KATHMANDU: Economic Digest presents a brief yet comprehensive roundup of major business developments in Nepal, delivered in clear and accessible summaries.
The developments highlighted in the latest economic brief point to a government that is attempting to balance fiscal stimulus, investment promotion, social spending, and structural reform, but they also expose persistent weaknesses in implementation and public sector performance.
On one hand, the fiscal year 2026/27 budget has been broadly welcomed by the private sector, with organizations such as the Federation of Nepalese Chambers of Commerce and Industry and Confederation of Nepalese Industries supporting tax simplification, expanded income tax thresholds, and investment-friendly measures.
The removal of excise duties on hundreds of consumer goods, incentives for hydropower development, startup financing for youth entrepreneurs, and new opportunities for Non-Resident Nepalis suggest an effort to stimulate private investment and economic activity.
Major infrastructure commitments—including the 670 MW Dudhkoshi Storage Hydroelectric Project, irrigation modernization, and highway upgrades—further indicate a growth-oriented agenda aimed at boosting productivity and energy security.
However, several indicators reveal significant structural challenges. The sharp increase in capital gains taxes, new levies such as the 3 percent Education Equity Fee on private schools, and higher royalties on casinos reflect the government’s need to expand revenue sources amid fiscal pressures.
More importantly, weak public expenditure performance remains a concern, as evidenced by the low capital spending and revenue shortfalls in Gandaki Province. The discovery that most cooperatives in Kathmandu are inactive highlights continuing governance and regulatory failures in the financial sector.
Overall, the policy direction is ambitious and broadly pro-growth, but the ultimate success of these initiatives will depend less on new announcements and more on the government’s ability to improve execution, strengthen regulatory oversight, accelerate capital spending, and convert policy commitments into measurable economic outcomes.
FNCCI and CNI endorse budget provisions
The Federation of Nepalese Chambers of Commerce and Industry (FNCCI) and the Confederation of Nepalese Industries (CNI) have welcomed the fiscal year 2026/27 budget, describing it as supportive of investment and business growth. Business leaders highlighted the expansion of income tax thresholds, reduction of regulatory barriers, and simplification of customs structures from 11 tiers to seven as positive reforms that could strengthen the domestic economy. They stated that the budget provides a realistic foundation for achieving the government’s target of 7 percent economic growth, provided that the central bank increases credit expansion by 20 percent to support industrial and business activity.
Private schools required to collect 3 percent education equity fee
The government has introduced a new Education Equity Fee through the Financial Bill, 2026, requiring private and institutional schools to collect an additional 3 percent charge beginning next fiscal year. The fee will be levied on tuition, admission, and other service charges collected by educational institutions. According to the government, revenue generated from this measure will be used to improve public schools and reduce disparities in educational resources between private and community schools across the country.
Businesses affected by Gen Z protests granted 50 percent tax relief
The government has announced special tax concessions for businesses damaged during the Gen Z protests held on September 8 and 9, 2025. Under provisions included in the Financial Bill, 2026, eligible enterprises, warehouses, and factories will receive a 50 percent waiver on customs duties and excise taxes for imported replacement equipment, construction materials, and office furnishings. Eligibility will be determined based on verified assessments by insurance surveyors. However, luxury hotels that previously received import-related concessions will not qualify for additional benefits.
Finance Ministry removes excise duty on 360 product categories
The Ministry of Finance has introduced significant tax revisions through the Financial Bill, 2026, eliminating excise duties on 360 categories of consumer goods for fiscal year 2026/27. At the same time, it has increased customs and excise rates on products such as alcohol, tobacco, junk food, and synthetic paints. Taxes on sugar-coated confectionery products have been raised from 15 percent to 21 percent, while duties on pasta have increased to Rs 35 per kilogram. Taxes on potato chips have been set at Rs 30 per kilogram, and duties on packaged cheese balls have jumped from Rs 20 to Rs 75 per kilogram. Similarly, tariffs on non-alcoholic beer have doubled to Rs 90 per litre, while those on energy drinks have been increased to Rs 120 per litre.
Short-term capital gains tax increased to 10 percent
The Inland Revenue Department has issued new tax guidelines clarifying that capital gains tax will not be treated as a final tax liability for high-volume investors under the Financial Bill, 2026. Individuals earning more than Rs 4 million annually from stock market investments or those with additional income sources will be required to submit comprehensive income tax returns. To boost revenue collection from active investors, the government has raised the short-term capital gains tax on shares held for less than one year from 7.5 percent to 10 percent. Likewise, the tax rate on long-term gains from assets held for more than a year has increased from 5 percent to 7.5 percent.
Health sector receives Rs 101 billion budget allocation
The government has allocated Rs 101.95 billion to the health sector for fiscal year 2026/27, focusing on expanding healthcare infrastructure and insurance coverage. Of the total amount, Rs 15 billion has been earmarked for the National Health Insurance Program, with the goal of extending coverage to 90 percent of the population by next year. An additional Rs 5.90 billion has been allocated to complete 336 ongoing basic hospital projects. Other initiatives include expanding telemedicine services in Karnali and Sudurpashchim, establishing a National Health Accreditation Center, constructing a specialized kidney treatment facility in Madhesh, and providing free treatment for children with cancer.
