The government’s decision to exempt income tax for projects under the Millennium Challenge Corporation (MCC) has come into force with the publication of the decision recently in the Nepal Gazette.

According to the Ministry of Finance (MoF), the ministry has published a new tax rule for works related to the US-funded MCC.

Officials say the move aims to facilitate the smooth execution of the MCC’s five-year compact, which focuses on strengthening Nepal’s electricity transmission network and improving road connectivity. The exemption is expected to ease the financial burden on contractors and accelerate the implementation of key components of the $697 million compact.

“The construction and service-providing companies registered in Nepal or having a branch in Nepal would be exempt from income tax on their MCC funding (including the contribution of Nepal) in line with section 18 (910) of the Financial Act, 2025, for the fiscal year 2025/26.”

Earlier, the Cabinet meeting led by the CPN-UML government on August 3 had decided to exempt the companies engaged in MCC related projects from the income tax bracket. The government decision is in line with Clause 3 (5) of the memorandum of understanding that the government had signed with MCC on September 14, 2017.

Finance Secretary Ghanashyam Upadhyaya said the newly enforced provision talks about excluding the special types of projects and organizations from the government’s regular tax laws. “This is expected to give a respite to the contractors and associated companies working on mega projects under MCC Compact,” he added.

The MCC projects were officially launched on August 31, 2023. Ending an uncertainty after the MCC projects were suspended following the executive order of US President Donald Trump on January 20, 2025, the MCC Nepal Compact officially resumed its work, with the Millennium Challenge Account-Nepal (MCA-Nepal) signing two major contracts to advance the compact’s Electricity Transmission Project on August 14, 2025.

Under the MCC funded projects, a total of 315 kilometers of transmission lines are planned, with 856 towers and three 400 kV substations under construction in Ratmate (Nuwakot), New Damauli (Tanahun), and New Butwal (Rupandehi). In the road sector, preliminary work has started on the 40-kilometer Dhan Khola–Lamahi section of the East-West Highway.

The MCC Nepal Compact is a US-funded $697 million investment for Nepal’s long-term economic development. Through its electricity transmission and road maintenance projects, the compact is designed to boost connectivity and unlock economic growth by strengthening critical infrastructure, enhancing cross-border energy trade, and improving Nepal’s transportation network.