Kathmandu: The Nepal Bankers’ Association has urged the government to revise more than a dozen provisions of the Income Tax Act through the upcoming fiscal year 2083/84 budget, calling for lower tax rates, reforms in loan-loss provisioning rules, and relief measures for both banks and taxpayers.
In its recommendations submitted to the Ministry of Finance, the association proposed reducing income tax rates, revising the tax treatment of loan-loss provisions, lowering interest tax on deposits, raising personal income tax thresholds, and cutting overall tax burdens.
One of the key proposals is to amend the definition of “normal interest rate” under the Income Tax Act. Currently, the law defines the normal interest rate as 15 percent annually. The bankers’ body has suggested replacing this fixed benchmark with the “bank rate” set periodically by the central bank, arguing that market-based interest rates should be automatically aligned with the central bank’s published rates.
“The normal interest rate should mean the bank rate charged by Nepal Rastra Bank while providing loans against acceptable collateral to banks and financial institutions,” the association stated in its proposal.
The association has also demanded that expenses made under corporate social responsibility (CSR) programs be fully deductible for tax purposes. It argued that CSR spending is an integral part of business operations and pointed out that Section 54 of the Industrial Enterprises Act, 2019, already requires industries to allocate at least 1 percent of net profit toward social responsibility activities.
Similarly, the bankers’ body has called for raising the ceiling on tax-deductible donations and gifts. At present, taxpayers can deduct donations made to approved social organizations up to Rs. 100,000 or 5 percent of taxable income, whichever is lower. The association has proposed increasing the threshold to Rs. 500,000 while keeping the 5 percent cap intact. It argued that the existing limit no longer reflects current economic realities and inflation.
The association has also sought changes to Section 59(1a) of the Income Tax Act so that banks can treat the entire amount set aside as loan-loss provisions and non-banking asset reserves as deductible expenses. Under the current system, only up to 5 percent of such provisions can be counted as expenses for tax purposes.
Banks say these provisions are mandatory under central bank regulations and are meant to cover potential losses arising from deteriorating economic conditions and weak loan recovery. Therefore, they argue, the full amount should qualify as a deductible business expense.
The association further proposed tax exemptions for financial assistance provided to employees or their families in cases of death, disability, or severe workplace injury. According to the proposal, compensation, medical support, and funeral assistance given on humanitarian grounds should not be treated as taxable income.
On deposit taxation, the association urged the government to reduce withholding tax on interest income earned by individual depositors from 6 percent back to 5 percent. It argued that lower taxes on savings interest would encourage the public, especially low- and middle-income earners, to remain within the formal banking system at a time of rising inflation and relatively low interest rates.
The bankers’ group also wants the Inland Revenue Department’s authority to revise tax assessments shortened from four years to two years. It said lengthy reassessment periods create uncertainty and significantly increase interest and penalty burdens for taxpayers.
In addition, the association recommended waiving interest and penalties on tax disputes that have remained under review at courts or revenue tribunals for more than a decade, provided taxpayers voluntarily withdraw such cases.
It also sought amendments to provisions relating to false or misleading tax statements, arguing that penalties should distinguish between intentional fraud and unintentional errors. The association has proposed removing the 50 percent penalty imposed on mistakes caused by negligence or oversight and limiting harsher penalties only to deliberate misconduct.
The bankers’ body further requested an extension in the deadline for depositing the “education service fee” collected from students going abroad for higher studies. Instead of monthly deposits, it suggested allowing banks to settle the amount within 25 days after the end of each quarter, noting that student visa rejections often make the tax refund process complicated.
On personal income tax, the association proposed doubling the minimum taxable income threshold for individuals. Currently, annual income up to Rs. 500,000 for individuals and Rs. 600,000 for couples is taxed at 1 percent. The association wants the threshold raised to Rs. 1 million annually.
It also proposed reducing the maximum personal income tax rate from 39 percent to 25 percent. Citing neighbouring India, where the annual income is up to around Rs. 1.2 million is tax-free, and the maximum tax rate stands at 25 percent — the association argued Nepal should adopt a more competitive tax regime to boost purchasing power, lower living costs, and encourage savings and investment.
The bankers’ group has also demanded a reduction in the corporate tax rate imposed on banks and financial institutions from 30 percent to 25 percent, bringing them in line with other businesses.
Bankers argue that treating financial institutions on par with industries considered harmful to public health, such as tobacco and alcohol businesses, is impractical and unfair. They say a lower tax rate would improve investor returns and encourage both domestic and foreign investment.
Finally, the association has opposed a provision in the Finance Act 2081 that requires approved retirement funds operated by banks and financial institutions to be compulsorily integrated into the Employees Provident Fund, Citizen Investment Trust, Social Security Fund, or pension funds by mid-July 2026.
The association argued that many of these retirement funds are already operating transparently, independently, and with strong returns under regulatory oversight. Mandatory transfers, it warned, could reduce long-term returns and increase administrative costs while undermining institutional autonomy.
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