Ministry of Finance, Nepal: - Key Points of the Annual Budget Statement

Key Chapter Title List

1. Sources and Allocation of the Budget
2. Budget Background
3. Budget Objectives
4. Budget Priorities
5. Budget Allocations to Provincial and Local Governments
6. Economic Situation
7. Fiscal Year 2025-26 Tax Policy and Program Objectives
8. Timely Reform of the Tax System
9. Other Important Announcements
10. Major Changes and Amendments to the Tax System
11. Excise Duty
12. Value Added Tax
13. Major Amnesty Policies Announced in the Finance Act 2025

Document Introduction

This report is based on "Key Highlights of Nepal's Fiscal Year 2025-26 Budget Statement" compiled by PKF T R Upadhya & Co. The document systematically outlines the core content of the full budget for Fiscal Year 2025-26 (Nepali Year 2082-83) submitted by Nepal's Finance Minister, Bishnu Prasad Paudel, on May 29, 2025. The report aims to provide professionals with an authoritative analytical foundation regarding Nepal's new fiscal year's financial strategy, resource allocation priorities, and structural reform measures.

The report first elaborates on the macro framework of the new fiscal year's budget. The total budget size is NPR 1.96 trillion, with recurrent expenditure accounting for the highest share (60%), capital expenditure at 21%, and financing arrangements at 19%. Funding sources primarily rely on domestic revenue (NPR 1.315 trillion), supplemented by domestic loans (NPR 362 billion) and external funds (foreign loans NPR 233.66 billion, foreign grants NPR 53.45 billion). The report particularly highlights the substantial fiscal transfer of NPR 582.83 billion to provincial and local governments, including equalization grants, conditional grants, complementary grants, and special grants, reflecting Nepal's emphasis on balanced regional development within the federal framework.

The core section of the report provides a detailed analysis of the budget's strategic objectives and economic context. The budget aims to achieve high-growth, sustainable, and inclusive economic expansion, focusing on job creation through promoting entrepreneurship and expanding public-private investment, and enhancing economic capacity with modern technology. Regarding the economic situation, the report provides key forecasts and data: the economic growth rate for FY 2025-26 is projected at 4.6% (previous year 3.7%), a balance of payments surplus of NPR 21 billion, increased foreign exchange reserves, and a 10% growth in remittance inflows. However, government expenditure is expected to exceed revenue, highlighting the challenges of fiscal management.

Tax system reform is another key focus of analysis in this report. The report systematically summarizes major revisions in the areas of income tax, customs duty, excise duty, and value-added tax. Regarding income tax, long-term tax exemption incentives have been introduced for emerging industries such as green hydrogen production and electric vehicle charging equipment manufacturing, while the scope of tax benefits for retirement funds has been tightened. Regarding customs duty, tax rates have been adjusted for various goods (e.g., alcohol, tobacco, e-cigarettes, sugar products), and significant reductions have been granted for machinery imports in specific sectors promoting green energy, sports facilities, etc. Revisions to excise duty and VAT involve adjustments to the tax base, definition updates, and improvements to compliance penalty mechanisms. These changes aim to enhance the efficiency, transparency, and international alignment of the tax system to better attract foreign investment.

Finally, the report summarizes a series of important amnesty and exemption arrangements proposed in the Finance Act 2025, covering areas such as retirement fund transfers, specific expense deductions, and waivers of late fees and penalties for various taxes, providing a compliance window for relevant taxpayers. Furthermore, the report includes a series of non-tax policy announcements from the budget regarding cooperative governance, special economic zone rental incentives, land policy adjustments, industry relocation incentives, overseas investment facilitation, decentralization of education, energy and digital infrastructure development, and plastic bans. The content of this report is sourced from the original budget statement and its official interpretation, providing accurate and comprehensive first-hand information for studying Nepal's recent fiscal policies, economic planning, and the evolution of its investment environment.