The government’s decision to exempt income tax for projects under the Millennium Challenge Corporation (MCC) has officially come into effect following its recent publication in the Nepal Gazette.
According to the Ministry of Finance (MoF), a new tax rule has been issued to facilitate activities related to the US-funded MCC compact. Officials say this step aims to ensure the smooth implementation of the MCC’s five-year program, which focuses on expanding Nepal’s electricity transmission network and upgrading key road infrastructure. The exemption is expected to reduce the financial burden on contractors and accelerate progress on major components of the $697 million compact.
Under the new provision, construction and service providers registered in Nepal—or those operating through a branch in Nepal—will be exempt from income tax on MCC-related funding (including Nepal’s contribution), as per Section 18 (910) of the Financial Act, 2025 for fiscal year 2025/26.
The Cabinet, under the CPN-UML leadership, had initially approved the tax exemption on August 3, aligning with Clause 3 (5) of the memorandum of understanding signed between Nepal and MCC on September 14, 2017.
Finance Secretary Ghanashyam Upadhyaya noted that the new rule specifies exemptions for selected projects and organizations from Nepal’s standard tax laws. He added that the move is expected to provide significant relief to contractors and companies working on MCC’s large-scale infrastructure initiatives.
The MCC projects were officially launched on August 31, 2023. After a period of uncertainty and suspension following an executive order by US President Donald Trump on January 20, 2025, the MCC Nepal Compact resumed operations. On August 14, 2025, Millennium Challenge Account–Nepal (MCA-Nepal) signed two major contracts to advance the compact’s Electricity Transmission Project.
Under the MCC-funded initiatives, 315 kilometers of transmission lines are being constructed, including 856 towers and three 400 kV substations located in Ratmate (Nuwakot), New Damauli (Tanahun), and New Butwal (Rupandehi). In the transport sector, preliminary works have begun on the 40-kilometer Dhan Khola–Lamahi stretch of the East–West Highway.
The MCC Nepal Compact is a $697 million US-funded investment aimed at supporting Nepal’s long-term economic growth. Through key electricity transmission and road maintenance projects, the compact seeks to improve connectivity, enhance cross-border energy trade, and strengthen the nation’s critical infrastructure.
