The government is facing a growing challenge of tax arrears, with Rs 254.3 billion remaining uncollected in fiscal year 2023/24. The Inland Revenue Department (IRD) reports that these arrears are linked to 319,381 taxpayers.

Director General of IRD, Ram Prasad Acharya, attributed the increase in arrears to delays in resolving cases under judicial review.

"Around 55 to 60 percent of the arrears are pending in various judicial bodies. The backlog has grown due to delays in administrative reviews, revenue tribunal decisions, and court proceedings," he explained. The department, however, has accelerated efforts to settle cases by deploying additional human resources. Acharya emphasized that timely resolution of cases helps expedite arrears recovery, adding, "Taxpayers have the right to seek judicial intervention if dissatisfied with tax assessments, but quicker settlements facilitate smoother recovery."

Income tax accounts for the largest share of arrears. According to the IRD, Rs 186.78 billion remains uncollected from 196,463 taxpayers, with Rs 111.65 billion tied to 718 taxpayers currently undergoing administrative review. In the case of value-added tax (VAT), Rs 59.90 billion is pending from 120,832 taxpayers. Additionally, Rs 4.31 billion in excise duties remains to be collected from 374 taxpayers, and Rs 3.04 billion owed by 1,712 taxpayers has not been deposited into the state treasury.

The inability to recover these arrears has hindered the government’s revenue collection targets. In the review year, the government collected only Rs 533.3 billion in revenue, falling significantly short of the Rs 677.73 billion target. Moreover, tax-related disputes have added to the pressure, with 1,742 cases registered for administrative review in the current fiscal year.

A backlog of unresolved applications has further compounded the problem. Of the 2,244 cases carried over from fiscal year 2022/23 and registered in 2023/24, only 502 were resolved. This has left 1,742 cases pending, which have now been carried over to fiscal year 2024/25.