Nepal Government Proposes NPR 1.95 Trillion Budget for Upcoming Year: Includes Tax Expansion

 Government Plans to Increase Budget by NPR 100 Billion for the Upcoming Year

The government is preparing to introduce a budget for the upcoming year that is at least NPR 100 billion more than the current fiscal year's budget. Officials have indicated that this increase will involve expanding certain revenue sectors and seeking new economic resources.

According to officials actively participating in budget discussions, the government may introduce new tax areas in the next year's budget. Last month, a high-level committee on tax system reform also recommended that the government include sectors not taxed under the current system.

Finance Minister Yubaraj Khatiwada seems inclined to implement some of these suggestions. The government is planning to include programs that meet the goals of Nepal's Sixteenth Periodic Plan and increase development expenditure, officials stated.

However, economists criticize the government's focus on increasing the budget size rather than addressing declining internal indicators. They advise creating a streamlined and executable budget.

 Prime Minister's Budget Ambition

The Budget Resource Management Committee, led by the Vice-Chairman of the National Planning Commission, suggested a ceiling of NPR 1.8 trillion for the next fiscal year's budget. However, Prime Minister Pushpa Kamal Dahal has stated in recent budget discussions that the budget should be at least NPR 1.9 trillion. He has directed Finance Minister Khatiwada, Chief Secretary Baikuntha Aryal, and National Planning Commission Vice-Chairman Min Bahadur Shrestha to prepare accordingly.

In a parliamentary meeting last week, Prime Minister Dahal reiterated this goal, indicating an intention to increase the budget ceiling by approximately NPR 200 billion compared to the current fiscal year. Last year's budget was NPR 1.75 trillion, which means this year’s budget could be around NPR 1.95 trillion if the Prime Minister's plans are realized.

However, National Planning Commission spokesperson Yamlal Bhusal clarified that the committee's ceiling of NPR 1.8 trillion has yet to be changed, and work is proceeding based on that limit.

 Budget Challenges and Economic Concerns

Last year, the government reduced its budget allocation by NPR 220 billion mid-year due to lower-than-expected revenue collection and decreased foreign aid, along with increased internal and external debt. Economists warn that presenting a larger budget without addressing these issues could strain financial resources.

Prime Minister Dahal has hinted at increasing domestic borrowing to cover the budget shortfall. However, the National Natural Resources and Fiscal Commission has advised against this, suggesting that only 5% of the Gross Domestic Product should come from such loans, with an additional 0.05% for national pride and priority projects.

 Expanding the Tax Base

To meet the higher budget targets, the government plans to expand its tax base to include sectors not currently taxed. Finance Minister Khatiwada has indicated that future tax rates will be more rational and transparent, based on the recommendations of the Revenue Advisory Committee and stakeholder suggestions.

A high-level committee's recent report, yet to be made public, suggests including sectors like the "green economy" and the "digital economy" under the tax umbrella.

 Finalizing the Budget

With the tradition of presenting the budget on May 28, the Ministry of Finance is in the final stages of preparation. The budget will be presented after the policy and program are laid out in a joint session of Parliament, where President Ram Chandra Poudel will deliver the policy speech.

Economists’ Perspective

Resham Bahadur Thapa, Associate Professor at Tribhuvan University's Central Department of Economics, warns against focusing solely on the budget size. He argues that given Nepal's current economic condition and weakened investor confidence, a budget similar to the previous year would be more appropriate.

Thapa emphasized that a larger budget does not necessarily translate to economic improvement, particularly when development spending remains unutilized.

In summary, while the government is planning an ambitious budget increase, it faces challenges in resource mobilization and efficient implementation. Economists recommend a more practical approach, emphasizing efficiency over sheer size.