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The Financial Action Task Force (FATF) has retained Nepal on its Jurisdiction under Increased Monitoring list, commonly known as the gray list, citing persistent strategic deficiencies in the country’s anti-money laundering (AML) and counter ­terrorist financing (CFT) regime.

Issuing a statement after its plenary session last Friday, the global watchdog said while Nepal made a high-level commitment to strengthen its AML/CFT framework earlier this year, the progress has not been sufficient to warrant removal from the gray list. It said Nepal should continue to work on implementing its action plan to address its strategic deficiencies.

After the plenary, the FATF has said that Nepal most improve its understanding of money-laundering and terrorist-financing risks remains limited; enhance supervision of higher-risk sectors such as banks, cooperatives, casinos, real-estate and dealers in precious metals and stones; and demonstrate the identification and sanctioning of materially significant illegal hundi providers without affecting financial inclusion.

Additionally, Nepal has been told to increase capacity and co-ordination of competent authorities to conduct money laundering investigations; demonstrate an increase in such investigations and prosecutions; demonstrating measures to identify, trace, restrain, seize, and, where applicable, confiscate proceeds and instrumentalities of crime in line with the risk profile; and address technical compliance deficiencies in its targeted financial sanctions regime for terrorism financing and proliferation financing.

Nepal had previously exited the gray list back in 2014 after a roadmap of reforms was implemented. Earlier in February, the government had signaled strong political commitment to bolster its AML/CFT systems. Despite some legislative progress, implementation has remained uneven and structural reform has lagged. In particular, Nepal's regulatory oversight of non-financial businesses, beneficial-ownership transparency and enforcement action remain deficient.

About three years ago, the Asia Pacific Group on Money Laundering (APG) conducted a Mutual Evaluation Report on Nepal’s system for preventing money laundering and terrorist financing, and submitted its findings to the Financial Action Task Force (FATF).

The APG’s annual plenary meeting, held in Vancouver, Canada, from 9-14 July 2023, endorsed Nepal’s mutual evaluation report. Based on that assessment, the FATF in Oct 2023 placed Nepal under a one-year observation period. During the assessment, it  identified 40 areas for improvement.

Nepal was expected to implement the FATF’s recommendations and demonstrate progress sufficient to avoid being placed on the gray list during this period. However, the country failed to make significant improvements within the one-year timeframe, leading to its eventual placement on the gray list.

Although being on the FATF’s gray list does not automatically impose sanctions, it acts as a red flag to the international financial community. Banks, foreign investors and correspondent-banks tend to apply heightened due diligence when dealing with entities in gray-listed jurisdictions. 

Building trust through strong anti-money laundering and countering the financing of terrorism frameworks will be critical for Nepal as it seeks to maintain international financial credibility and attract foreign capital.

The gold is being traded at Rs 239, 700 per tola in the domestic market on Monday.

According to the Federation of Nepal Gold and Silver Dealers’ Association, the silver is being traded at Rs 3, 060 per tola today.

Electric vehicle imports grew by a modest 4.05 percent over the first quarter of current fiscal year. According to the Department of Customs, Nepal imported 2,620 units of electric cars, jeeps and vans between mid-July and mid-October of the current fiscal year, up from 2,518 units in the same period of 2024/25.

Imports of electric three-wheelers also showed an interesting trend. Nepal imported 2,809 unassembled units and 2,032 assembled units from China during the review period of the current fiscal year, up from 2,635 assembled and 2,051 unassembled three-wheelers in the same period of the previous fiscal year. The increase in unassembled electric three-wheeler imports suggests that local assembly and customization are gaining momentum, potentially helping reduce costs and create domestic jobs.

The total value of these imports were Rs 6.76bn. Such imports in the same period of 2024/25 were worth Rs 6.57bn. Customs revenue from these imports grew to Rs 4.09bn in the review quarter of the current fiscal year from Rs 3.9bn in the same quarter of 2024/25.

In the first quarter of 2025/26, 751 EVs with a peak motor capacity below 50 kW were imported, along with 1,545 units between 51–100 kW, and 323 units in the 101–200 kW category. One vehicle with a motor capacity between 201–300 kW was also imported.

During the same period last year, Nepal had imported 772 units below 50 kW, 1,582 units between 51–100 kW, and only 159 units between 101–200 kW. Three vehicles in the 201–300 kW range and two above 300 kW were also imported in the first quarter of the previous fiscal year.

Nepal levies taxes on electric vehicle (EV) imports based on their motor capacity, with higher-powered models facing steeper duties. Under the current tax structure, EVs with motor capacity of up to 50 kW are subject to a 15 percent customs duty and a 5 percent excise duty. Vehicles with motor capacity between 51 kW and 100 kW face a 20 percent customs duty and 15 percent excise duty, while those between 101 kW and 200 kW are taxed at 30 percent customs and 20 percent excise. For EVs with motor capacity ranging from 201 kW to 300 kW, the government levies 60 percent customs duty and 35 percent excise duty. 

EVs with peak motor capacity above 301 kW are subject to 80 percent customs duty and 50 percent excise duty, making high-performance models significantly more expensive to import. China continues to be Nepal’s dominant EV supplier, with popular passenger car brands such as BYD, MG, Deepal, Dongfeng, and Jaecoo/Omoda leading the market. From India, Tata Motors remains the largest exporter of EVs to Nepal, followed by Mahindra.

