Finance Minister Dr. Swarnim Wagle has announced a massive overhaul in the country’s tax system while presenting the budget for the fiscal year (FY) 2026/27 in Parliament. Aiming to provide relief to businesses, encourage the middle class, and revitalize the overall economy, the Finance Minister stated that the government has extensively reviewed and adjusted existing tax rates.
In a major relief for individual taxpayers, the government has doubled the income tax exemption limit, raising it to Rs 1 million. Additionally, Finance Minister Wagle announced a significant reduction in the maximum personal income tax rate, slashing it from 39 percent down to 29 percent.
To boost domestic manufacturing, the customs duty on 273 types of industrial raw materials has been reduced, ensuring that duties on raw materials remain at least one tier lower than those on finished goods. Furthermore, the existing 11-tier customs duty structure has been streamlined into seven tiers, and excise duties on 360 products have been abolished.
The budget also introduces environmental measures by consolidating various scattered levies collected at customs points—such as the infrastructure development tax and the road maintenance and improvement fee—into a single, unified "Green Tax."
In a significant relief for businesses and legal heirs, the budget amends the enforcement of Section 57 of the Income Tax Act, 2058. The provision, which taxes capital gains on ownership changes, will no longer be triggered by the involuntary disposal of assets following an individual's demise, or by changes in control within entities due to such events. Additionally, capital gains tax on the securities of listed companies has now been made a final withholding tax.
To promote digitalization and formalize the economy, consumers making purchases through digital payment methods will receive an immediate 10 percent discount on Value Added Tax (VAT) at the time of invoicing. The Finance Minister also announced that the VAT refund system will be fully automated.
Finally, to encourage a culture of billing among consumers, the government plans to introduce attractive incentives, including a lottery system for taxpayers. A special committee will also be formed to study the relevance and feasibility of implementing a multi-tiered VAT system in the country.
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