Private sector stakeholders urge govt to introduce massive tax reforms in upcoming budget to spur economy

KATHMANDU, May 26: Stakeholders have strongly recommended that the government introduce sweeping tax reforms in the upcoming budget, scheduled for announcement on Friday, May 29.

The Federation of Nepalese Chambers of Commerce and Industry (FNCCI) has urged the government to implement an Integrated Revenue Law Code (Single Tax Code). The umbrella organization emphasized the need for radical reforms and policy stability in revenue and governance, arguing that such measures are essential to revive declining business morale and strengthen the investment climate.

According to the FNCCI, multiple regulatory bodies have created unnecessary financial burdens for business owners due to the absence of official interpretations of tax laws. As a long-term solution, the federation proposed replacing the current patchwork of tax laws with a single, unified interpretation. “Likewise, a full-fledged and permanent Revenue Board must replace the current Revenue Advisory Committee to ensure regular collaboration with the private sector on tax administration and policy issues, and to allow scientific adjustment of tax rates,” the FNCCI stated.

The FNCCI also called for the establishment of a separate Administrative Appeals Unit under the Ministry of Finance, independent of the Inland Revenue Department, to provide neutral and credible hearings on decisions made by tax officers.

Amid shrinking economic activity caused by sluggish investment, the federation demanded revisions to income tax rates for both institutional and individual taxpayers. It recommended reducing the current 30 percent income tax rate imposed on catalytic sectors such as banks, financial institutions, telecommunications, internet service providers, insurance companies, capital markets, and securities businesses to 25 percent.

For manufacturing industries, the FNCCI suggested a gradual reduction of income tax rates by five percentage points over the next five years. It also urged the government to cut the luxury tax of 2 percent imposed on five-star hotels, luxury resorts, and gold and silver transactions to just 0.1 percent, arguing that the existing provision has inflated business costs.

The federation further demanded an extension of the personal income tax exemption limit to counter rising inflation and declining consumer purchasing power. It recommended raising the exemption threshold from the current Rs 500,000 for individuals and Rs 600,000 for couples to Rs 800,000 and Rs 1,000,000 per year, respectively.

The Nepal Bankers’ Association (NBA) echoed FNCCI’s concerns, urging the government to revise existing income tax slabs. It demanded recognition of loan loss provisions as deductible expenses for banks and financial institutions. The NBA also called for deductions of expenses incurred under Corporate Social Responsibility (CSR) for tax purposes, revisions to exemptions on donations and gifts, and reductions in taxes on interest income received by depositors.

Meanwhile, tax expert Rup Bahadur Khadka criticized the government’s current tax system, stating that excise duties are imposed indiscriminately on various goods instead of being limited to items such as alcohol, tobacco, and pollution-causing activities. “The government is not following tax principles when it imposes excise duty under multiple headings,” Khadka said at a program on Monday.

Khadka further noted that Nepal’s income tax rates are significantly higher than those in other SAARC countries. He recommended that the government lower tax rates to remain competitive with neighboring nations.