The decline in interest rates is starting to show a clear impact on Nepal’s government revenue. The Ministry of Finance reports a noticeable drop in income tax contributions during the first quarter of fiscal year 2082/83.
From Shrawan–Ashoj, income tax accounted for 18.8% of total revenue, down 2 percentage points from 20.8% during the same period last year. This shows a gradual decline in the role of income tax in Nepal’s overall revenue collection.
Non-tax revenue has seen an even bigger drop. Its share fell from 11.5% last year to just 5.9% this year, down 5.6 percentage points.
Despite the drop in income and non-tax revenue, Value Added Tax (VAT) remains the largest revenue source. VAT contributed 32.6% to total revenue, up from 30.2% last year. Customs duties follow, contributing 22.8% (up from 20.9%), and excise duties come third at 19.2% (up from 16.1%).
Other Revenue Sources
Income tax ranks fourth, non-tax revenue fifth, and education service fees sixth in total contributions. The Ministry of Finance points out that collections under income tax, particularly interest tax, fell during the first three months of the fiscal year.
By mid-October, the government aimed to collect NPR 3.21 trillion from taxes, non-tax revenue, and other sources. So far, only NPR 2.51 trillion has been collected, achieving 78.1% of the target.
The decline in income and non-tax revenue highlights the growing influence of interest rate changes on government finances. Analysts say this trend could affect public spending and development projects if it continues.
