The government has officially announced that hotels and resorts will now be treated on par with manufacturing industries, a move welcomed by the hospitality sector that had long sought such recognition.

This announcement came through the budget for the upcoming fiscal year (FY 2025/26), with Clause 98 stating: “Hotels and resorts will be provided income tax and electricity tariff concessions similar to those available to manufactuing industries.”

Although the Industrial Enterprises Act 2019 has classified hotels, resorts, and other tourism-related services as part of the tourism industry, they were not granted the tax benefits enjoyed by industries.

Under Schedule 6 of the Industrial Enterprises Act, 2019 (2076 BS), the government has listed 11 types of tourism-related businesses under the tourism industry. These include tourist accommodations, motels, hotels, resorts, bars, and restaurants.

Meanwhile, Schedule 8 of the same Act defines 65 types of service-oriented industries such as vehicle repair workshops, air transport service, courier services, and beauty parlors—but notably excludes hotels from this category. Additionally, Schedule 9 outlines 16 industries designated as national priority industries, ranging from domestic manufacturing to information technology.

Within the tourism sector, only certain areas such as adventure tourism, rural tourism, eco-tourism, golf courses, polo, pony trekking, trekking, rafting, conference tourism, sports tourism, religious and cultural tourism, amusement park development and operation, and wildlife reserves are listed as national priority industries.

Hoteliers have long criticized this selective categorization, arguing that despite investments comparable to the national budget, their industry has not received equal recognition. They have persistently demanded that the hotel sector be granted the same status and facilities as manufacturing industries.

Speaking during the budget speech, Deputy Prime Minister and Finance Minister Bishnu Poudel announced that hotels and resorts would receive the same facilities as industries. This includes reductions in income tax and electricity tariffs, which hoteliers say will lower operational costs.

Sections 24, 28, and 33 of the Industrial Enterprises Act has provisions to provide various incentives, exemptions, and facilities for industries. For instance, Section 24 offers a 20% income tax reduction on profits earned by industries and an additional 5% reduction on income generated through exports. In underdeveloped regions, eligible industries may receive up to 90% tax exemption for up to 10 years.

Moreover, Section 24(h) specifies that industries established with capital exceeding Rs 1 billion and employing more than 500 people are entitled to full income tax exemption for five years, followed by a 50% exemption for the next three. Similar provisions apply to tourism-related industries with capital exceeding Rs 2 billion.

Hotel Association of Nepal (HAN) President Binayak Shah said that although the law had listed hotels as industries, they were not classified as industries, which deprived them of crucial benefits. “Despite our massive investments and contribution to foreign exchange earnings and employment generation, we were treated differently. This budget finally acknowledges our role,” Shah said.

Shah also noted that previously, government offices would often question whether hotels even qualified as industries. Similarly, banks would hesitate to provide loans under industrial lending terms. 

Electricity tariffs for hotels are also expected to drop significantly. Shah said that hotels currently pay up to Rs 17 per unit of electricity, but this could fall to Rs 6–7 per unit, aligning with the rates for industries. “Hotels add tremendous value—turning a Rs 50 cauliflower into a Rs 500 dish. Such transformation should be treated as value addition just like in manufacturing,” he argued.

The Industrial Enterprises Act defines manufacturing industries as those engaged in manufacturing goods through the use or processing of raw, auxiliary, or semi-processed materials. Hoteliers believe this new classification will help make Nepal a more competitive and affordable destination. However, they also argue that value-added tax (VAT) on airfares continues to make Nepal expensive for international tourists.

Pravin Bahadur Pandey, Managing Director of Shangri-La Group of Hotels and Resorts, said it took years to establish hotels as a full-fledged industry. “Today, hotel businesses have spread across the country, catering not only to foreign but also domestic tourists,” he said. “This recognition will help hotels grow further and contribute more to the economy through consumption and employment.”

Shashikant Agrawal, operator of Kathmandu Marriott, said the government’s move, though delayed, was welcome and sends a positive signal. “Tourism and hydropower are Nepal’s core industries. Hotels should have been included under national priority industries long ago. Still, being treated as manufacturing industries is a good start,” he said.

Agrawal emphasized that more than any other facility, reduced electricity tariffs and lower income tax rates would provide tangible relief to the hotel industry.

This news has been updated.