Proposal to Raise Minimum Income Tax Threshold to NPR 1 Million in Upcoming Budget

April 10, Kathmandu – The Federation of Nepalese Chambers of Commerce and Industry (FNCCI) has proposed to the Ministry of Finance that the minimum income tax threshold be raised to NPR 1 million in the forthcoming budget.

Currently, the minimum taxable income is NPR 500,000 for unmarried individuals and NPR 600,000 for married individuals annually. The federation suggests increasing this limit to NPR 1 million, which is expected to benefit many low-income individuals widely.

At present, an annual income slab imposes a 1% social security tax on earnings up to NPR 500,000 for unmarried and NPR 600,000 for married persons. Beyond this, income tax rates increase progressively as follows: 10%, 20%, 30%, 36%, and a top rate of 39% on higher incomes.

FNCCI submitted these recommendations to Finance Minister Dr. Swarnim Wagle for the fiscal year 2083/84 budget, emphasizing the need for policy improvements to support industry and investment, considering the private sector as a key growth driver.

The federation further recommended imposing at least a two-tier customs rate difference between raw materials and finished goods, implementing a refund or adjustment system on customs levied on industrial raw materials, and incentivizing the use of at least 40% domestic raw materials by granting tax exemptions on imported remainder inputs to promote local production.

Addressing the recommendations, FNCCI President Birendra Raj Pandey stated that the budget should aim to facilitate income generation and wealth creation. He expressed confidence that the implementation of the fiscal year 2083/84 budget would significantly enhance economic expansion, employment generation, and investment growth.

FNCCI presented policy suggestions to the government across multiple sectors, including industry, investment, foreign direct investment, tax policy, customs, tourism, agriculture, herbal products, energy, information technology, banking, insurance, cooperatives, capital markets, domestic production promotion, infrastructure, health, education, and tax revenue leak prevention.

Emphasizing industrial prioritization, the federation urged the government for policy reforms ensuring a minimum ten-year stability, formulation of an industrial development strategy focusing on competitive products, and budget design that takes into account employment, production, and import substitution.

FNCCI also called for simplifying, integrating, and narrowing the tax system, improving clear interpretations of VAT, income tax, and excise laws, and establishing the minimum personal income tax threshold for individuals at NPR 1 million, accompanied by reduced tax rates.

They recommended implementing a risk-based audit system, facilitating tax dispute resolution, introducing advance rulings, and digitizing tax administration. To curb smuggling and tax evasion, stronger coordination among related agencies, enforcing minimum quality standards, and upgrading testing and certification mechanisms to international standards were also suggested.

The federation advocated prioritizing domestic products in public procurement, implementing a digital portal for domestic product identification and procurement, simplifying policies for sustainable use of natural resources, and instituting grant schemes based on production, employment, and exports.

FNCCI further advised simplifying tax laws to be clear and investment-friendly, removing double tax provisions in the Income Tax Act, instituting civil liability for economic offenses, protecting industry-related facilities, and providing tax incentives to productive industries at local levels.

To attract private sector participation in large infrastructure projects, the federation proposed crafting supportive policies. They recommended allowing industries to mortgage additional land beyond approved project plots and selling industries as per approval, and urged government-industry collaboration on financial reconciliations.

Finance Minister Dr. Swarnim Wagle highlighted the necessity of developing private sector capital and stressed increasing private investment in infrastructure. He acknowledged the need for legal and tax system reforms.

He reiterated the government’s stance that development is not possible without private sector investment and emphasized encouraging private sector participation in infrastructure development.

The event was attended by outgoing FNCCI President Rajesh Kumar Agrawal, former presidents Haribhakta Sharma and Vishnu Kumar Agrawal, Senior Vice President Nirvan Chaudhary, Vice Presidents Hem Raj Dhakal, Bhim Ghimire, Gokul Bhandari, Governing Council member Shashikant Agrawal, Executive Member Sandeep Sharda, Director General Dr. Ghanshyam Ojha, and chairpersons from various committees.