Kathmandu: Hire purchase companies licensed by the Nepal Rastra Bank have been granted a significant financial facility regarding their loss-provisioning funds, effectively bringing them on par with commercial banks.
Finance Minister Dr Swarnim Wagle has introduced a provision allowing these companies to treat the amount set aside for loan loss provisions as a deductible business expense, a move aimed at strengthening the financial health and tax efficiency of the sector.
This change was implemented through a strategic amendment to the Income Tax Act via the latest Finance Bill. Under the updated regulations, higher purchase firms are now permitted to deduct up to 5 percent of their total outstanding loans as a loan loss provision expense. This mirrors the long-standing facility enjoyed by banks and financial institutions, which are allowed to deduct a similar 5 percent of the funds provisioned for potential loan defaults and non-banking assets.
The legal adjustment specifically amends Section 59, Subsection (1a) of the Income Tax Act. Previously, the law allowed only those conducting traditional banking businesses under central bank standards to deduct a portion of their risk-bearing funds from their taxable income.
By revising this framework through the Economic Bill, the government has officially extended the benefit to include higher purchase providers, ensuring that these specialized financial entities receive equitable tax treatment while managing their credit risks.
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