lengthy and tedious task, and it turns tricky when related to technology and the internet. The recent incidents of lawmaking in the country suggest, managing politics continues to prevail over the matters of making laws. The bureaucracy remains incomprehensible and sluggish, too.

The bills, policies, and promises for startups stuck in the procedural or political environment of the country are not the only ones pending before the parliament. Reportedly, the last session of the last parliament saw around 61 bills languishing.

It is estimated that 25% of the country’s startups folded up in the aftermath of Covid. With such a plight of the ecosystem and the government and parliament’s inability to draft and enact needed legal structures, the ecosystem operates under uncertainties.

Pallavi Maheshwari is a lawyer by profession. She is currently a researcher/writer at the_farsight.

Sabin Jung Pande is the editor at the_farsight.

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