Nepal’s Budget 2083: Will There Be a Salary Increase for Employees and Changes to Income Tax Thresholds?
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With inflation rising due to factors similar to the Iran war, there is widespread interest in the upcoming budget to be presented in Parliament next week concerning whether the government will increase employees’ salaries and revise income tax thresholds.
A former vice-chairman of the National Planning Commission noted that with a strong government currently in place, policies could be introduced to secure new sources of revenue, with expectations for expanded income tax coverage and salary increments for employees.
An industry umbrella organization’s chairman expressed hope for the introduction of long-term policies supporting businesses and industries, citing that the sluggish economy has yet to recover fully.
Finance Minister Swarnim Wagle has emphasized prioritizing the improvement of the economic conditions of the poor and the expansion of the middle class.
His party, the Rastriya Swatantra Party, pledged in its election manifesto to review the tax thresholds on salaries and to regularly and appropriately adjust employees’ wages.
A spokesperson from the Ministry of Finance explained that revising the income tax threshold is a sensitive issue and decisions will be made only after thorough analysis of its impact on revenue collection.
Officials report that final decisions on salary increments will be made for the key ‘signature projects’ included in the new budget.
What Do Experts Say?
With only one week left until the budget presentation, expectations are growing among private sector representatives and government employees alike for salary revisions and changes to income tax thresholds which have not been reviewed for four years.
Highlighting the government’s two-thirds majority in Parliament, former National Planning Commission Vice Chairman Min Bahadur Shrestha stated that improving revenue collection and providing tax relief to the middle class are necessary.
He explained, “Even with the current limited economy, approximately NPR 30 trillion could be collected easily if there is efficiency. However, leakages occur, and the general public does not pay taxes adequately. Large traders have been found evading taxes. This indicates greater potential to boost revenue.”
“If the government enforces good governance and effective revenue administration, income can increase. Revenue could be boosted through other sources and tax relief provided to the middle class. A system like India’s tax exemption on a defined income level could be feasible here too.”
He noted that tax exemptions increase the spending capacity of the middle class and that tax threshold reviews have not occurred due to past government mismanagement.
He further added, “Where taxes need to be collected, they are not being collected effectively; leakages exist, and even offering exemptions does not yield revenue. Therefore, the threshold must be increased promptly.”
Currently, individuals earning up to NPR 500,000 annually and couples earning up to NPR 600,000 pay 1% tax, with tax rates increasing at higher brackets.
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Couples earning from NPR 600,000 to 800,000 are taxed at 10%, from NPR 800,000 to 1.1 million at 20%, and those earning between NPR 1.1 million and 2 million at 30%.
For incomes between NPR 2 million and 5 million, a 20% tax rate applies on the first NPR 2 million, with an additional 30% tax levied on amounts exceeding NPR 4 million as per the Income Tax Act.
Experts mention that at the highest tax brackets, the rate reaches 39%, which is considered high in South Asia.
In neighboring India, taxpayers earning up to NPR 1.2 million annually benefit from various exemptions, generally paying minimal or no income tax.
Officials on Revising Income Tax Thresholds
According to suggestions made to Finance Minister Swarnim Wagle, the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) recommended setting the individual income tax exemption threshold at NPR 1 million.
FNCCI President Birendra Raj Pandey emphasized the need for a budget focused on income generation and wealth creation, advocating for policies that promote industry and production.
He stated, “The conflict in West Asia has driven up prices and inflation. We must bring resilient and stabilizing policies to the market. Reforming the tax system can bring transformation. Increasing personal income tax limits and coverage is essential.”
Officials at the Ministry of Finance say they are analyzing the impact of tax threshold changes and will make decisions at the time of the budget announcement.
Deputy Secretary and spokesperson Amrit Lamsal says, “The revenue team is seeking feedback from all stakeholders. We will evaluate how changes in thresholds will affect economic momentum and revenues. We will decide carefully. We cannot disclose information at this time.”
Analysis of budgets from the past decade shows that tax and salary reviews usually occur every three years.
The most recent adjustment was in 2022, when then Finance Minister Janardan Sharma increased employee salaries by 15% and raised income tax exemptions to NPR 500,000 for individuals and NPR 600,000 for couples.
Will There Be a Salary Increase for Employees This Time?
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Former National Planning Commission Vice Chairman Min Bahadur Shrestha stated that as the government led by Prime Minister Balendra Shah restructures ministries, administrative efficiency should be improved along with employees’ salary increments.
He said, “Legally, salaries should increase every two years. Current wages are insufficient for an average family. We have recommended doubling salaries while reducing staff numbers.”
He added, “There are complaints from some employees who prefer not to work in assigned locations and instead stay in Kathmandu. Positions of such staff should be cut and salary increments given to those actively working. If not now, then when?”
As per the Civil Service administration, in Fiscal Year 2081/82, the government approved over 151,000 civil service positions across three tiers. Currently, there are over 308,000 pensioners, with annual expenditures of NPR 8.1 billion.
What the Ministry of Finance Says
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A Ministry of Finance spokesperson stated that the government will make the final decision on salary increments at the last moment.
He said, “Even small salary increases affect everyone. The ministry can consolidate and reduce some administrative costs. Organizational restructuring is also possible, which will lower costs.”
He added, “Capital expenditures are the largest expense; once this is finalized, important projects can proceed, and only then will discussions about employee salaries take place.”
The Ministry of Finance has indicated that the budget will prioritize investments in productive industries, job creation, and export of IT services.
Responding to questions in Parliament on the principles and priorities of the Appropriation Bill, Minister Wagle emphasized good governance, economic restructuring, infrastructure, social investment, and multidimensional international relations.
Recently, the World Bank predicted Nepal’s economic growth rate will decline to 2.3% in 2026 and warned that conflicts in the Middle East would increase consumer goods prices and affect remittances.
