The Government of Nepal has rolled out a comprehensive budget of Rs. 1860 billion for the fiscal year 2081/82, under the guidance of Finance Minister Barshaman Pun. This budget focuses on economic reforms, private sector promotion, sectoral development, inclusiveness, social security, good governance, and enhancements in education and health. Significantly, the upcoming Fiscal Year is designated as the Year of Women in Investment, emphasizing the empowerment of women in economic activities.

Tax Reforms and Incentives

Corporate tax rates remain unchanged, but the VAT registration threshold for businesses transacting in both goods and services has been increased to 30 lakhs from 20 lakhs. The government has proposed higher import and excise duties on some readymade goods to protect domestic industries. Conversely, there is a decrease in tax on interest on loans from foreign banks and financial institutions. A green tax has been introduced on the import of petroleum products and coal.

Additionally, there is a decrease in customs and excise duties on the import of raw materials for industries such as medicine, induction, thread, helmets, sanitary pads, and metal spring sheets. The government has also proposed duty exemptions for individuals, firms, and cooperatives promoting sustainable farming, animal husbandry, and livestock farming in the hilly and mountain regions with 50 ropani of land and in the Terai region with 10 bighas of land. Tax relief is extended to capital added to startups, venture capital, and private equity funds for business expansion. The IT industry benefits from an exemption on dividend tax if profits are reinvested. Additionally, vegetables and fruits are now exempt from VAT.

Funding and Grants

The government has made grants available for startups and small businesses, with streamlined eligibility criteria and application processes. To incentivize sugarcane farming, a budget of Rs. 2.25 billion has been allocated, along with Rs. 1.65 billion for insurance premium grants supporting small farmers involved in agriculture and livestock ventures. There is also a focus on establishing or expanding government-backed investment funds for startups and innovative businesses, along with the provision of low-interest loans and financial assistance programs to support business growth and sustainability.

Regulatory Changes

The Industrial Enterprise Act, Sale of Goods Act, Insolvency Act, Labour Act, Industrial Area Operation and Management Regulations, and Hedging Regulations will be updated. The Company Act will be revised to simplify the registration, regulation, and termination processes. These updates aim to enhance the ease of doing business in Nepal. Additionally, changes in regulatory compliance requirements, including reporting and documentation standards, will be implemented. New or modified licensing and permit requirements relevant to different industries are also on the horizon.

Infrastructure and Support Services

To foster new ventures, business incubation centers will be established in each province. Banks and financial institutions will be encouraged to provide loans for new ventures, and private equity funds and venture capital funds will be supported by various agreed funds. An international exhibition center in Chobar will promote goods and services produced by women, which will be branded and listed on the trade portal. Public and private buildings in Kathmandu Valley and Butwal will be operated as IT parks, equipped with high-speed internet, electricity, and security. The Non-Residential Nepali Birthplace campaign will connect the capital, technology, and skills of non-residential Nepalis. Furthermore, the government will support the production, branding, and marketing of local products and the Returnee Entrepreneurship Program to promote entrepreneurship among returnees from foreign employment.

Innovation hubs will be established across the seven provinces, each focusing on a specific sector:

• Koshi Province as an industrial hub

• Madhesh Province as an agricultural hub

• Bagmati Province as an information technology hub

• Gandaki Province as a tourism hub

• Lumbini Province as a small and medium-scale industrial hub

• Karnali Province as a pilgrimage hub

The government will also regulate digital platforms across public offices to ensure better synchronization and smoother operations. Enhancements to postal services are planned to support e-commerce effectively.

Employment and Training Programs

The government plans to establish an Employment Bank to link job providers and job seekers and to publish information related to employment opportunities. A start-up board and a Nepal Start-Up Fund of Rs. 1 billion have been proposed. Additionally, 12th-grade graduates will be involved in skill development and employment campaigns in collaboration with entrepreneurs, utilizing school infrastructure for practical training and job opportunities.

Training centers will offer internationally recognized, multi-purpose business skill development programs, complete with accommodation facilities. Rs. 430 million is allocated for FY 2081/82, with the aim to skillfully train a minimum of 1000 young individuals in each province. The government also proposes collaboration with private sectors to provide apprenticeship programs and wage subsidies to encourage hiring and reduce unemployment.

Export and Trade Facilitation

Exports will receive accreditation for goods currently in high demand, such as carpets, threads, ready-made clothes, and cement. High-value, lightweight goods will be produced and exported using local labor and raw materials, with an initial focus on branding and exporting products like tea, coffee, cardamom, and Himalayan water. In collaboration with the private sector, the "Make in Nepal" and "Made in Nepal" campaigns will promote locally manufactured products. The government will also form and implement standard quality criteria for imported goods and services, pursuing agreements with neighboring countries for globally accepted quality standards.

Sustainability and Green Initiatives

Funding will be provided for businesses investing in green technologies and sustainable practices. The government will implement a Zero Carbon Emission program to facilitate carbon trading initiatives, allowing public or private entities to sell reduced carbon emissions or increased carbon sequestration achieved through sustainable projects. Adaptive programs for climate change reduction and disaster management will be synchronized and managed, with increased accessibility to climate change adaptation and control funds. The government will support businesses contributing to Sustainable Development Goals (SDGs).

Major Misses

A major oversight in the budget is the lack of clarification on the VAT issue concerning exports, particularly affecting companies like Cotiviti. There is also confusion over the term "grant" and the lack of a clear definition for qualifying startups, which impacts tax deductions for these entities. Furthermore, the budget's broad focus on multiple sectors without depth may dilute its effectiveness.

Conclusion

The budget for 2081/82 is ambitious, aiming for a 6% growth target despite the current economic challenges. While it includes significant reforms and investments, the reliance on borrowings and the broad focus may pose challenges. Entrepreneurs and businesses are encouraged to leverage the new opportunities and support measures to drive growth and innovation.

This budget, though comprehensive, needs a focused approach to address ground realities and create sustainable economic growth.