For the first time, the Government of Nepal is considering the introduction of multiple value-added tax (VAT) rates, a long-standing demand of the private sector aimed at improving tax equity and efficiency.
Study Announced in FY 2025/26 Budget
In its budget statement for fiscal year 2025/26, the government announced plans to study the feasibility of implementing a multi-rate VAT system. “A study on the rationale and practical aspects of multiple VAT rates will be conducted,” the official statement reads.
Support from Revenue Advisory Committee
The Revenue Advisory Committee, led by Revenue Secretary Dinesh Kumar Ghimire, has also recommended adopting multiple VAT rates. The committee believes that such a system could enhance tax collection efficiency and help curb cross-border illegal trade by aligning Nepal’s VAT structure more closely with India’s Goods and Services Tax (GST) regime.
Private Sector Welcomes the Move
Entrepreneurs and business associations have long advocated for a differentiated VAT system. They argue that multiple rates could:
- Mobilize greater government revenue
- Address under-invoicing
- Provide relief for essential goods and services by applying lower tax rates
Government’s Concerns Remain
Despite growing support, the government has historically hesitated to adopt a multi-rate VAT system due to concerns about administrative complexity and the capacity to monitor compliance effectively. Implementing and overseeing multiple VAT rates would require significant upgrades to the tax administration infrastructure.
Looking Ahead
While the announcement marks a significant policy shift, the government has not yet committed to implementing multiple VAT rates—only to studying their feasibility. The findings of the upcoming study will likely play a crucial role in shaping Nepal’s future tax policy.
