KATHMANDU: The high-level advisory committee on tax system reform has presented several significant recommendations to the government regarding Nepal’s tax system.

The committee emphasized that the government cannot adopt an expansionary fiscal policy without strengthening and consolidating the public finance system.

They highlighted the immediate, medium-term, and long-term need to address the pressures and complexities in the external economy, public finance, and financial sectors that are affecting revenue.

To promote equality, achieve high economic growth, and create jobs, the committee suggested implementing a time-bound action plan for federal revenue policy and long-term tax reform.

The report recommended restructuring tax and customs rates to foster economic growth through lower, more appropriate tax rates that encourage business activities rather than relying on high tax rates.

The committee proposed favorable tax rates for key economic growth sectors, removing limits on loss transfers, allowing all expenses on research and pollution control to be deducted in the same year, and eliminating periodic income tax exemptions.

They also advised reviewing the schedule of tax-exempt goods and services to broaden the tax base and phasing out all tax exemptions within five years.

Additionally, the committee recommended discontinuing the practice of making substantial legal amendments through annual financial acts, gradually reducing income tax, and setting the social security contribution tax at 5%.

For customs tariffs, the committee suggested determining rates based on studies and analyses to protect domestic production, reduce economic costs, facilitate trade, and minimize revenue risks.

The committee also called for increasing the credibility of the budget, adhering to the budget calendar, improving the budget system, reviewing social security expenditures, reforming the pension system, and reassessing subsidy allocations.

Then Finance Minister Dr. Prakash Sharan Mahat, through a ministerial decision on February 13, had formed the committee headed by Bidyadhar Mallik, with members Shyam Prasad Dahal, Prof. Dr. Ram Prasad Gyawali, and Laxman Aryal to study tax system reforms.

The committee has now submitted its report on improving Nepal’s tax system to incumbent Finance Minister Barshaman Pun.