Kathmandu: The Nepal government waived more than Rs 85 billion in revenue in a single fiscal year through various tax exemptions and incentive schemes, according to the Auditor General’s latest annual report.
The 63rd annual report of the Office of the Auditor General states that the government provided tax and customs exemptions worth Rs 85.23 billion in fiscal year 2024/25 under provisions of the Finance Act and Customs Tariff Act. The amount is nearly Rs. 5.5 billion higher than the previous fiscal year, when exemptions totalled Rs 79.87 billion.
Under Section 18 of the Finance Act 2024/25, the government has the authority to reduce, increase, or fully or partially waive taxes. However, the Auditor General has questioned the transparency and record-keeping system surrounding such exemptions.
The report notes that although substantial tax exemptions were also granted under the domestic revenue system, neither the Ministry of Finance nor the Inland Revenue Department maintained proper records of those concessions.
While the Department of Customs keeps records through the ASYCUDA system, the lack of similar documentation for inland revenue exemptions reflects weaknesses in financial accountability, the report said.
The Auditor General also reported that Rs 5.71 billion in exemptions was granted on imports under SAFTA trade facilities. In addition, the government provided another Rs 496.3 million in tax relief by amending legal provisions through Cabinet decisions.
According to the report, such decisions are often presented only as part of ministry progress reports instead of being submitted comprehensively to Parliament, weakening legislative oversight.
The report further stated that tax exemptions granted to public construction projects have benefited contractors more than the state itself. Revenue waivers worth Rs 6.12 billion were provided to foreign aid-funded projects and government agencies.
The Auditor General pointed out that project cost estimates often fail to account for tax exemptions in advance. Instead, contractors later obtain exemptions through “master lists” after procurement agreements are signed, allowing them to gain direct financial benefits without reducing overall project costs.
The report also found that exempted amounts are rarely adjusted into final project costs, meaning the financial advantage largely remains with contractors rather than being passed on to the government.
Another major reason behind revenue leakage, according to the report, is the practice of issuing tax exemption recommendations without proper study or verification.
Various government agencies were found recommending exemptions based solely on applications, without adequately verifying the qualifications of importers or the nature of imported goods. The customs administration was also criticized for granting exemptions based merely on recommendation letters, without analyzing whether they complied with the intent of the Finance Act.
The Auditor General warned that unless the process for granting exemptions to foreign aid projects, government boards, committees, and contractors is made more transparent and systematic, the state risks losing significant amounts of revenue.
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