Nepal’s IT industry seeks radical policy shift as NAS-IT pushes for tax cuts, export incentives, and digital economy reforms

KATHMANDU: Nepal’s private sector technology body, the Nepal Association for Software and IT Services Companies, has submitted a comprehensive set of pre-budget recommendations for fiscal year 2083/84 (2026/27), calling on the government to elevate the information technology sector to a national strategic priority and unlock its potential as a major export-driven industry.

The recommendations, unveiled during a press event on Sunday, outline a wide-ranging reform agenda spanning taxation, foreign investment, digital infrastructure, employment, legal frameworks, and global market positioning—aimed at transforming Nepal into a competitive global IT hub.

The event was chaired by NAS-IT President Gaurav Pandey, while Purna Bhakta Dulal stressed that the IT sector has historically failed to secure adequate policy attention due to weak coordination between government and industry stakeholders. He emphasized that this year’s budget must address the sector’s real needs through stronger collaboration.

Vice President Dipen Chapagain presented the recommendations, while General Secretary Elisa Shrestha delivered the vote of thanks.

IT Sector Positioned as High-Growth Export Industry

NAS-IT has described Nepal’s IT sector as a high-potential export-oriented industry capable of generating substantial foreign exchange earnings if policy barriers are removed in time.

The organization highlighted that global demand for digital services, outsourcing, cloud computing, artificial intelligence, and software development is rapidly increasing, creating a strong opportunity for Nepal to leverage its young workforce, competitive cost structure, and growing technical capabilities.

According to the pre-budget document, Nepal could emerge as a recognized global source of IT services and talent, with long-term ambitions including:

• USD 22 billion in IT exports within 10 years
• Creation of 500,000 direct jobs and 1 million indirect jobs by 2033

These projections reflect a strategic shift toward positioning IT as a core pillar of Nepal’s economic growth and foreign currency earnings.

Major Tax Reform Proposals

At the center of NAS-IT’s recommendations is an aggressive tax reform framework designed to enhance global competitiveness and incentivize reinvestment:

• Introduction of just 1% corporate income tax on net profits for IT companies for 10 years
• Provision of 8% export incentives for IT companies earning foreign currency
• Clear and consistent VAT policy for IT exports, along with guaranteed timely refunds

The organization argues that such measures would free up capital for innovation, research, workforce development, and infrastructure expansion, while also improving business continuity through better cash flow management.

Talent Retention and Startup Ecosystem Support

To address the growing outflow of skilled IT professionals, NAS-IT has proposed:

• Capping personal income tax at a maximum of 25% for IT professionals
• Reforming taxation on sweat equity and ESOPs, ensuring tax is applied only at the time of share sale

These changes are aimed at aligning Nepal’s policies with global practices, making the domestic market more attractive for skilled workers and startup founders.

Foreign Investment and Global Integration

NAS-IT has called for significant reforms to improve Nepal’s integration into the global IT economy:

• Expansion of Double Taxation Avoidance Agreements (DTAA) with the United States, United Kingdom, and Australia
• Removal of foreign investment ceilings in the IT sector
• Simplification of foreign direct investment (FDI) approval processes
• Easier profit repatriation mechanisms

Additionally, the proposal allows Nepali IT firms to invest abroad—up to USD 20,000 for establishing companies and up to USD 1 million depending on foreign currency earnings—enhancing their ability to operate in global markets.

Government Procurement Reform to Boost Local Industry

A key pillar of the recommendations focuses on strengthening domestic IT companies through public procurement reform:

• Reservation of IT contracts below NPR 10 crore for Nepali companies
• Mandatory 30% participation of domestic firms in large IT projects

NAS-IT argues that this will reduce dependence on foreign vendors, ensure better accountability in government projects, and promote local industry growth and employment generation.

Digital Infrastructure and Innovation Priorities

The organization has urged the government to prioritize the development of Nepal’s digital ecosystem, including:

• Secure domestic cloud infrastructure to ensure data sovereignty
• Expansion of digital payment systems to support SaaS and subscription-based models
• Investment in AI solutions in Nepali language and local contexts
• Acceleration of digitization of government services

These initiatives are seen as essential for building a modern, scalable digital economy.

Institutional and Policy Coordination

To streamline policy implementation and investment promotion, NAS-IT has proposed the creation of a National IT Promotion Board, which would function as a single-window coordination body linking government, private sector, and international stakeholders.

The proposal also emphasizes learning from global models where dedicated institutions have significantly accelerated IT export growth.

Education and Workforce Development

Recognizing the importance of human capital, NAS-IT has recommended:

• Introducing IT and AI education from the school level
• Aligning university curricula with industry demands
• Allocating dedicated budgets for teacher training in digital skills

These measures aim to create a sustainable pipeline of skilled professionals for the rapidly evolving global tech industry.

Labour Law and Regulatory Reforms

The organization has called for modernization of Nepal’s labour laws to reflect the project-based nature of IT work, including:

• Flexible workforce management provisions
• Simplified procedures for hiring foreign experts

On the regulatory front, NAS-IT has proposed:

• Revision of the Electronic Transactions Act (ETA)
• Introduction of comprehensive laws on cybersecurity, data protection, and digital governance
• Alignment with international digital standards

Positioning Nepal as a Global IT Destination

To improve global visibility, NAS-IT has recommended a coordinated international promotion strategy involving:

• Government-led international roadshows
• Active role of diplomatic missions in IT promotion
• Engagement of the Nepali diaspora as global ambassadors

The organization believes that Nepal’s technical talent, success stories, and cost advantages remain under-recognized in global markets.

Strategic Push for “Digital Nepal”

The recommendations align with broader government commitments to:

• Declare IT as a national strategic industry
• Promote a “From Nepal to the World” export strategy
• Invest in digital infrastructure, innovation, and AI development

NAS-IT maintains that timely implementation of these reforms could transform Nepal into a regional IT hub, significantly increase exports, create large-scale employment, and strengthen the country’s foreign exchange position.