The Federation of Nepalese Chambers of Commerce and Industry (FNCCI) has expressed concern over the government's failure to raise the income tax exemption limit in the national budget for the upcoming fiscal year 2025/26 (2082/83 BS), though it welcomed most other provisions.

Ahead of the budget announcement on May 29, FNCCI, along with the Confederation of Nepalese Industries (CNI) and the Nepal Chamber of Commerce (NCC), had urged the government to increase the income tax exemption limit. FNCCI had proposed tax exemptions for annual incomes up to NPR 800,000 for individuals and NPR 1 million for couples. However, the current threshold remains unchanged at NPR 500,000 for individuals and NPR 600,000 for couples.

"The failure to raise the exemption threshold and reduce personal income tax rates could disappoint the middle class and dampen consumer spending," FNCCI said in its official response released Saturday.

FNCCI also raised concerns over the continuation of the 2.5% Tax Deducted at Source (TDS) on export cargo, warning it could discourage exports. The federation further criticized the government’s decision to adopt a "take-and-pay" model—where electricity is purchased only when needed—for power purchase agreements by the Nepal Electricity Authority. This approach, FNCCI said, has drawn opposition from independent power producers and could deter investment in the energy sector.

"While the energy sector still requires policy support and incentives, the 'take-and-pay' model is causing investor unease," the FNCCI stated.

Despite these concerns, the FNCCI broadly supported the budget, stating that its successful implementation could help achieve the targeted 6% economic growth rate. The federation emphasized the importance of creating an environment where the private sector can operate freely and respectfully to reach this goal.

FNCCI, however, noted that the budget lacks adequate measures to address weak domestic demand—a major challenge in reviving industrial operations. Although the budget recognizes demand contraction as a core economic issue, it fails to offer effective remedies, the federation said.

Finance Minister Bishnu Poudel presented the budget for FY 2025/26 on May 29, pledging to prioritize economic reforms and acknowledging the private sector as a key driver of the economy. The budget also includes a commitment to gradually implement recommendations from the High-Level Economic Reform Commission, formed at FNCCI’s initiative.

The federation acknowledged the partial fulfillment of its long-standing demand for a one-stop service system for entrepreneurs. The budget includes provisions for a single-window system for business registration and closure, though FNCCI suggested further integration through digital platforms like the Nagarik App to enhance efficiency.

Additionally, FNCCI welcomed reforms such as simplifying the Environmental Impact Assessment (EIA) and Initial Environmental Examination (IEE) processes, promoting foreign direct investment, encouraging private investment in tourism, and granting industries in IT and hospitality sectors the status of “special industries.”

It also appreciated the proposed reduction in lease rates for special and industrial economic zones and the provision of equal incentives for industries exporting more than 30% of their production.

On investment facilitation, FNCCI supported the government’s move to empower the Investment Board Nepal but stressed the need for a unified law, single-point services, and effective institutional mechanisms. The federation reiterated its call to merge the Investment Board, Department of Industry, and related agencies to streamline services and legal frameworks.

FNCCI also lauded the proposed five-year income tax exemption for startup businesses with annual turnover up to NPR 100 million, believing it will attract young entrepreneurs. It also welcomed the 5% final tax on income from individual IT service exports and the increased income tax discount from 50% to 75% for IT industries operating within IT parks.

The budget includes a provision allowing tourists arriving via airports and other border points to bring up to USD 5,000 in local currency. However, FNCCI warned that the unchanged 13% Value Added Tax on airline tickets could continue to make Nepal an expensive destination, potentially deterring Indian tourists.

Other positive measures noted by FNCCI include the provision allowing industries to build their own transmission lines from the national grid to their sites and collect wheeling charges, as well as the new policy permitting Nepali exporters to invest up to 25% of their total exports abroad and repatriate 50% of the profit earned from such investments. However, FNCCI called for more clarity on the foreign investment framework.

Additional initiatives the FNCCI welcomed include the drafting of laws to recover outstanding dues, removal of the NPR 300,000 bank guarantee requirement for EXIM code, introduction of automated valuation in customs, and the announcement of a new asset management company for non-banking asset handling.

FNCCI also praised the government’s decision to offer bonded warehouse facilities for jewelry exporters. However, it cautioned that the 2% luxury tax on jewelry purchases under NPR 1 million and the VAT on diamond- and gemstone-studded ornaments may encourage illicit trade.