Private sector organisations have urged the government to raise the income tax exemption limit—the threshold below which income is not taxable—in the upcoming fiscal year’s budget.
Citing a decline in consumer purchasing power and a subsequent fall in market demand, which has led to an economic slowdown, the organisations requested an increase in the non-taxable income threshold to help revitalise economic activity.
The Federation of Nepalese Chambers of Commerce and Industry (FNCCI), the Confederation of Nepalese Industries (CNI), and the Nepal Chamber of Commerce submitted separate suggestions, recommending that income up to at least Rs 800,000 per annum be exempt from personal income tax.
As the government prepares to present the budget for Fiscal Year 2025/26 (2082/83) on May 29, the private sector has called for income tax reforms to provide relief to the middle class.
In the budget for Fiscal Year 2022/23 (2079/80), the government had set the annual income tax exemption limit at Rs 500,000 for individuals and Rs 600,000 for couples. Income up to this limit was subject to only 1% social security tax, with no income tax applied.
In its recent submission, FNCCI proposed raising the exemption limit to Rs 800,000 for individuals and Rs 1 million for couples. It also recommended that the maximum income tax rate, including any surcharge, should not exceed 30%.
Highlighting the disparity between wage growth and inflation, and the resulting erosion of consumer purchasing power, FNCCI argued that revising the exemption threshold and tax rates would stimulate demand, revive the market, and send a positive signal to the public.
Similarly, the Confederation of Nepalese Industries urged the government to increase the non-taxable income limit to at least Rs 800,000 per year. It believes that this would boost disposable income and improve overall demand. The confederation also suggested capping the personal income tax rate at 30%.
Additionally, to attract large-scale investment—both domestic and foreign—the confederation urged the government to gradually reduce the income tax rate on the profits of manufacturing industries, eventually bringing it down to 10%.
The Nepal Chamber of Commerce also proposed increasing the income tax exemption limit, suggesting it be raised to Rs 1 million for individuals and Rs 1.2 million for couples. NCC President Kamlesh Agrawal said this adjustment is necessary to reinvigorate the market.
“The economy is sluggish, and people are not in a position to spend. Demand has dropped. That is why we have asked the government to raise the tax exemption threshold,” he said.
Neighbouring India recently took a similar step, significantly increasing the income tax exemption limit to provide relief to the middle class. In its federal budget for Fiscal Year 2025/26, the Indian government raised the annual exemption threshold from INR 700,000 to INR 1.2 million.
India’s policy shift has benefited millions of taxpayers—particularly salaried employees in the private sector, small entrepreneurs, service providers, and self-employed individuals. These developments have also increased pressure on the Nepalese government to review and raise its own income tax exemption limit, offering relief to a wider segment of taxpayers.
