In a significant policy shift, the government has proposed keeping tax rates unchanged for an entire decade, addressing long-standing private sector complaints about annual fluctuations that have undermined investment certainty.
Currently, tax rates are revised every year through the Finance Bill, leading to criticism from businesses over policy instability and allegations that some changes favour specific commercial groups.
The draft of the National Commitment Paper, made public on Tuesday by Prime Minister Balendra Shah’s government, includes the proposal for a stable tax regime over the next ten years. The draft forms part of the new administration’s 100-point governance reform agenda and also seeks to incorporate inputs from six nationally recognised political parties.
Following the parliamentary election held on March 5, six parties – Rastriya Swatantra Party (RSP), Nepali Congress, CPN-UML, Nepali Communist Party, Shram Sanskriti Party and Rastriya Prajatantra Party – have received national party status. They have been asked to submit feedback by April 23.
Decade-Long Tax Stability Proposed
The draft states that legal guarantees ensuring stability in tax rates and conditions for up to ten years will be ensured.
The government incorporated this provision based on recommendations from the High-Level Tax System Reform Recommendation Committee chaired by Bidyadhar Mallik, formed on September 15, 2023. That committee had also suggested keeping income tax rates stable for companies and firms for ten years.
Private Sector Welcomes Move
The private sector has long argued that frequent changes in tax rates disrupt the investment climate. Following the publication of the draft commitment paper, business representatives have praised the government’s stance.
“It is positive that the government is moving towards addressing our long-standing agenda,” said Suresh Krishna Baidhya, senior vice-president (industry) of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI).
“If tax rates are stabilised for a decade, investors will no longer live in fear. Every time the budget arrives, we used to worry whether investments might sink. Stability makes a huge difference for people who want to do business.”
Baidhya added that a stable tax policy for ten years would increase the number of investors. He also called on the government to implement a multiple-rate tax system from the next budget.
Kamlesh Agrawal, president of the Nepal Chamber of Commerce, also welcomed the proposal.
“Industries invest billions of rupees. Under the current system, changing tax policies every year can suddenly ruin entire industries,” Agrawal said. “A stable tax policy will create a proper investment environment in the country.”
Economic Growth Targets
The draft National Commitment Paper sets a target of achieving an average economic growth rate of 7 percent over the next five years. It also aims to expand the current size of the economy, bringing gross domestic product (GDP) close to $100 billion and raising per capita income to $3,000.
The government plans to implement a simplified, paperless, and hassle-free digital system for all processes from company registration to renewal. Foreign investment-friendly laws will also be enacted to attract greater capital inflows.
Removing Nepal from FATF Grey List
The draft commits to strict implementation of financial transparency and anti-money laundering measures to remove Nepal from the grey list of the Financial Action Task Force (FATF), the international body established to combat money laundering.
The government has already launched money laundering investigations against former prime ministers KP Sharma Oli, Sher Bahadur Deuba, Pushpa Kamal Dahal, former minister Deepak Khadka, controversial businessman Deepak Bhatta, and directors of the Shankar Group. Finance Minister Swarnim Wagle told journalists that these steps are aimed at taking the country off the grey list.
1.5 Million New Jobs
To end the compulsion of seeking employment abroad, the government has set a target of creating 1.5 million new jobs within the country over the next five years. Information technology, tourism, and commercial agriculture have been identified as key sectors.
The draft also mentions legal reforms to encourage remote work and digital employment, allowing Nepalis to work for foreign companies while staying in Nepal.
Infrastructure Development
The Mahendra Highway will be upgraded to international standards within three years. Agreements with friendly neighbouring countries for waterway development and access to international ports will be effectively implemented.
Poverty Reduction Goals
According to the draft, the country’s multidimensional poverty rate will be reduced to 10 percent within five years. Currently at 20.27 percent, the rate will be halved by reducing economic and social inequality through a balanced and complementary development model involving private, cooperative, and public sectors. Average economic growth of 7 percent will be achieved over the next five years.
Cooperatives and Microfinance Reforms
The government has announced strict regulatory reforms to end irregularities in cooperatives and microfinance. Cooperatives will be brought under the direct or strong supervision of Nepal Rastra Bank. Usury and loan sharking will be defined as financial crimes, and justice will be provided to victims.
Agricultural Self-Sufficiency
To promote import substitution and self-reliance in agriculture, a chemical fertiliser factory will be established. Farmers will receive credit cards, insurance, concessional loans, and pension benefits. Fallow land utilisation, land consolidation, irrigation expansion (300,000 hectares in five years), and seed banks will be established. High-value cash crops and herbal processing industries will be encouraged.
Inter-Agency Coordination
The draft states that the lack of coordination between government agencies responsible for infrastructure construction will be addressed. Project classification, prioritisation, and budget allocation will now be based on study and need rather than access or influence. To ensure quality and timeliness, project heads and staff will not be transferred until a project is completed.
NRN and Diaspora Investment
Non-Resident Nepalis (NRNs) will be recognised as special investors, with a proposal to issue diaspora bonds worth Rs 100 billion annually. Commitments include ensuring citizenship continuity, property rights, and voting rights.
The knowledge, skills, and experience of Nepalis abroad will be utilised as “brain gain”. The informal economy will be formalised, and a campaign linking labour and remittances with production and innovation will be launched.
IT Promotion Board
The draft declares information technology a national strategic industry and proposes forming an IT Promotion Board. The digital economy will be developed as a key sector for economic growth, high productivity, and quality job creation.
“Investment will be prioritised in communication and public infrastructure, data centres, cloud services, cybersecurity, personal data privacy and security, and high-speed connectivity to build a comprehensive digital economy,” the draft states. “Public procurement policies will be reformed to encourage the development of software and applications required for government and public purposes within Nepal.”
The draft mentions transforming Nepal within five years into a country that exports artificial intelligence and computational power. The government plans to build domestic data centres, AI computing, and digital service industries to connect Nepal with the global economy.
A “From Nepal to the World” campaign will be launched to make Nepali IT companies globally competitive.
Education Sector Reforms
The government plans to increase investment to make public education accessible and competitive and to enhance its standard. School education will be made compulsory and free, ensuring access for all children from pre-primary level.
Education will be provided in mother tongues up to basic level, with moral education included in schools. Investment in teachers, infrastructure, and equipment will increase, and teacher performance will be linked to student learning outcomes. A reform programme will be introduced to reduce the quality gap between public and private schools.
Energy Sector Ambitions
The government plans to declare the coming decade as the “decade of energy development”, aiming to generate 30,000 megawatts of electricity within ten years. Energy diplomacy will be strengthened to export power to neighbouring India and Bangladesh.
Large reservoir-based projects will be prioritised, private sector participation will increase, and energy-based industries (steel, cement, herbal processing, data servers, chemical fertiliser) will be prioritized.
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