Govt announces broad tax reform package: Income tax relief, Lower customs duties and capital market changes

KATHMANDU – The Government of Nepal has unveiled a sweeping tax reform package aimed at easing the burden on businesses, expanding the middle class, and improving overall economic activity through major revisions in income tax, customs, excise duties, and value-added tax (VAT) systems.

Presenting the budget for fiscal year 2083/84, Finance Minister Dr. Swarnim Wagle said the reforms are designed to make tax compliance simpler, reduce disputes, and create a more investment-friendly environment.

Income Tax Relief and Reduced Rates

The government has doubled the income tax exemption threshold, raising it to Rs 1 million for individuals, significantly expanding tax relief for salaried taxpayers and small earners.

In addition, the maximum personal income tax rate has been reduced by 10 percentage points, a move expected to increase disposable income and support middle-class expansion.

Customs and Industrial Input Reforms

To boost domestic production, the government has reduced customs duties on 273 types of raw materials, ensuring that import taxes on industrial inputs remain at least one level lower than those on finished goods.

The existing 11-tier customs system has been streamlined into a 7-tier structure, aimed at simplifying trade procedures and improving industrial competitiveness.

Excise Duty and Green Tax Integration

The budget proposes the removal of excise duty on 360 goods, while also integrating fragmented levies such as infrastructure development charges and road maintenance fees into a unified Green Tax system collected at customs points.

Capital Market and Ownership Tax Changes

In a significant capital market reform, the government has made capital gains tax on listed securities final, removing additional tax layers and providing clarity for investors.

The budget also exempts income tax implications under Section 57 of the Income Tax Act in cases of involuntary ownership changes, such as inheritance or restructuring of controlled entities.

VAT Incentives and Digital Economy Push

To promote digital payments, the government will provide a 10 percent VAT discount at the point of billing for purchases made through digital payment systems.

The VAT refund system will also be automated to improve efficiency, while a lottery-based incentive scheme will be introduced to encourage invoice issuance and discourage tax evasion.

VAT System Review and Structural Reform

A high-level committee will be formed to study the relevance of a multi-rate VAT system and recommend reforms for a more efficient structure.

Tax Compliance and Dispute Resolution

The government has repositioned tax compliance as a development partnership rather than a punitive mechanism, introducing special facilitation measures to resolve long-standing tax disputes caused by legal ambiguity and taxpayer uncertainty.

For ongoing tax disputes in courts or judicial bodies, taxpayers will be allowed to settle cases by paying 1 percent additional tax, after which penalties, interest, and legal charges will be waived and cases withdrawn.

Objective: A Simplified and Growth-Oriented Tax System

Officials said the overall objective of the reform package is to simplify Nepal’s tax system, encourage investment, reduce litigation, and strengthen the country’s business environment while supporting sustainable economic growth and middle-class expansion.