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The government’s Rs 2,124.34bn spending plan for the upcoming fiscal year 2026/27 rests on an ambitious assumption that revenue collection will jump to Rs 1,580bn next year. The target anchors a spending plan built around tax relief for the middle class, VAT reforms, digital infrastructure investments and measures aimed at stimulating private sector activity. However, the question facing policymakers, businesses and investors is whether such a sharp increase in revenue is achievable given Nepal’s recent performance on revenue fronts, sluggish economy and long-standing structural constraints.

The target for the new fiscal year is Rs 265bn more than the revised revenue target for the current fiscal year. Although the government had initially set a revenue target of Rs 1,480bn for the current fiscal year, it revised the target downward to Rs 1,315bn through the mid-term review of budget in February, citing low revenue collections and slow pace of capital expenditure. Even that revised target appears difficult to achieve as revenue collection by mid-May has reached just Rs 1,039.67 by June 3. This is roughly around 70 percent of the annual target.

Based on current collection trends, total revenue is expected to reach around Rs 1,250bn this year.  That would represent growth of only around 6 percent over last year’s collection of Rs 1,178bn. Against this backdrop, next fiscal year’s target of Rs 1,580bn appears highly ambitious. If revenue collection reaches Rs 1,250bn this year, the government would need growth of more than 26 percent next year to meet its target.

Achieving such a high revenue growth would be difficult. Data show revenue growth has remained subdued since the Covid-19 pandemic. In 2024/25, revenue growth stood at 11.5 percent, while it remained at just 10.5 percent in 2023/24. Revenue growth even turned negative in two of the past 12 years, declining by 10.2 percent in 2022/23 and by 4.3 percent during the pandemic-hit 2019/20. Before the pandemic, Nepal was seeing revenue growth of around 15 percent. Historical data suggests recording revenue growth of as high as 26 percent would be very challenging if not difficult.

During a post-budget press meet in Kathmandu, Minister for Finance Dr Swarnim Wagle remained upbeat about achieving revenue targets. He argued that the target will be supported by changes in customs duties, VAT, excise taxation and business expansion. The government is also betting that higher economic activity, stronger consumption and improvements in tax compliance will broaden the revenue base.

However, the budget itself contains measures that could reduce revenue collection from some traditional sources. One of the most significant changes is the restructuring of personal income tax slabs. The government has increased the tax-free threshold and lowered tax rates for many middle-income earners in a bid to boost household spending.

In the previous fiscal year, income tax generated Rs 292.6bn, including Rs 108.3bn from individuals and Rs 135.2bn from corporations, for the government. According to finance ministry estimates, the revised income tax structure could reduce annual revenue by Rs 35bn to Rs 40bn.

To offset that loss, the government has introduced a 3 percent equity tax on education and health services and imposed a 5 percent VAT on electricity consumption. The finance minister has estimated that these measures could generate roughly Rs 35bn annually. This, he said, would help bridge the revenue gap created by income tax relief.

Finance ministry officials say the decision to remove excise duties on 273 items would not affect revenue collection much as they believe new environmental or ‘green’ taxes on many products would offset the loss. 

The government has struggled to meet revenue targets despite repeated revisions. Weak domestic demand, slow private sector investment, underperforming imports and inefficiencies in tax administration have constrained collection for several years. Many of those challenges remain unresolved and are not going to change overnight. 

While the government is saying that economic growth will accelerate, business activity will improve and tax compliance will strengthen, achieving more than 26 percent revenue growth within a single year would require a significant departure from recent trends. 

The lack of skilled workforce for the industrial sector, insufficiency of raw materials and market issues for produced goods have been highlighted as major concerns for the industrial development in Nepal. 

According to a study conducted by the Nepal Rastra Bank (NRB), capital insufficiency, high production cost, technological backwardness, lack of full efficiency, brain drain and problems in management and operation of environment-friendly industries have been depicted as other challenges for the industrial development.   

The document highlights urgency to accelerate the development of industrial infrastructure, increase industrial production and productivity, ensure proper management and supply of raw materials, enhance the competitiveness of domestic products and diversify export-oriented goods. 

These have been cited in a report issued by the Central Bank. 

According to the report, industries based in the Karnali Province face various problems including capital insufficiency and challenges for marketization for their sustainability. 

A large number of youths involved in foreign employment have been cited as one of key factors behind industries facing the shortage of required skilled and technical workforce. 

According to the study, since the Madhes Province is a hub for production of rice, wheat, maize, sugarcane, oilseeds, vegetables, fruits, dairy products, there is significant potential for the expansion of agro-based industries, food processing industries, sugar industries, dairy industries, edible oil industries, rice mills and animal feed industries.

The Nepal Stock Exchange (NEPSE) plunged by 4. 00 points to close at 2, 724. 03 points on Sunday.  

Similarly, the sensitive index dropped by 0. 53 points to close at 467. 09 points.

A total of 9,856,525-unit shares of 342 companies were traded for Rs 1. 56 billion.

Meanwhile, Sopan Pharmaceuticals Limited (SOPL) and Appolo Hydropower Limited (APHL) were the top gainers today with their price surging by 14. 99 percent.

Likewise, Kalinchock Hydropower Limited (KHPL) was the top loser as their price fell by 10. 66 percent.

At the end of the day, the total market capitalization stood at Rs 4. 65 trillion.

The price of gold has increased by Rs 1, 200 per tola in the domestic market on Sunday. 

According to the Federation of Nepal Gold and Silver Dealers’ Association, the precious yellow metal is being traded at Rs 293, 200 per tola today. It was traded at Rs 292, 000 per tola on Friday.

Similarly, the price of silver has increased by Rs 55 and is being traded at Rs 4, 895 per tola today.