Government Unveils 21 Trillion NPR Budget, Prioritizing Private Sector Growth

Kathmandu. The government has presented a budget of 21 kharba 24 arba rupees for the upcoming fiscal year, increasing the size by only 1 kharba 60 arba rupees compared to the allocation of the current fiscal year 2082/83.

Despite facing a shortage of resources, Finance Minister Dr. Swarnim Wagle announced an ambitious budget with expected size. Finance Minister Wagle has estimated to cover 14 kharba 5 arba from revenue and 61 arba 74 crore from foreign grants in the budget.

The foreign grant is estimated to be larger than what Finance Minister Wagle himself criticized when he was in opposition. How this amount of grant will be obtained depends on the implementation efficiency. However, foreign grants have been low recently.

The government estimates to take foreign loans of 2 kharba 47 arba and domestic loans of 4 kharba 10 arba. In the budget with a revenue collection target of 14 kharba 5 arba, the Finance Minister has announced income tax exemption and reductions in revenue and customs rates.

To remove the tax burden, Minister Wagle has doubled the income tax exemption limit to 10 lakh for individuals. Similarly, the customs duty on industrial raw materials has been reduced for 274 types of raw materials to be at least one level lower than that of finished goods. Excise duty on 360 items has been abolished.

The Finance Minister has made extensive changes in tax rates and systems in the budget to provide relief to citizens and industrialists-businessmen. Through the budget speech, 11 main significant changes in the tax system have been announced.

Accordingly, programs ranging from increasing the personal income tax limit to promoting the stock market and digital payments have been included. The government has announced that the customs duty system, which was previously in 11 tiers, will be revised and limited to only 7 tiers.

Similarly, the budget has made a provision that Section 57 of the Income Tax Act will no longer be applicable to changes in company ownership.

The capital gains tax paid on share transactions will be considered as the final tax. To encourage electronic (digital) payments, a 10 percent Value Added Tax (VAT) exemption will be provided at the time of issuing the bill.

The policy reforms announced by the government through the budget, which are friendly to the private sector, have brought great hope to the private sector, which has been suffering from economic slowdown, lack of capital, and low morale.

The budget signals that the state's role is not only as a controller and regulator but also as a creator of opportunities and a facilitator. The government has adopted private sector-friendly policies by promoting tax exemptions, investment facilitation, openness in energy trade, and innovation. Many issues from the National Independent Party's manifesto and the government's policy and programs, and 100 agendas for governance reform, were also private sector-friendly.

Accordingly, Finance Minister Wagle, under the leadership of Prime Minister Balen Shah, has included many issues mentioned in the party's manifesto and the government's policy and programs, and 100 agendas for governance reform.

The private sector also appears to be enthusiastic as the budget has addressed the issues included in the party's manifesto and the government's policy and programs. The private sector also seems to have faith in the government's policies. Industrialists and businessmen from the private sector have also given feedback that the budget has boosted the private sector.

They have stated that the tax, revenue, and various announcements made by the government are positive and should be emphasized in implementation. The private sector appears to be further encouraged by the belief that the programs and policy reforms announced by the private sector have implementation capacity.

Main announcements made in the budget, including the private sector

Concessions in tax policy and relief for the stock market

The budget has provided the biggest relief to the private sector and the general public in tax rates. The personal income tax exemption limit has been doubled to 10 lakh rupees.

The maximum tax rate has been reduced by 10 percentage points. This will increase the disposable income of citizens in the market, and its direct benefit will be seen in the increase in business of industrialists and businessmen.

Addressing the long-standing demand of capital market investors, a provision has been made to consider the capital gains tax paid on the sale of shares of listed companies as the final tax.

To encourage digital payments, the provision for consumers to receive a 10 percent VAT exemption at the time of bill issuance will increase transparent transactions in the market and expand the size of the formal economy.

Abolition of excise duty on 360 items

The budget has greatly addressed the concerns of industrialists who have been complaining about increased production costs and complicated tax systems. Excise duty on 360 items has been completely abolished. This will reduce both administrative hassle and production costs for industrialists. However, excise duty on cigarettes, alcohol, and beer has been increased by 10 percent.

To protect domestic industries, a policy has been implemented where the customs duty on industrial raw materials will be at least one level lower than that of finished goods. Under this, customs duty on 273 types of raw materials has been reduced.