Ride-sharing platforms subject to 1 percent advance tax
The government has introduced a new tax framework for digital transportation services through amendments to Section 95 of the Income Tax Act. Under the new provisions, all registered ride-sharing platforms operating in Nepal will be required to deduct a 1 percent advance tax at source from payments made to service providers. The measure aims to strengthen tax compliance and broaden revenue collection within the growing digital transportation sector.
NRNA welcomes diaspora-focused budget measures
The Non-Resident Nepali Association (NRNA) has expressed support for the diaspora-related reforms included in the fiscal year 2026/27 budget. The organization praised the government’s efforts to simplify provisions under the “Once a Nepali, Always a Nepali” initiative. Key measures include allowing overseas Nepalis to participate in the secondary stock market, introducing Diaspora Bonds, and establishing a Remittance-Investment Matching Fund to channel diaspora capital into domestic enterprises. The government has also committed to developing systems that will enable voting rights for Nepalis living abroad.
Gandaki Province records low capital expenditure
According to data released by the Provincial Treasury Controller Office in Pokhara, the Gandaki Province government has spent only Rs 10.58 billion, or 33.09 percent, of its total annual budget of Rs 31.98 billion with less than 45 days remaining in the fiscal year. Capital expenditure remains particularly low, reaching only 30 percent, with Rs 5.74 billion spent out of the allocated Rs 19.11 billion. The Ministry of Industry and Tourism recorded the lowest spending rate at 15.24 percent, while the Ministry of Forest and Environment achieved the highest utilization rate at 44.36 percent. Revenue collection also fell short, with only Rs 3.18 billion collected against a target of Rs 5.73 billion.
Nepal and China move toward commercial petroleum production agreement
The Department of Mines and Geology has begun final administrative preparations for a second-phase agreement on commercial petroleum production with the China Geological Survey. The development follows successful exploration activities in Jaljale of Bhairabi Rural Municipality-1, Dailekh. Joint technical teams have completed seismic, geological, magneto-telluric, and geochemical surveys in the area. Laboratory analysis of core samples has confirmed the presence of commercially viable petroleum and natural gas reserves, paving the way for future extraction and potentially reducing Nepal’s dependence on imported fuel.
Majority of Kathmandu cooperatives inactive, only 726 remain operational
The Kathmandu Metropolitan City (KMC) Cooperative Department has intensified monitoring efforts after finding that 1,186 of the city’s 1,912 registered cooperatives are no longer active in the municipal system. According to official records, only 726 cooperatives regularly submit annual financial reports. To facilitate asset recovery and dispute resolution, KMC has authorized Ward Women’s Networks to assist in mediation, collect financial records, coordinate digital monitoring, and process repayment applications from depositors. Authorities have warned that non-compliant borrowers could face restrictions on certain municipal services.
Energy Ministry introduces bank guarantee facility for hydropower imports
The Ministry of Energy, Water Resources and Irrigation has introduced relief measures for independent power producers through the Financial Bill, 2026. Under the new arrangement, hydropower projects undergoing design modifications or capacity expansion will be allowed to import key materials such as penstock pipes, steel products, and blasting equipment using bank guarantees instead of making immediate customs payments. Upon project certification and completion of required procedures, customs authorities will release the guarantees after collecting a nominal 1 percent duty, while the remaining customs charges will be waived.
Budget allocated for 670 MW Dudhkoshi storage hydropower project
The government has included the 670 MW Dudhkoshi Storage Hydroelectric Project in the fiscal year 2026/27 budget. Approved by Parliament on May 29, the project involves the construction of a 220-metre-high reservoir dam at Rabhuwaghat on the border of Khotang and Okhaldhunga districts. According to the Nepal Electricity Authority, preparations for land acquisition covering approximately 25,000 ropanis have already begun. Once completed, the project is expected to generate around 3.44 billion kilowatt-hours of electricity annually through a diversion tunnel system connected to Dhitung.
Irrigation modernization and highway upgrades prioritized
The government has announced plans to adopt a public-private partnership model for operations at the Hupsekot Iron Ore Mine by reducing direct state ownership. In addition, Rs 440 million has been allocated for the rehabilitation and modernization of the Narayani Irrigation Project, as well as the Gandak and Koshi pumping systems in Nawalparasi (Bardaghat Susta East) and Chitwan. The government has also directed contractors to complete key road projects, including the Narayanghat–Butwal section of the East-West Highway and the Muglin–Damauli–Pokhara section of the Prithvi Highway during the upcoming fiscal year.
Casino royalty fees increased under new fiscal measures
The government has revised royalty rates for casinos through the Financial Bill, 2026. Fully licensed casinos will now be required to pay an annual royalty of Rs 55 million, up from the previous Rs 50 million. Similarly, annual royalty fees for electronic gaming halls have been doubled from Rs 15 million to Rs 30 million. However, businesses affected by the Gen Z protests have been granted temporary relief measures to compensate for losses incurred during periods of operational disruption.
Government launches startup financing scheme for young entrepreneurs
The fiscal year 2026/27 budget has introduced a dedicated entrepreneurship support program targeting young people engaged in agriculture and livestock-based enterprises. Under the initiative, 1,000 selected entrepreneurs will be eligible for concessional loans of up to Rs 2.5 million. To support startup development, the government has also established the Nepal Enterprise Facility, which will provide business incubation, technical training, digital registration services, and other forms of assistance. Additionally, funding has been allocated for the establishment of a space observatory near Everest Base Camp to promote high-altitude astrotourism.
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