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A day after presenting his first budget, Finance Minister Dr. Prakash Sharan Mahat defended the budget announcement on the constituency infrastructure development program, changes in tax arrangements on the import of electric vehicles (EVs), and the capital gains tax (CGT) imposed on the mergers & acquisitions (M&As) and further public offerings (FPOs) of banks and financial institutions. In a post-budget press meet on Tuesday, Mahat said that increasing tax on EVs up to 100 KWs ‘does not mean the government is discouraging the usage of EVs’. The budget for FY 2023/24 has imposed a 5 percent customs duty and 10 percent excise duty on EVs of 50-100 KWs, while reducing the customs duty and excise duty on electric vehicles of 100-200 KW. EV dealers accused the government has paid attention to the demands of influential importers of internal combustion engine automobiles and that the decision will drive the prices of EVs up to 100 KW by Rs 700,000 to Rs 900,000 per unit. Mahat also said that large funds have been allocated to expedite the development of big projects to fulfill the needs of the country. "We are building projects like the Sunkoshi Marin Diversion Multipurpose Project and Bheri Babai Diversion Multipurpose Project with our own investment. A huge amount of money has already been spent on the projects," he said Mahat during the press meet held at the Finance Ministry. "The size of the budget increased to expedite the projects across the country." In the next fiscal year's budget, the government has prioritized the development of large and national pride projects including Sikta Irrigation, Bheri Babai, Sunkoshi Marin, and Naubasta Industrial Park in Banke, among others. The finance minister also claimed that the government has 'not levied taxes on the income from M&As and FPOs of banks and financial institutions. He asked the stock investors 'not to think that they have been taxed separately' as the arrangements have come per the provisions of the Financial Act which was also recommended in the Auditor General's report. The imposition of the capital gains tax on the income from M&As and FPOs has received widespread criticism from stock investors who see the new tax arrangement as unhelpful to end the downturn in the capital market. Mahat also tried to defend the announcement to revive the constituency infrastructure development fund. In the budget speech, he announced that members of parliament will receive Rs 50m in the current fiscal year for development works in their respective constituencies. Many see the controversial program, which was scrapped by the then finance minister Bishnu Paudel two years ago, as fostering corruption in the country. The finance minister insisted that the program incorporated in the next fiscal year's budget 'is not the Constituency Development Fund but the Parliamentary Constituency Development Program' and that MPs will not have a big role to implement the program. "It is the concerned ministry that will implement the program," he said. In the budget for FY 2023/24, the government has increased taxes on the number of goods and services and introduced new taxes such as the 'luxury tax'. Similarly, the exemptions of Value Added Tax (VAT) and excise duty provided to various goods and services have been scrapped. Finance Minister Dr. Mahat on Monday announced the scrapping of VAT exemptions on 170 types of goods and services and excise duty on 370 types of goods and services. A two percent ‘luxury tax’ was imposed on services provided by five-star or above hotels and resorts; imported liquor; diamonds; pearls and precious stones embedded with gold and jewelry worth more than Rs 1 million. Those going for foreign trips need to pay a five percent tourism tax on the trip package. Packages for foreign visits by Nepalis will also be expensive as the financial bill has made a provision that Nepalis going abroad for a visit will have to pay as much as five percent of the total payment they make as ‘tourist tax.’ The companies facilitating foreign employment need to pay one percent of the total fee they charge to the migrant workers as foreign employment service charges. Excise duty has been hiked on beer and liquors as well. Income tax is required to be paid by high earners-above Rs five million a year will have to pay more income taxes. Analysts say the hike in taxes can affect economic growth at a time when the country's economy is surrounded by multiple challenges. “Taxation is one of the tools to support growth,” said an economist. “But increasing the taxes is contrary to growth expectations.” The government has targeted a modest growth of six percent in the next fiscal year 2023/24. For the current fiscal year, the growth target was eight percent but the economy slowed drastically due to external and internal economic headwinds stemming from the depletion of forex reserves, the Russia-Ukraine war, surging inflation, and the liquidity crisis. The government has sought to discourage imports of certain goods on which Nepal is more or less self-reliant, by discontinuing any tax incentive for their imports. The budget announced that imported cement, iron and steel, iron and plastic pipes, zinc sheets, and electric cables won’t get any customs duty exemption. “Even though the government’s policy to support domestic industries by removing any tax exemptions on imported goods is good, domestic industries are also not getting any other support through tax policy,” another economist said. On the other hand, the government’s spending is also sure to decline with the government downsizing the size of the budget itself. There is a question about whether the reduced allocation will also be spent like in the past years. The government’s capital spending as of May 29 stands at just 36 percent, according to the Financial Comptroller General Office (FCGO). The government has also scrapped the tax and non-tax support provided to the sectors affected by the Covid-19 pandemic. “All these factors will dampen the aggregate demands in the market,” said a Former finance secretary. “The curtailed demands in the market will hit economic activities and ultimately economic growth,” he added. One of the demands that the private sector had been making for a long time is the reduction in interest rates on loans. But the government has decided to increase tax on interest income to six percentage points up from 5 percent earlier. “It is unlikely to encourage depositors from depositing money in the banks and decreasing interest rate on deposit could be major concerns,” the former finance secretary said. But Finance Minister Mahat chose to remain quiet on the matter of interest rate paving the way for the Nepal Rastra Bank to deal on the matter. “Nepal Rastra Bank will introduce a monetary policy to help attain the objective of this budget,” said Mahat.

