CNI Welcomes Budget for FY 2083/84: Giving a New Direction to the Economy and Prioritizing Industrial Growth
The Confederation of Nepalese Industries (CNI) has welcomed the government’s newly released budget for the fiscal year 2083/84. CNI believes that this budget, which heavily focuses on industrial promotion, will lay down a solid foundation to steer the country’s economy in a new direction, provided it is implemented effectively. The budget also shows strong potential to attract both domestic and foreign investors.
CNI notes that reducing customs duties on 273 items to maintain a clear one-level difference between raw materials and finished goods will make domestic products more competitive and speed up industrialization. Similarly, scrapping the excise duty on 360 products is expected to lower production costs for businesses.
The budget’s focus on the proper use of forest and natural resources, green industrialization, job creation, and import substitution is highly encouraging. Furthermore, allowing the private sector to build and run industrial zones like Motipur and Mayurdhap is a major boost. CNI had already expressed its interest to the government regarding building and operating industrial areas, and the CNI is optimistic that this will finally happen.
To make manufacturing industries more competitive, the budget proposes reviewing electricity demand charges and offering discounts on tariffs. Additionally, allowing industrialists to use structures built on leased land in industrial zones and Special Economic Zones (SEZs) as bank collateral will further motivate industrial growth.
The introduction of an automated VAT refund system, alongside a practical provision allowing taxpayers to withdraw pending court cases by paying just an additional 1% of the disputed tax amount, with waivers on interest and penalties, is a major relief. Many industrialists and investors have been stuck in legal battles for years, and this step will let them move on and focus on production.
The budget also addresses CNI’s long-standing demand by ensuring that Section 57 of the Income Tax Act will not apply to involuntary transfers of ownership. This will resolve major hurdles in business succession, corporate restructuring, and expansion. Furthermore, the commitment to simplify profit and royalty repatriation will go a long way in attracting foreign direct investment and creating an investor-friendly environment.
Raising the personal income tax threshold to Rs. 1 million and cutting the maximum tax rate by 10% are major wins for the economy. Industries, trade, and service sectors can only grow when consumers have purchasing power, and these changes are expected to boost market demand.
The budget also mentions launching model Employment-Linked Production Zones for labor-intensive sectors with high export potential, such as agro-processing, tourism services, and light manufacturing, while putting in place legal frameworks for investment promotion and smooth service delivery. Tabling the 'Some Nepal Acts Amendment Bill' in Parliament to quickly scrap 15 previously announced laws, introduce debt recovery laws, and amend dozens of regulations will encourage investors. Additionally, scrapping and merging redundant government bodies will improve efficiency and cut unnecessary public spending.
To draw private investment into projects, the budget proposes legal reforms ensuring that projects approved by the Investment Board Nepal do not need secondary approvals from other government offices. It also cancels licenses for hydropower projects that have signed Power Purchase Agreements (PPAs) but haven't started construction, opening up new PPAs under the "Take or Pay" model. Furthermore, alternative financing tools like Alternative Development Finance Funds, offshore bonds, clean energy bonds, diaspora bonds, and climate funds will be used to attract private capital into infrastructure.
To support small and medium enterprises (SMEs), the budget introduces a "First Loss Recovery" credit guarantee scheme for better financial access, and "Business Revival Loans" to help capital-starved industries scale up. It also proposes offering subsidized electricity and purchasing guarantees for private sector green urea production, allowing corporate social responsibility (CSR) expenses to be tax-deductible, and establishing the Nepal Enterprise Facility as a platform to integrate startups and SMEs into the national enterprise ecosystem.
Identifying environmentally suitable areas for mining and supplying stone, gravel, and sand, alongside offering physical and financial incentives for high-end luxury resorts and hotels to brand wellness tourism, will further strengthen the economy. Additionally, internal production promotion and protection duties will safeguard domestic industries, and allowing businesses to deduct CSR expenses for income tax purposes is a welcome move.
However, CNI points out that a few critical issues were missed in the budget. There are no concrete policies regarding quality promotion or regulating the import of high-quality goods. Manufacturing industries should also be exempt from land ceiling limits. The budget failed to address that any land specified and approved in an industry’s project plan at the time of registration should automatically be exempt from land ceiling provisions. Furthermore, the budget missed introducing a mechanism for account netting, which would allow businesses to offset amounts they owe to the government against amounts the government owes or needs to refund to them. This would have made financial transactions seamless for both parties.
Ultimately, CNI emphasizes that effective implementation of this budget is absolutely vital to hit the target of 7% economic growth, boost investor confidence, and keep the economy moving forward.