Cross-border smuggling of goods has been intensifying in Nepal, largely due to collusion between customs officials and Nepal Police, leading to significant revenue leakage. A recent report by the Revenue Advisory Committee has highlighted the urgent need for comprehensive reforms in the country’s customs system to curb these malpractices.
Submitted to Finance Minister Bishnu Prasad Paudel on Thursday, the report comes at a time when the government is struggling to generate sufficient revenue to even cover its recurrent expenditure. With just two months remaining in the current fiscal year, the budget deficit has widened to Rs 208 billion. While revenue collection stands at Rs 922.43 billion, government expenditure has already reached Rs 1.157 trillion by the end of 11 months.
The private sector has also raised concerns, demanding that the government implement more effective mechanisms to combat the growing trend of illegal trade through border points.
To address the crisis, the committee has recommended a revision of customs duty rates on imported goods to protect domestic industries. It also suggests adopting a global standard pricing system and expanding the use of digital payment methods to improve transparency and simplify customs procedures.
Further proposals include stronger coordination between customs offices and security agencies, enhanced border management through advanced technology, and fostering inter-country cooperation. The committee advocates for special facilities for import-substitution industries and urges the adoption of production-friendly policies.
The report outlines the need for sweeping reforms across policy, legal, structural, and procedural dimensions in internal revenue, customs, trade, and investment. Key suggestions include broadening the tax base, revising tax rates, strengthening tax administration, and integrating taxpayer data.
It also emphasizes simplifying income tax slabs, introducing e-assessment and faceless audit systems, and aligning retirement fund management with institutions such as the Social Security Fund. The report proposes tax incentives to attract foreign investment, private equity, and venture capital, while also recommending updates to tax laws to suit Nepal’s federal structure.
To streamline fiscal governance, the committee calls for the elimination of overlapping revenue rights among federal, provincial, and local governments. It also stresses that only budget-aligned working guidelines should be implemented in the upcoming fiscal year 2025/26, which begins in mid-July.
