Author: Lomash Gautam
On May 28, 2024, the Finance Minister of Nepal unveiled the budget for the fiscal year 2081/82. Stakeholders from various sectors eagerly anticipated changes and reforms, and the budget did not disappoint. It aims to address critical areas to promote economic growth, enhance infrastructure, support agriculture, and advance the IT sector. As always, there are some bold promises and noteworthy amendments to various acts.
Five Transformative Sectors:
The government has listed five transformative sectors that will be the focus of significant investment and
reform:
i) Agricultural Sector Transformation
ii) Energy Sector Development
iii) Information Technology Development
iv) Tourism Promotion
v) Entrepreneurship and Industrial Development
i) Agricultural Sector Transformation: The “Decade of Agricultural Investment”
The government has announced the “Decade of Agricultural Investment” to revitalize the agricultural sector, a cornerstone of the country’s economy and livelihoods. This decade-long initiative aims to modernize agriculture through commercialization, technological integration, and substantial investment from both public and private sectors.
The budget also emphasizes enhancing the capacity of agencies involved in agricultural research, including the Agricultural Research Council. In the coming fiscal year, the development of 75 agricultural technologies will be undertaken. To support these efforts, NPR 3.52 billion has been allocated for agricultural research and development.
ii) Information Technology Development: Embracing the “Information Technology Decade”
Digital transformation is revolutionizing various sectors, significantly enhancing efficiency and transparency. Government services, healthcare, and education are increasingly integrating digital platforms, making services more accessible to the public. According to the budget, the government aims to export NPR 30 billion worth of IT services, creating 500,000 direct jobs and 1,000,000 indirect jobs. The upcoming fiscal year will mark the beginning of the “Information Technology Decade.”
iii) Energy Sector Development: Enhancing Capacity and Sustainability
The budget highlights significant advancements in Nepal’s energy sector. Key initiatives include the addition of 900 MW of electricity, raising the national grid capacity to 4,500 MW and targeting per capita consumption to 450 units. Plans are in place to facilitate electricity exports to Bangladesh and involve private sector participation in transmission line construction. Investment in reservoir hydropower projects
is encouraged, with notable projects like Budhigandaki and Dudh Koshi set to commence. NPR 50.74 billion has been allocated for energy sector development, ensuring a robust and sustainable energy infrastructure for Nepal’s future.
iv) Tourism Promotion: Attracting 2 Million Tourists
The fiscal year 2081/82 budget prioritizes the tourism sector, aiming to attract 2 million tourists with enhanced promotion campaigns, streamlined services, and new tourist activities. Key initiatives include developing tourist routes, eco hill stations, and adventure tourism infrastructure, while expanding and upgrading airports. Major cultural and religious sites will be promoted, and inactive airports will be repurposed for adventure tourism. A Himalayan Resource Center will be established, and May 29 will be celebrated as International Everest Day. NPR 11.91 billion is allocated to boost tourism infrastructure and activities.
v) Entrepreneurship and Industrial Development: Boosting Domestic Production
The budget focuses on boosting domestic production, reducing imports, and increasing exports by integrating production with employment. Initiatives include promoting agricultural and industrial growth, expanding rural tourism, and encouraging innovation-based startups. Key projects include developing
economic hubs in each province, enhancing industrial corridors, and establishing business incubation centers. The budget also emphasizes public-private partnerships, especially in infrastructure development, and aims to create a supportive ecosystem for youth and women entrepreneurs. NPR 6.55 billion is allocated for industrial development and entrepreneurship promotion.
Tax Updates:
The budget introduces several notable tax updates:
i) Rebate on Dividend Tax:
The budget provides a rebate on dividend tax for the IT industry when earnings are capitalized into share capital for capacity enhancement. However, given the country’s income tax enforcement, questions may arise about what constitutes capacity enhancement.
ii) Amendment to Section 57 of the Income Tax Act:
No tax will be levied if a change of more than 50% occurs due to the addition of new share capital. This change, long advocated for by the private equity industry, is a welcome development.
iii) Introduction of Green Tax:
A new Green Tax will be levied at the custom point on various goodssuch as coal, petrol, and diesel. This tax aims to curb the country’s emission of greenhouse gases. It will be interesting to see where the government will use the proceeds from this tax.
Conclusion
The budget for the fiscal year 2081/82 lays out an ambitious plan for Nepal’s economic and social development. With significant investments in agriculture, energy, IT, tourism, and industrial development, the government aims to create a more prosperous and sustainable future for the country. The tax reforms, particularly those aimed at supporting the IT and private equity sectors, reflect a forward-looking approach to fostering growth and innovation. As these initiatives unfold, they hold the promise of
transformative change for Nepal’s economy and society.
However, it is important to note that this budget was brought forward by the Maoist-led government, which has since been ousted before the start of the fiscal year for which the budget was announced. The implementation of this budget will be carried out by the UML-led government, raising doubts over whether all the proposed initiatives will be effectively realized. As these initiatives unfold, the commitment and approach of the new government will be crucial in determining the success of these transformative changes for Nepal’s economy and society.
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