12th May 2025, Kathmandu
Following the COVID-19 pandemic, Nepal’s economy has remained stagnant for the past three years due to the government’s contractionary monetary and fiscal policies.
Nepal Economic Recovery
However, with the formation of a coalition government by the two major parties at the start of this fiscal year, the private sector has renewed hope, and signs of economic recovery are now emerging.
The government’s annual policy and program, the recently concluded International Investment Summit, the initiation of the 16th Plan, improvements in electricity supply systems, a rise in tourism inflow, and the issuance of five new ordinances (on good governance and public service delivery, economic and business environment improvement, cooperative law amendments, financial procedure and responsibility amendments, and privatization amendments) have all contributed to renewed optimism.
Additionally, the report of the High-Level Economic Reform Recommendation Commission, which included private sector representatives, has raised further expectations.
Nepal Chamber of Commerce (NCC) emphasizes that the upcoming budget should prioritize key pillars of economic prosperity such as agriculture, tourism, energy, job creation, a conducive business and industrial investment environment, and increased production.
Key Recommendations:
1. Capital Expenditure and Budget Implementation
Prepare time-bound action plans to ensure timely capital expenditure with quarterly reviews.
2. Realistic and Stable Budget
Formulate a realistic budget to meet the government’s growth targets, ensuring policy stability, effective mobilization of actual tax revenue sources, and committed foreign aid.
3. Export Promotion through Local Resources
Promote export-oriented industries based on local resources like minerals, agriculture, herbs, and forest products.
4. Institutional Coordination
Bring the Revenue Investigation Department and the Money Laundering Investigation Department under the Ministry of Finance, and coordinate with the customs and tax departments.
5. Information Technology (IT) Sector
Develop the IT sector and build Nepal as a backup hub for global tech companies through skilled manpower and technological expansion.
6. Export Subsidies
Provide value-added-based export subsidies under a single-window system to ensure simple and accessible disbursement for exporters.
7. Utilizing Skills of Returning Migrants
Promote domestic investment utilizing the skills and expertise of returnee migrant workers.
8. Skill Database
Maintain a comprehensive record of returnee migrants’ skills and qualifications in the Department of Immigration.
9. Foreign Investment Regulation
Ensure that equity capital for foreign-invested industries enters Nepal only through official banking channels.
10. Remittance Utilization
Formulate policies to direct remittances toward investments in energy and other infrastructure rather than just consumption.
11. Support for MSMEs
Provide medium- and long-term loans at fixed interest rates for 5–10 years to support the stability of micro, small, and medium enterprises (MSMEs).
Non-Tax Recommendations:
Property Valuation
Form a technical committee including private sector representation to harmonize government and market property valuation (Market Fair Value).
Capital Gains Tax on Real Estate
Reduce the current 4% pass fee to 2%, supporting increased revenue collection.
Penalty Reform
Eliminate excessive and impractical penalties for late filing of details to the Company Registrar’s Office.
Company Updates
Continue the waiver of fees for inactive and non-reporting companies to encourage regularization.
Simplified Deregistration
Introduce simplified and low-cost procedures for voluntarily closing companies.
Vehicle Registration
Offer special one-time discounts for registering vehicles for up to five years.
One-Stop Tax System
Introduce a single-window system for all types of taxes at the federal, provincial, and local levels to end double taxation.
Foreign Apartment Ownership
Allow non-Nepalis to buy apartments, which will help increase internal revenue.
Online Procedures
Simplify online processes for business registration, deregistration, and tax payments to be hassle-free.
Value Added Tax (VAT) Suggestions:
Multi-rate VAT
Introduce a multi-rate VAT system with lower rates for essential goods and higher rates for luxury items.
VAT Threshold
Set a turnover threshold of NPR 20 million for VAT registration; apply a 0.5% turnover tax below that.
TDS on VAT Registered Entities
Eliminate TDS deductions when transacting with VAT-registered taxpayers.
Below Cost Sales
Simplify the process for selling below cost by informing authorities instead of seeking prior approval.
Penalty Reduction
Cut VAT-related fines and fees by 50% to reduce unnecessary litigation and promote compliance.
Income Tax Recommendations:
Invoice Incentives
Introduce a program where consumers who pay bills with PAN numbers get benefits from the VAT they pay.
Tax Review without Collateral
Remove the requirement for deposits when requesting administrative reviews of tax assessments.
Mismatch Resolution
Introduce a settlement scheme to resolve mismatch-related tax issues with discounts on dues.
Clearer Provisions
Rewrite the ambiguous and complex provisions of the Income Tax Act to make them simpler and more understandable.
Tax Reconciliation
Resolve tax dues within a maximum of 3 years to ensure timely reconciliation.
Provincial Help Desks
Set up help desks of Large and Medium Taxpayer Offices in provinces and local level when needed.
Permanent Tax Settlement Committee
Establish a permanent Tax Settlement Committee to resolve tax disputes.
Temporary Workers’ Tax
Allow temporary workers to receive payments even after TDS deduction.
Advance Tax Limit
Limit advance income tax collection to a maximum of 1% of income.
Income Tax Thresholds
Raise personal income tax exemption to NPR 1 million and family exemption to NPR 1.2 million.
Early Payment Incentives
Offer tax rebates for businesses that pay taxes on time.
Fake Invoices
Penalize firms dealing in fake invoices, but protect innocent buyers unaware of the seller’s malpractice.
CSR Spending
Clarify policy guidelines for CSR spending instead of requiring prior approval for all expenses.
Excise Duty Suggestions:
Renewal Waiver
Allow businesses to renew or close licenses without penalty if they failed to renew excise certificates in the past.
Liquor Revenue Reform
Amend the liquor revenue policy considering industry and taxpayer feedback.
For more: Nepal Economic Recovery