The Budget 2083/84
The budget for the fiscal year 2083/84, presented by Finance Minister Dr. Swarnim Wagle, in a snapshot view might represent significant departure from traditional fiscal planning in Nepal, but optimism can undeniably begetted if implementation is shaky. It attempts to pivot the nation toward a production-oriented economy and the digital era while addressing long-standing structural inefficiencies.
The Pros: Modernization and Middle-Class Relief
1. Tax Relief for the Middle Class and Industry
One of the most notable aspects of this budget is the massive relief for individual taxpayers. The income tax exemption limit has been doubled to 10 lakh NPR, and the maximum tax rate has been reduced by 10 percentage points. To boost domestic manufacturing, customs duties on 273 types of industrial raw materials have been lowered to ensure they remain at least one level below the duty on finished goods.
2. Institutional Reforms and Hydropower
The budget tackles “institutional capture” and “fiscal lethargy” by announcing the abolition of 31 government entities and the merger or restructuring of 30 others. Most notably, it completes the restructuring of the Nepal Electricity Authority (NEA) into three distinct entities for production, transmission (assume Rastriya Prsaran Grid Company), and trade. With NEA as a utility company and merger of Hydroelectricity Investment and Development Company Limited (HIDCL) with Financial Institution that has similar objectives. To add the PPA modality for these projects will then be arranged using the ever-demanded “take or pay” method, and immediate PPAs, that was long stalled for hydel projects less than 10 MW.
3. Future-Proofing via AI and Information Technology
The government is positioning IT as a new “economic engine.” It has proposed a 50% income tax exemption on income earned from IT service exports. Furthermore, the budget plans to establish Nepal’s first “Sovereign AI Computer Center” at Syuchatar to provide subsidized computing power to startups, effectively turning clean hydropower into high-value digital exports.
4. Incentives for Digitalization and Transparency
To curb the informal economy, consumers will receive an immediate 10% VAT rebate when making purchases via digital payment systems. Additionally, the budget introduces Clean Energy Bonds and Clean Infrastructure Investment Funds to mobilize capital outside of traditional budgetary constraints.
5. Civil Service Motivation
Recognizing that inflation has eroded purchasing power, the budget provides a net salary increase of approximately 21% (I assume this to be 10% on initial salary and 10% on performance based incentives) as for civil servants, security personnel, and teachers. I’d still wish teachers’ (Primary and Middle school) salary, or more incentives be more competitive than any other portfolio.
The Cons: Debt Dependency and Implementation Hurdles
1. High Dependency on Deficit Financing
The budget’s primary weakness lies in its financing model. Out of a total expenditure of 2,124.34 billion NPR, the government expects a revenue shortfall of 657.29 billion NPR. To bridge this gap, it plans to mobilize 247.28 billion NPR in external loans and 410 billion NPR in internal debt. This heavy reliance on borrowing could increase the national debt burden and put pressure on domestic liquidity.
2. Ambitious Growth and Inflation Targets
The budget sets an ambitious economic growth target of 7% while aiming to keep inflation within 6%. Given the current global supply chain instabilities and the potential inflationary pressure from the 21% hike in public sector salaries, achieving these simultaneous goals will be a significant challenge.
3. Extensive Legal and Structural Requirements
The success of this budget relies on the passage and amendment of dozens of laws, including those related to insolvency, compulsory insurance for urban buildings, and international electricity trade. The administrative capacity to execute such a wide-reaching legislative agenda within a single fiscal year remains a concern.
4. Increased Burden on Sin and Luxury Goods
While the middle class receives income tax relief, the budget compensates by increasing excise duties on cigarettes and alcohol by approximately 10%. It also introduces a “Pollution Control Tax” on petrol and diesel and a new “Green Tax” by consolidating existing road and infrastructure fees.
Conclusion
The 2083/84 budget is covertly ambitious, focusing on the era of technology (AI, Green Hydrogen etc) and institutional efficiency. The budget also puts pressure on domestic users with high electricity consumption with the additional concessional VAT (in my opinion 5%, though this will be clearer in times to come). I have not touched upon the Capital Gain tax increments (NEPSE and Real Estate in this article, as I assume the door can slide on either side).
If the government can successfully manage its massive debt requirements and execute the promised legal reforms, it could set a new trajectory for Nepal’s economy, digressing from traditional budget implementation, I remain optimistic of that. However, the risk of fiscal overreach and inflationary pressure remains a significant shadow over these ambitious plans.
There could be global pressure points that might limit ambitious traction. The opinions in the article are purely personal and based on my preliminary readings of the Budget speech and Finance Bill.
Ashish Bhandari
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