The existing 11-tier customs duty system has been reduced to 7 tiers. The tax system has been simplified by integrating scattered taxes such as infrastructure tax, road maintenance and improvement fees collected at customs points into green tax.

Investment Express and Hassle-Free Laws

To end the administrative hassle faced by domestic and foreign investors, the budget has put forward the concept of Investment Express. Under this, a one-stop system will be implemented for company registration, financial services, and visa applications through an automated route system.

The government has announced the abolition or amendment of about 15 old laws that hinder investment and the introduction of a new company law. The private sector says this will bring about a fundamental improvement in the doing business environment.

Private Sector Gets 'Red Carpet' in Energy Sector

The role of the private sector in energy will no longer be limited to production. The budget has announced that the private sector will be allowed to build transmission lines and trade electricity directly in the international market by paying wheeling charges.

Similarly, a policy will be adopted to allow 100 percent private investment in large reservoir-based projects, which will be handed over to the government only after 40 years.

The government, through the budget, is set to significantly increase the attraction of foreign and domestic corporate houses to hydropower. The announcement of immediate 'take or pay' model PPAs for projects smaller than 10 megawatts is a great relief for small investors, according to the private sector.

Startup, Innovation, and Sick Industries Get a Lifeline

The government's policy is to operate industries that are on the verge of closure due to lack of capital or are not functioning at full capacity with the support of the private sector.

For this, the budget has announced the provision of business revival loans. To ensure financial access for small and medium-sized enterprises, a loan protection program has been introduced under the first loss recovery model.

Allocating 1 percent of the government's total capital expenditure for innovation and encouraging angel investment and venture capital has provided great support to young entrepreneurs.

Exemptions for Information Technology and Export Promotion

The government considers information technology as a new economic engine. It has announced a 50 percent tax exemption on income earned from exports in this sector.

The government has adopted a policy of providing special concessions to export-oriented industries by introducing the concept of employment-linked production. Forest sector policies have been relaxed to increase the use of domestic timber and promote the herbal industry.

Real Estate, Stock Market, and Banking

Policies have been adopted to make the real estate and stock markets dynamic. Foreign nationals will be allowed to purchase apartments with conditions, and non-resident Nepalis will be allowed to invest in the secondary market of securities.

This policy of the government will bring foreign capital into the securities market. The announcement of establishing a National Asset Management Company to manage the increasing non-performing loans in the banking sector is expected to help clean up the balance sheets of banks and financial institutions.

Private Sector Dissatisfied with 13 Percent VAT on Electricity Consumption

The government has announced the imposition of Value Added Tax (VAT) on electricity, a tax that the private sector believes should be corrected.

The government has adopted a policy of imposing a 13 percent VAT on electricity consumption. A provision has been made to apply VAT at a concessional rate on consumption exceeding 50 units per month sold to end consumers.

The upcoming fiscal year's budget has made a provision to provide a 50 percent tax exemption on income earned from the export of such services to promote the information technology industry as the nation's new economic engine.

An 'Internal Production Promotion Fee' has been imposed on some goods imported into Nepal. The upcoming fiscal year's budget has made a provision that interest earned by fully government-owned development finance institutions of friendly nations established for non-profit purposes by investing in Nepal will be exempt from income tax.

The budget has made a provision to provide a full income tax exemption for the first 10 years to those establishing new cinema halls outside metropolitan and sub-metropolitan cities. The budget has also made a provision to review the sensitive list of the South Asian Free Trade Agreement (SAFTA) in the changed context.

The budget has made a provision to impose a parity fee at a minimum rate on education and health services provided by the private sector to support the construction of education and health infrastructure and expansion of services in remote areas.

The budget has made a provision to impose customs duty on electric vehicles based on value rather than peak hour capacity.

A clean infrastructure investment fee has been imposed at the point of import for the domestic production of such vehicles, construction of charging stations, and battery management.

Emphasis on Public-Private Partnership

The government has announced that seven public enterprises, including the closed Gorakhkali Rubber Industry, will be operated under a public-private partnership model. The government intends to send a message that it is not in the business of trading, but in creating an environment for trade.

The budget for fiscal year 2083/84 has been focused on boosting the morale of the private sector and easing the investment environment. Provisions such as tax concessions, elimination of policy hurdles, private sector entry into energy trade, and state investment in innovation are very progressive. It is necessary to prioritize implementation over making attractive policies and announcements, as in previous years.