KATHMANDU, May 18 : The government has been providing tax and customs exemptions worth billions of rupees annually under various legal provisions and international agreements, raising concerns over transparency in revenue management.
According to the Customs Department’s data system, a total of Rs 85.23 billion in customs revenue was exempted in the last fiscal year alone.
The 63rd annual report of the Office of the Auditor General for fiscal year 2024/25 notes that the volume of such exemptions has increased compared to the previous year. In the preceding fiscal year, exemptions stood at Rs 79.87 billion.
Diversifying Government Revenue
Under Section 18 of the Economic Act 2024, the government is authorized to reduce, increase, or fully or partially exempt taxes, fees, or duties as per prevailing law.
As per the report, goods imported under the South Asian Free Trade Area (SAFTA) facility accounted for Rs 5.71 billion in customs duty exemptions. Similarly, Rs 496.3 million was exempted through Cabinet decisions amending provisions of the Economic Act and Excise Duty Act.
Likewise, Rs 6.12 billion in customs duty exemptions were granted for contractors and agencies involved in government bodies, committees, boards, and foreign-aided projects.
While such a large volume of tax exemption is being administered, the Auditor General has raised questions over its transparency.
“The Ministry of Finance and the Inland Revenue Department do not maintain consolidated records of internal tax exemptions. Instead of presenting comprehensive details in Parliament, the information is limited to ministry-level progress reports,” the report states.
The report further notes that in the construction sector, the direct benefit of tax exemptions often goes to contractors rather than projects themselves. It adds that while cost estimates do not account for tax exemptions, contractors benefit through master lists, preventing proper adjustment of project costs.
It also highlights that recommending agencies often approve customs and VAT exemptions without verifying eligibility or the nature of imported goods, relying solely on applications. The report warns that customs authorities also grant exemptions based on such recommendations without adequate analysis of legal provisions, negatively affecting overall revenue mobilization.
