New Financial Year Begins with Tax Reforms and Policy Changes

Kathmandu. The new financial year 2083/84 is starting from Friday, July 1. With the beginning of the new financial year, the budget, policies and programs brought by the government and the monetary policy published by the central bank will come into implementation.

The government has removed some old taxes and provided concessions, while also adding some new tax policies. The government states that various tax policies have been changed with the aim of simplifying the tax system, expanding private sector investment, promoting industries and businesses, and making the banking system more effective. Compared to the financial year 2082/83, significant changes have been made in the tax system related to personal income tax, customs, excise duty, green tax, and electric vehicles (EV) in the current financial year.

The biggest change has been made in personal income tax. The limit of 1% tax on annual income up to 5 lakh rupees has been increased to 10 lakh rupees. Similarly, the maximum personal income tax rate has been reduced from 39% to 29%.

From July 1, 1% tax will be levied on income up to 10 lakh rupees, 10% on income between 10 to 15 lakh rupees, 20% on income between 15 to 25 lakh rupees, 27% on income between 25 to 40 lakh rupees, and 29% on income above 40 lakh rupees. This is expected to provide relief particularly to middle and high-income taxpayers. Likewise, the government has increased the salary of employees by 21%. The increased salary will also be implemented from July.

New arrangements are also being implemented in customs duty. The customs rate, which was previously in 11 tiers, has been reduced to 7 tiers. Additionally, customs duty has been reduced on 273 types of industrial raw materials. The government expects this to reduce the production cost of industries. Significant changes have also been made in the excise duty system. Excise duty will now be levied on 360 items. However, excise duty has been increased on liquor, cigarettes, tobacco products, junk food, juice, and some luxury goods. The increased tax has already come into implementation.

From the new financial year, an integrated green tax, incorporating various titles like infrastructure development tax and road maintenance fee, is being implemented. Similarly, with the aim of promoting agricultural production and commercialization, a provision to provide up to 40% incentive grant to farmers investing up to 2 crore rupees will also come into implementation.

With the aim of making the capital market modern and competitive, the government has adopted a policy to gradually operate intraday trading, short selling, and derivative trading. The provision that capital gains tax from the sale of shares of listed companies will be the final tax will also be implemented.

• What new fees have been added?

According to the Financial Act, 2083, various new fees will also come into implementation from July 1. Some of the new tax policies brought by the government appear to directly affect the general public. A 3% 'Education Equity Fee' on fees charged by private educational institutions and a 3% 'Health Equity Fee' on services of private health institutions will be implemented. Although the government claims that this tax has been imposed on the fees charged by private institutions to improve government schools and hospitals, its direct burden will fall on the general citizens.

Similarly, a decision to implement a 5% Value Added Tax (VAT) on domestic electricity consumption is also coming into implementation. Now, families consuming more than 50 units of electricity will have to pay 5% VAT. Although the government has stated that it will make alternative arrangements so that the burden does not fall on the final consumer, no clear arrangement has been published in this regard so far. However, 13% VAT will still have to be paid on commercial electricity consumption.

Now, a 2% 'Luxury Fee' will be levied on five-star or higher hotels and luxury resorts, and imported liquor. The annual royalty paid by mini casinos has been increased from 1 crore 50 lakh rupees to 3 crore rupees. From July 1, those buying gold and silver jewelry will also have to pay an additional tax. Those purchasing gold and silver jewelry will have to pay a 0.5% 'Skill Promotion Fee'. Additionally, a 5% service fee has been added to ride-sharing services (Pathao, inDrive, etc.).

• Expected to have a positive impact on the economy

The monetary policy for the financial year 2083/84 published by Nepal Rastra Bank is also coming into implementation from Friday. The implementation of the new policies and arrangements by the government and the central bank is expected to increase credit flow. It is expected that the economy will become dynamic due to the stability in the interest rate corridor maintained by the monetary policy, the provision allowing commercial banks to invest in foreign government bonds, and the facilitation made in the provision of blacklisting due to check bouncing.

The government and the central bank's new policies and arrangements are expected to provide relief to taxpayers, reduce the cost of industries and businesses, increase private sector investment, promote the agricultural sector, modernize the capital market, and make the banking system more dynamic. However, due to additional fees on education, health, electricity, luxury consumption, ride-sharing, and some service sectors, consumers are likely to feel the direct impact.