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Background
The Constitution of Nepal mandates the presentation of an annual budget for the upcoming fiscal year in the joint session of the Federal Parliament in the middle of the eleventh month of every fiscal year. The budget talks about the government's income and expenditure, as well as its economic policies and programs for the coming fiscal year, ensuring the timeliness and procedural legality of the budget. Once the budget is approved by the Federal Parliament, it is forwarded to the President for assent. The size of the budget for fiscal year 2025-26 is NPR 1,964.11 billion.
Amendments in Nepalese Taxation
The Finance Bill of 2025 has proposed to amend the various provisions of Nepalese Tax Laws, i.e. Income Tax Act, 2058 (2002), Value Added Tax Act, 2052 (1996), Custom Tariff Act, 2081 (2024) and Excise Duty Act, 2058 (2002).
1. General Provision of Finance Bill, 2025
Luxury fee of 2% shall be levied on services provided by 5 or more-star hotels and luxury resorts, imported liquor and sales price of gold and gold jewelry. Previously, in the case of gold, the luxury fee was levied only on transactions above NPR 1 million.
2. Income Tax Act, 2058 (2002)
a. The concept of Digital Permanent Establishment added by the Finance Act, 2024, has been repealed. The repealed provision is:
If there is a significant digital presence in Nepal by staying outside of Nepal, the said location, or if the data or services are transacted in Nepal for at least 90 days during the last 12 months, where the server is outside of Nepal, the said location.
b. Previously, a 50% exemption on applicable tax was provided to the industry related to software development, data processing, cyber cafe, and digital mapping established in the information technology park, which is now increased to 75%.
c. 100% exemption on tax for 5 years shall be granted to the industries involved in the production and assembly of EV from the date of commencement of the transaction.
3. Value Added Tax Act, 2052 (1996)
a. A new provision on penalty is added; in cases where a transaction is done without getting the branch or warehouse certified, a fine of NPR 10,000 shall be imposed for each instance.
b. Some items are exempt from VAT:
- Machines for producing natural and organic fertilizers
- Clearing house services
- Hearing aids - excluding parts and accessories
- Chilled meat and edible offal of poultry
- Medicinal items containing other vitamins
4. Custom Tariff Act, 2081 (2024)
- The term "Tariff" has been broadened to cover all types of taxes, fees or charges chargeable on goods exported or imported under prevailing law.
- No refund shall be provided if a duty exemption facility that was not claimed at the time of declaration of goods is claimed later.
5. Excise Duty Act, 2058 (2002)
- Excise Duty exemption on import of machines, equipment and devices required for green hydrogen production on recommendation of the Ministry of Energy, Water Resources and Irrigation.
- Excise Duty exemption to industry manufacturing or assembling EV charging machines, on recommendation of the Department of Industry.
Reference/Citation
Department of Printing, Ministry of Communication and Information Technology, Government of Nepal
Inland Revenue Department, Ministry of Finance, Government of Nepal
