NFTA welcomes budget’s private sector support but flags concerns over liquor duty hike

KATHMANDU, JUNE 2: The Nepal Foreign Trade Association (NFTA) has welcomed the federal budget for the upcoming fiscal year 2025/26, describing it as largely positive and responsive to the interests of the private sector. The Association appreciated the government’s acknowledgement of the private sector as a key driver of the economy and its commitment to collaborative efforts through the budget and accompanying Finance Ordinance.

One of the highlights, according to the Association, is the government’s pledge to study the issue of multiple VAT rates—a long-standing concern—and to make customs valuation more realistic, which has been a major demand of the importers.

The move to replace the current reference price list system used by customs offices with an automated valuation mechanism based on international pricing databases is expected to contribute significantly to trade facilitation.

Additionally, the Association welcomed the removal of advance income tax at customs points on the import of essential goods such as food grains, legumes, fruits, vegetable oil, and animal products. Another long-pending demand fulfilled in this year’s budget is the scrapping of the requirement for a bank guarantee while obtaining an EXIM code.

The Association also praised the removal of the minimum tax provision for taxpayers who have not conducted any taxable transactions, terming it another encouraging step.

According to it, the further positive highlights of the budget include the following:

• Allowing Nepali businesses to invest abroad;

• Reduction of land lease fees in Special Economic Zones (SEZs);

• Extension of SEZ-equivalent facilities to industries that export more than 30% of their total production;

• New supportive policies on electric vehicles; and

• Simplification of customs declaration procedures for those foreign tourists entering Nepal via land or air routes with a USD 5,000

The budget has also introduced a 75% income tax rebate on revenue generated from IT service exports. Moreover, taxpayers who failed to submit their income details on time will be given the opportunity to settle outstanding dues based on revised assessments- the measures the Association sees as private sector-friendly.

Despite these positives, the Association expressed serious concern over the steep increase, ranging from 100% to 200%, in excise duties on imported liquor. It warned that this move overlooks the high potential for illegal trade across the open border, especially with India, where alcohol is significantly cheaper. Such a price gap, the Association argued, could incentivize smuggling, reduce formal trade, and negatively impact revenue collection.

The Association also criticized the budget for not addressing income tax reforms that could increase consumer spending. It emphasized the need to raise the income tax exemption threshold and reduce personal income tax rates to boost purchasing power, especially at a time when economic activity remains sluggish.

While it acknowledged that setting a lower revenue target compared to the previous fiscal year was a realistic move, the Association still sees achieving that target as a considerable challenge.

Lastly, the Association welcomed the provision barring any charges, such as route fees or entry fees, on transport vehicles entering Nepal temporarily. It also appreciated the introduction of fast-track customs clearance and on-site goods inspection services for certified traders, stating that such measures will significantly support trade facilitation.