Big budget announcements: From income tax relief to telecom stake sale, AI center and electricity authority demerger

The government has indicated major changes in the tax system, investment environment, stock market, digital economy, energy sector, public institutions and government structure through the budget for the next financial year 2083/84. Finance Minister Dr. The budget presented by Swarnim Wagle includes various announcements to provide relief to the middle class, reduce the cost of industry and business, increase digital transactions, reduce government expenditure and move Nepal towards a technology-friendly economy.

The most famous announcement of the budget is related to personal income tax. To reduce the tax burden, the government has announced to double the income tax exemption limit to Rs 10 lakh for individuals. It has also been announced that the maximum rate of personal income tax will be reduced by 10 percentage points. This arrangement is expected to provide direct relief to salaried employees, professionals, self-employed persons and the middle class. Another attractive announcement to encourage digital transactions is also included in the budget. The government has announced that consumers will get a 10 percent discount on value added tax when they make purchases through digital payment at the same time as the invoice is issued. It is expected not only to increase the use of QR, mobile banking, wallets and other digital payment systems, but also to strengthen the bill-paying culture. The government has also said it will automate the VAT refund system and introduce programs such as lotteries to encourage invoice usage.

The budget has also made important announcements for stock market investors. Arrangements have been made to make the capital gains tax levied on the sale of securities of listed companies a final tax. This seems to reduce the tax confusion on the profit from the sale of shares and ease the tax calculations for the investors. In the budget, it has also been announced to amend the legal system related to foreign investment approval, investment accounting, profit return and capital gains tax to enable non-resident Nepalis to participate in the secondary market of securities. If this arrangement is implemented, it can be expected that new investments will come into NEPSE.

The government has also made a big announcement related to Nepal Telecom. According to the budget, the federal government will retain 66 percent shares in Nepal Telecom and the remaining shares will be sold to the public by the end of January. The government plans to use the money received from this to make Nepal a 'tech hub'. It seems that the announcement of selling more shares of a large government-owned company to the general public can also bring new excitement to the capital market. The budget has given greater importance to the technology sector. The government has announced the establishment of the country's first 'Sovereign AI Compute Center' at Suchatar in Kathmandu. The budget plans to provide subsidized computing capacity to AI entrepreneurs and startups by purchasing thousands of AI processing units. The government's proposal to convert clean hydropower into high-value AI computing services has signaled Nepal's move towards a digital export, startup and artificial intelligence-based economy.

Another important announcement related to IT and service export is to make it easier for Nepali citizens to invest abroad. It has been announced in the budget to simplify the process of sending money for service fees, royalties and technology abroad, to make remote work legally clear, to arrange arrangements for foreign employers to stay and work in Nepal, and to establish a fintech marketplace. It seems that it can give new opportunities to IT companies, freelancers, startups and businesses that export digital services.

The budget has also made major revisions in taxes and customs for industrial businesses. The customs duty of industrial raw materials has been reduced to at least one level lower than that of prepared goods. It has been announced that the existing 11 levels of customs duty will be reduced to 7 levels. Similarly, excise duty on 360 items has been abolished. The government expects that this will help reduce production costs and make the domestic industry more competitive.

The budget has also brought a relief package for businessmen in tax disputes. In order to resolve the tax dispute pending before the court or judicial body, 1 percent is added to the determined tax amount and if the case is submitted within the specified period, the case will be withdrawn and the fee, fine, additional fee, late fee or interest will be waived. This arrangement can be very important for businessmen and companies who have been in tax disputes for a long time. The budget has announced structural changes in the energy sector. It has been announced that the restructuring of the Nepal Electricity Authority, which has been discussed for a long time, will be completed and the authority will be divided into three separate companies for electricity generation, transmission and distribution and trading. The budget also covers the issue of making arrangements for the private sector to trade electricity in the international market, construction of transmission lines, and making legal arrangements to trade electricity through wheeling charges. It seems that this can have a great impact on the investment, business and market structure of the hydropower sector.

Reducing the government structure is also an important aspect of the budget. The government has announced that 31 agencies will be abolished, 6 agencies will be merged, 6 agencies will be transferred and 18 agencies will be restructured. It is initially estimated that around 20 billion rupees will be saved by measures such as reducing office operating expenses, removing allocations for unnecessary training expenses and purchasing equipment, and withholding funds until the liabilities of merged and abolished agencies are managed. This indicates that the government is moving aggressively towards spending cuts and administrative reforms.

Reform of public institutions is also another big topic of the budget. It has been announced to increase the capital of the government in the National Commercial Bank, to convert the Nepal Airline Corporation into a company, to identify suitable methods of management reform and strategic partnership, and to issue shares of the National Life Insurance Company and large market companies to the general public. There is also a plan in the budget to assess the assets and liabilities of seven public institutions, including the Gorakhkali rubber industry, and manage investment in a public-private partnership model.

The government has also indicated that it will use new infrastructure and alternative financial sources. The policy of issuing offshore bonds in Nepali currency in the international market, issuing clean energy bonds and diaspora bonds, making maximum use of the climate fund and deploying some percentage of foreign currency reserves as a 'sovereign wealth fund' is included in the budget. It has also been announced to establish a 'Matri Bhoomi Fund' to invest in projects of strategic importance including at least three months of fuel storage, AI factories, etc.

In the agricultural sector, the government has introduced a scheme of incentives based on production. The government has prepared a pilot program to provide up to 40 percent incentive subsidy to farmers who invest up to 20 million rupees in initial capital for agricultural and animal products. The government aims to transform agriculture into a respectable and profitable business. In the field of tourism, intensive preparations have been announced to make 'Visit Nepal Year 2085' and 'Nepal Health Year 2027' a success. The budget also includes the topics of giving physical and financial incentives to the construction and operation of high-value tourist resorts and hotels, branding health tourism, and restructuring the Civil Aviation Authority to remove Nepal from the air safety list of the European Union.

The Finance Bill has proposed legal arrangements for various taxes, duties, exemptions and exemptions to implement the announcements made in the budget. It includes value added tax, excise duty, customs duty, foreign employment service fee, pollution control fee, telephone ownership fee, telecommunication service fee, green tax, health risk tax, film development fee, casino royalty, digital service tax, etc. Therefore, the impact of the budget is not only limited to large industries and investors, but it seems that it can spread to mobile, internet, digital services, imported goods, petroleum, education, health and daily consumption.

Overall, the budget comes as a mix of tax relief, spending cuts, efforts to reduce industrial costs, new opportunities in capital markets, policies focused on IT and AI, restructuring of the energy sector and reform of public institutions. Raising the income tax exemption limit to 1 million, giving VAT exemption on digital payments, finalizing the capital gains tax on share sales, selling more shares of Nepal Telecom to the public, dividing the electricity authority into three companies and establishing an AI computer center are the most famous and far-reaching issues of this budget.

Now the main question is the implementation. If the announcements made in the budget are legally clear, administratively simple and implemented on time, the investment environment can be improved, the digital economy can expand, government spending can be controlled and confidence in the market can increase. But if the implementation is weak because of the announcement, there is a risk that such big plans will be limited to paper like the previous budgets.