KATHMANDU: The Ministry of Labour, Employment and Social Security (MoLESS) is at the final stage to prepare the National Strategy on Formalisation with priority to reducing informal employment in agriculture, construction, transportation, and wholesale and retail trade sectors.
According to Labour Force Survey of 2017/18, Nepal’s 84.6 per cent labour force is employed in various informal sectors including 22 per cent informal jobs in formal sectors. Since 24.62 per cent employment in agriculture, 15.91 per cent in construction, 16.04 per cent in wholesale and retail trade, and 4.24 per cent in transportation is informal, the strategy has accorded priority to these sectors.
According to the draft of the strategy published by the MoLESS, Nepal needs the policy document to provide comprehensive, clear, and integrated policy guidance for formalisation, and improve the productivity of enterprises, businesses and labour, and increase the efficiency of revenue administration among others. Most importantly, the document will provide a common understanding on informality and its different components from informal sector employment to employment in informal market economy.
“Multiple agencies and stakeholders should work together to achieve the national goal for formalising the economy. To forge better coordination among them and achieve that goal, we need a strategy,” said Pradip Kumar Koirala, Joint-Secretary at the MoLES and Chairperson of the National Formalisation Committee (NFC) which is implementing the National Formalisation Plan with the technical assistance from the International Labour Organisation (ILO).
He said that the strategy was needed to achieve the national goal of formalising economic establishments and benefit both employers and employees as well as the national economy.
Likewise, Gagan Singh Bista, Under-Secretary at the MoLESS and member of the NFC, said that the Ministry is in the phase of concluding the discussion on the strategy with the stakeholders and soon it would be presented at the Central Level Advisory Council (CLAC) chaired by the Labour Minister for the validation of the final draft prepared after incorporating the suggestions and addressing concerns raised by the stakeholders.
The CLAC – a tripartite mechanism including representatives from the government, employers and trade unions chaired by the Minister of Labour and formed under the Labour Act – will forward the final draft to the Cabinet.
The draft of the strategy has identified causes behind the informality in Nepal including low job creation in formal sector, high rate of poverty, poor access to quality education, dependent workers, administrative hurdles in business registration and renewal process, and high compliance cost. Other factors are weak implementation of existing laws, limited education about social security programmes and benefits of formalisation, poor coordination among the government agencies, lack of disaggregated data on business and workers, and legal and institutional gaps among the three levels of government.
According to the MoLESS, this is also the first of its kind policy in the South Asian Region. “It is the first integrated national action plan to facilitate formalisation in Nepal which is recognised by the ILO in Asia Pacific Regional Best Practices (2024), and 113th International Labour Conference Innovative Practices (2025),” informed the NFC.
While other countries in the region also have such strategy, the one Nepal is developing will be integrated one and will include digital submission of labour audit and digital case management for labour disputes on Integrated Labour Management Information System (ILMIS) system, and procedure for labour inspection in the informal sector.
Babu Kaji Karki, Co-Chiar of the Employers Council at the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), said that the private sector is also hopeful that the strategy will address various maladies not only associated with the employer-employee relations but also fair business practices.
He said that the informality is spread across multiple economic sectors including business, employment, trading and production.
“However, many businesses running informally are yet to be educated that the compliance to the existing laws helps in business sustainability. The governments at different levels should also focus on simplifying the process and policies,” he said.
The strategy is being developed as a component of the National Plan on Formalisation, which according to the NFC, has reached to more than 10,000 people with awareness programmes, trained 399 entrepreneurs till date on measures to formalise, and through which various surveys and discussions have been conducted.
The strategy draft read that at least 85 per cent of the economic establishments operating in Nepal will be registered, 40 per cent of businesses registered for taxation will submit their annual tax returns, and about 400,000 self-employed individuals and 300,000 informal sector workers will be enrolled in contribution-based social security schemes in five years after its implementation.
Likewise, it aims to increase the number of formal economic entities registered under the social security contribution scheme to 60,000 from the current number above 21,000. “The number of employees working in formal economic entities and enrolled in social security schemes will reach 1.5 million and about 30,000 establishments will submit their labour audit,” read the policy.
Work plan of the strategy include developing sector-specific codes of conduct for occupational safety and health, ensuring basic labour rights including non-discriminatory practices regarding wages, leave and social security, and providing free technical consultation to micro, small and women-owned businesses.
According to it, businesses transitioning to formalisation will receive various benefits embedded in the laws – including seed capital, operational grants, concessional loans, and collateral-free loans. It has also proposed exemptions on registration, renewal fees, income tax, and import duties.
