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The government has announced a wide-ranging set of fiscal incentives and tax reforms aimed at positioning the information technology (IT) sector as a key driver of economic growth in the upcoming fiscal year.

Presenting the federal budget in Parliament, Finance Minister Dr. Swarnim Wagle unveiled measures including significant tax exemptions for IT exports, changes in electricity taxation, and new provisions allowing “sweat equity” received by IT professionals to be excluded from taxable income.

Under the new policy, income earned from the export of IT-related services will receive a 50 percent income tax exemption. Similarly, the value of “sweat equity” awarded to IT workers will be fully deductible when calculating taxable income.

The government has also announced the abolition of the Revenue Investigation Department, with its functions to be redistributed among relevant sectoral agencies.

To modernise tax administration, the budget outlines the development of an AI-enabled “e-assessment” system, alongside risk-based tax auditing and investigation mechanisms. The tax system will be restructured to become paperless, faceless and contactless, with automated processes for filing returns, making payments and processing refunds.

In the energy sector, the government has introduced value-added tax (VAT) on electricity consumption, including a concessional rate for households consuming more than 50 units per month.

The customs regime for electric vehicles (EVs) will be restructured, shifting from power-based to value-based taxation. A new “clean infrastructure investment fee” will also be levied at the point of import to support domestic EV production, charging infrastructure and battery management systems.

The government has also announced plans to promote Nepal as a wedding destination, introducing simplified online procedures for declaration, deposit and refund of wedding-related imports. Similarly, temporary import processes and fee payments for tourist vehicles entering via land routes will be digitised.

On excise duties, the government has increased taxes on cigarettes, alcohol and beer by 10 percent. Businesses with annual turnover exceeding Rs 1 billion will be required to integrate with the central invoice monitoring system, while small enterprises will be encouraged to adopt digital payment systems.

New cinema halls established outside metropolitan and sub-metropolitan areas will receive a full income tax exemption for 10 years.

The budget also abolishes multiple overlapping local taxes, including double taxation on inter-municipal goods transport, and introduces digital excise stamps and a track-and-trace system for improved compliance.

To curb revenue leakage, the government will strengthen data sharing with cross-border customs administrations.

Finance Minister Dr Wagle also announced a rationalisation of customs duties, stating that tariffs on 273 categories of industrial raw materials have been reduced to ensure they remain lower than those on finished goods. The existing 11-tier customs structure has been consolidated into seven tiers. Excise duty on 360 items has been scrapped, while various fragmented levies collected at customs points have been merged into a unified “green tax” framework.