Nepal imported over 44,500 electric vehicles, including scooters, motorcycles, three-wheelers, cars, microbuses, and buses, worth nearly Rs 44bn in the previous fiscal year. The government collected Rs 22.76bn in revenue from these imports.

The Nepal government has been providing a large amount of economic concessions annually through tax exemptions. The Ministry of Finance has stated that approximately Rs 2.5trn are provided in tax exemptions per year.

Tax exemptions are given in various ways. These include exemptions provided by the relevant laws, the Income Tax Act, the Value Added Tax Schedule, and the annual Economic Act. In particular, there is a practice of providing tax exemptions on value added tax and customs duties in grant or loan agreements under bilateral or multilateral foreign aid.

As mentioned in the 62nd Annual Report of the Auditor General, 2025, Section 18 of the Economic Act, 2023 provides for the Government of Nepal to reduce, increase, or partially or completely exempt from revenue the rates of fees, charges, duties, or taxes imposed by the prevailing law. Similarly, Section 14 and Section 15 of Schedule 1 of the Economic Act, 2023 provide for full or partial exemption of customs duties. According to the Customs Department's data system, it appears that Rs 79.87bn was exempted from customs revenue in 2023/24.

According to the details received from the Ministry of Finance, customs duty and value added tax of Rs 4.87bn were exempted from importing goods under the SAFTA facility. In addition, as per Section 18 (2) of the Finance Act, 2023, the Ministry of Finance has granted revenue exemption of Rs 20bn on import value of Rs 34bn to various ministries, departments, local levels, and corporations, including Rs 6bn, in the last four years. Similarly, as per Section 18 (3), it appears that revenue exemption of Rs 7bn has been granted on goods and goods worth Rs 43bn, subject to the terms of the project development agreement, for projects implemented with foreign loans or grants.

Pointing out that the Ministry of Finance has not kept updated records of the items and amounts exempted from revenue on materials and equipment imported into the facility, the Accountant General has suggested, “The exemption should be granted only if the master list is approved by the relevant project before inviting bids and whether the goods and goods imported into the facility were used in the same project or not. There should also be monitoring and since the scope of revenue exemptions is increasing, its impact should be analyzed and the integrated data of revenue exemptions should be presented to the parliament to promote transparency.”

In addition to the exemptions, the Ministry of Finance and its subordinate bodies have yet to recover Rs 435.22bn in revenue and principal and interest on loans that exceed the limit. Out of this, the revenue arrears are Rs 254.4bn, of which Rs 123.80bn (48.73 percent) have been filed for judicial review by taxpayers, so a large portion of the arrears are under consideration by judicial bodies. The government has been saying that the principal and interest on loans and investments made by public corporations, committees, boards, cooperatives and local levels that exceed the limit is Rs 181.18bn. The Accountant General has been saying that the amounts that exceed the limit, principal and amount, and revenue arrears should be recovered through legal procedures. Stakeholders say that due to non-payment of revenue, apart from the exemptions given by the government, the country is also facing an uncomfortable situation due to additional budget expansion in the education and health sectors.

The government has been giving tax exemptions to target groups as an incentive. According to Pandey, spokesperson for the Ministry of Finance, the main reason for giving tax exemptions is the provision given by the law and the constitution. “The purpose of this is to encourage any industry or business. In addition, incentives are also provided to certain classes and groups. Some exemptions are provided for tricycles and motorcycles used by people with disabilities,” he said. “This system of giving tax exemptions is not to benefit any specific person but is based on the law. Schedules have been placed in the Value Added Tax Act. Which classify taxable, non-taxable and zero-taxable transactions.”

Former Revenue Secretary of the Ministry of Finance, Ram Sharan Pudasaini, suggests that the annual tax exemptions have been misused to some extent and that it has increased inequality, suggesting that tax refunds and budget grants should be used instead. “The government is providing annual tax exemptions worth nearly two and a half trillion rupees through laws and various economic acts. This amount of tax exemption is excessive and there is no control and monitoring over it, which may have led to increased misuse,” he said.

Pudasaini also raised questions about the effectiveness of the tax exemptions currently being given. He commented that there is no analysis, audit or monitoring of whether the justification and purpose of the tax exemptions have been fulfilled and whether the benefits have reached the target group or not. Pudasaini noted that the current technology of granting tax exemptions by decision of the Ministry of Finance or the Council of Ministers is not right and suggests that tax exemptions should be given only in a very limited, targeted, short-term manner and especially in connection with investment and job creation. 

The government currently does not have an account of the amount of exemptions given by the schedule of the Value Added Tax Act on daily consumer goods, such as pulses, rice and green vegetables.

Stakeholders have been saying that the state is losing a large amount of revenue annually through tax exemptions. External donor agencies such as the World Bank and the International Monetary Fund (IMF) have also shown concerns regarding the large amount of tax exemptions. 

An IMF study has suggested reconsidering the system of tax exemptions given in Nepal on a large scale, says Tanka Prasad Pandey, spokesperson for the Ministry of Finance. 

“There are many such long lists of tax exemptions. In the past, there was no exact calculation of how much the government was giving such exemptions. However, the IMF has studied this issue and mentioned detailed details in its report. The study suggests reconsidering the system of tax exemptions given in Nepal on a large scale,” he said.