Experts Call For Larger Systemic Changes And Reforms For Justice In Tax System In Nepal

Kathmandu, May 28: Experts have underlined the need for comprehensive reforms to ensure tax justice, reduce inequality, and strengthen domestic revenue generation.

A study titled “Justice in Tax System, Public Services and Social Protection in Nepal: An Assessment and Way Forward” has stressed the need for a more progressive and equitable tax system in Nepal to address widening inequality, improve public services, and strengthen social protection mechanisms.

Delivering the presentation, Dr Dilli Raj Khanal, co-author of the assessment report highlighted growing disparities in income and wealth and argued that Nepal’s current taxation structure has not adequately addressed economic inequality.

“Progressive taxation, access to and quality of public services and social protection are key,” the presentation stated, emphasizing the need for broader systemic reforms.

According to the study, consumption-based measures alone are insufficient to assess poverty and inequality in Nepal. The report noted a “large gap between income/wealth and consumption-based estimates,” warning that such gaps complicate policy decisions and mask the real economic condition of vulnerable communities.

The assessment also reviewed Nepal’s economic and political transitions since 1990, including liberalization policies, post-2006 political changes, and recent social and economic developments.

It examined government spending patterns, effectiveness of public services, and the status of social protection programs.

The study further recommended strengthening tax justice, improving accountability in public spending, and expanding equitable access to state services. Focus group discussions conducted across three provinces were also incorporated into the findings.

The researchers called for reforms that prioritize fairness, social justice, and inclusive economic growth in Nepal.

Just and effective tax system crucial for economic stability

In another presentation, titled “Taxation System and Justice: Key Analysis and Way Forward,” researcher Kul Prasad Pandey argued that Nepal’s existing tax structure remains inequitable and overly dependent on ordinary taxpayers.

“Wealth, capital gains, and high-income assets are either under-taxed or outside the effective tax net. The excessive tax exemptions and incentives continue to weaken government revenue collection”, he argued.

It stressed that such policies have widened economic disparities and limited the state’s fiscal capacity.

The assessment also raised concerns over the growing informal economy, weak tax compliance, and governance challenges in customs and revenue administration.

It recommended reforms in income tax, corporate taxation, customs duties, and SME taxation to create a more transparent and accountable fiscal system.

Calling for a progressive taxation model, the report proposed expanding taxes on wealth transfers, inheritance, capital income, and environmentally harmful activities.

It further suggested reviewing tax exemptions, deductions, and profit-based incentives to improve fairness and efficiency.

The assessment concluded that a just and effective tax system is crucial for sustainable development, social equity, and long-term economic stability in Nepal.

Deliberating on the topics, Prof Dr Kusum Shakya asserted, “I am not aware as to how and where the money I have been paying as taxes are being spent. Taxpayers are entitled to know where their taxes – whether that be the direct or the indirect are mobilized. A true feeling of citizenry comes only when the people know their money flow”.

She made the assertions to advocate for open and just tax system capable of recognizing the contributions of the citizens as taxpayers.

“Around 70 percent women involve in agriculture sector as unpaid worker in the country. 43 percent women are contributing to the Gross Domestic Product (GDP). Yet, their contributions to the national economy is not recognized. In this light, the tax as a socio-political compact between the State and its people needs redesigning to dispense justice to those making contributions but bearing the brunt of inflation”, she highlighted.

Former Minister for Communication and Information Technology, Dr Minendra Rijal emphasized the need of differentiating the tax burden among the people and reviewing the social protection spending through national coffer. ‘Time has come to cautiously discuss on levying inheritance tax and wealth tax for generational justice since Nepal’s space for generating revenue through taxes has almost at saturation level’, Dr Rijal noted. He showed gaps in meticulously enhancing capacity of the institutions that were created after the restoration of democracy in 1991 which he claimed led to the big institutional failure.

President of the Public Accounts Committee under the House of Representatives, Bharat Bahadur Khadka drew the attention of the state agencies to manage the government’s inability to effectively design and deliver public services from tax money collected from the people and citizens’ unwillingness to pay the taxes and seek services. He noted that shared accountability would be established when the Value Added tax rates are decentralized in all three tiers of the governments.

Echoing the voice, Dr Dilli Raj Khanal, author of the assessment report on the topic, spoke the importance of larger systemic reforms with enforcing progressive taxation, access to and the quality of public services and social protection. “Inequality is and going to be a serious problem, more so under the given economic performances/conditions. This has been more evident from the quick assessment on the growth and its pattern, state of structural changes, productive capacity enhancement, labor market and employment conditions and nature of socio-economic transformation”, he explained.

Likewise, former Finance Minister Dr Yubaraj Khatiwada highlighted the need of redistributable role of the taxation for justice, calling for the approaches for promoting both simplicity and equity in tax system.

“The existing gender-based tax burden should be reviewed while levying taxes. Tax burden is differentiated so should be the tax variation justice”.

Likewise, former Finance Minister Surendra Pandey recommended incentivizing taxes in a way that our specific productions can compete with the global market.

Another commentator, ex-Finance Minister Barshaman Pun urged the government to adopt taxation policies based on open border with India.

Lawmaker Susant Baidik shared that the government is working to bridge public trust deficit towards the state through restructuring of systems. “Citizens are paying taxes but are not receiving services to that level.

It has led to the mass frustration to the country system. Hence, the government and parliament are putting efforts to fix the systemic lapses and lacunas”.

Also rendering comments on the presentations, former Minister Parshuram Tamang and former Vice-Chair of National Planning Commission, Dr Pushpa Kandel underscored the need of allocation and spending efficiency of the budget to propel justice in Nepal.

The discussion programme was organized by the ActionAid Nepal in Kathmandu on May 27, Wednesday in view of presentation of the Executive Budget Proposal of the Government of Nepal in Federal Parliament on the statutory date of May 29.