The price of gold has increased by Rs 1, 500 per tola in the domestic market on Wednesday. According to the Federation of Nepal Gold and Silver Dealers’ Association, the precious yellow metal is being traded at Rs 112, 000 per tola today. The gold was traded at Rs 110, 500 per tola on Tuesday. Meanwhile, tejabi gold is being traded at Rs 111, 450 per tola. It was traded at Rs 109, 950 per tola. Similarly, the silver is being traded at Rs 1,385 per tola today.

The government has decided to increase its share of contribution to implement the transmission line projects under the Nepal Compact of the Millennium Challenge Corporation (MCC). MCC, the US aid agency has committed to provide $500m while the government had earlier pledged $130m to implement the transmission line and road improvement projects under the MCC compact. The Millennium Challenge Account-Nepal (MCA-Nepal), a special-purpose vehicle established to implement the compact, said on Monday in a press statement that the government will provide an additional $67m to cover some of the additional work proposed by the Nepal Electricity Authority (NEA). With the additional budget assurance, the government’s contribution has reached 28 percent of the total resources to be available for implementing the MCC program from just over 20 percent earlier. MCA-Nepal said that the government decided to incorporate NEA’s request to include additional works under the Electricity Transmission Project of the MCC Compact. “It is estimated that a budget of up to $67m might be required for the additional work which will be financed from the original compact budget,” reads the statement. According to the statement, after the full utilization of the original budget, any shortfall would be financed by the NEA. An official of the MCA Nepal said that the NEA had requested to add substation bays that would enable controlled connection of power to the substations. “As per the NEA’s request, we have to add many such bays which require further funding,” the official said. The additional budget was arranged to bridge the estimated shortfall of resources in the construction of the Nepal-India cross-border transmission line and additional scope of work in the three substations, i.e. installation of additional bays as per the current and future requirement of NEA, MCA-Nepal said. Even though NEA was considering constructing a 20-km section of the New Butwal to India border transmission line, MCA-Nepal itself decided to construct this section of the transmission line as its preparation was in an advanced stage compared to NEA. According to the MCA-Nepal, an increased financing pledge by the government has been considered as the government’s contribution to the compact purpose. “A simultaneous modification has been made in the annexes of the Compact through an implementation letter,” said MCA Nepal. There is also concern that the allocated budget would be enough to construct the 315 km power line because the last estimated cost of the projects to be implemented under MCC was made in 2016. “Any additional cost should be borne by the Nepal government,” said the official. There has been visible progress in the preparation and implementation of MCC Compact projects in Nepal after the compact was ratified by the House of Representatives in February last year. Last week, MCA-Nepal opened the bids to hire companies for the construction of 315 km long power lines. Six Indian companies have submitted bids to construct the power line which will be constructed in three separate packages. An association of Megha Engineering and Infrastructure Ltd and Power Mech Projects Ltd along with Kalpataru Power Transmission Limited, KEC International Ltd, Transrail Lighting Ltd, Tata Projects Ltd and Larsen & Toubro Ltd participated in the bid. According to the MCA-Nepal, though MCA-Nepal called for international bidding, only the Indian companies participated in the process. “Now, their evaluation process begins,” said the MCA-Nepal official. The three packages of the power line include Lapsiphedi-Ratmate-New Hetauda 400kV D/C Transmission Line, Ratmate-New Damauli 400kV D/C Transmission Line, New Damauli-New Butwal 400kV D/C Transmission Line (Base), and New Butwal Nepal/India Border 400kV D/C Transmission Line. The high-capacity transmission lines will be built connecting Nepal's major power consumption centers including Kathmandu Valley, Butwal and Hetauda. This transmission line will also work as a bridge to link the eastern and western parts of the country with high-capacity transmission lines. Alongside the procurement process of contractors, MCA-Nepal has also initiated the process of acquiring lands for the transmission towers. It plans to determine the compensation amount before the entry into force of the MCC Compact scheduled to take place in August.

The government has decided to impose a two percent luxury charge for services of high-end hotels and resorts, imported liquors and precious metals. The government has made this announcement through the budget for the upcoming fiscal year 2023-24 that was presented Monday before the Federal Parliament. "Two percent luxury tax shall be imposed for luxury goods and services," the government said in the budget. The high-end hotels and resorts shall charge their clients two percent additionally while providing services from mid-July.  The new fiscal year commences on July 17. The tax is applied on ornaments made up of precious metals and stones such as gold, diamond, pearls and gems worth over Rs 1 million. The tax is levied on imported alcoholic products at the customs point during the times of transportation. In case of the non-payment of the luxury tax, it will be recovered along with a 15 percent interest rate annually. Likewise, if the statement related to luxury tax is not submitted, such a responsible person will be charged a fine of 2.5 percent annually until the submission of the details.