Income Tax Revenue Falls in First Quarter of FY 2025/26

Nepal’s income tax collection has seen a notable decline in the first quarter of the current fiscal year, largely due to an economic slowdown that has weakened key revenue bases, according to the Inland Revenue Department (IRD).

The government had set a target of collecting Rs 71.22 billion in income tax during the first quarter, but actual collection reached only Rs 46.90 billion. Officials attribute this shortfall to reduced property transactions, lower interest rates on bank deposits, and weak trading activity in the stock market.

IRD Director General Madan Dahal stated that income tax indicators have been “significantly affected” by the broader contraction in economic activities. He highlighted that the major reason for the shortfall is a drop in capital gains tax revenue.

“Stock trading failed to pick up this quarter, and as trading volume declined, capital gains tax revenue also naturally fell,” he said.

According to Dahal, sluggish real estate activity has also played a major role in reducing income tax collection. Data from the Department of Land Management and Archives show a sharp decline in property transactions over recent months.

In the first month of current fiscal year spanning mid-July to mid-August, a total of 104,218 property transactions were reported nationwide. This figure fell slightly to 102,071 in mid-August to mid-September and dropped sharply to 79,736 in mid-September to mid-October. The sharp fall was attributed to the temporary nationwide shutdown following violent incidents during the September 8 and 9 Gen Z movement and the destruction of several land revenue offices, which disrupted record-keeping and service delivery. The long festive holidays during Dashain further limited transactions during the review period.

The fall in property transactions has impacted not only real estate businesses but also government revenue. The Department of Land Management reported that revenue from land and housing transactions declined from Rs. 3.28 billion in mid-July to mid-August to Rs 3.14 billion in mid-August to mid-September and then to Rs 2.75 billion in mid-September to mid-October.

Dahal noted that the overall slowdown in economic activity has reduced income generation itself, leading to weaker tax performance. However, he expressed optimism that revenue collection could improve in the coming months if economic recovery continues.

Despite the income tax decline, data from the Ministry of Finance indicate that customs duties, value-added tax (VAT), excise duties, and education service fees have all increased compared to the same period of last fiscal year.

Taxpayer Service Offices Abolished

The Inland Revenue Department has abolished its Taxpayer Service Offices and redistributed their functions to other agencies. Issuance of Permanent Account Number (PAN) certificates and related services will now be provided through local governments. If implementation at the local level takes time, these services will temporarily be available from the District Treasury Controller Offices.

Other tax-related services such as tax payments, clearance certificates, and document submissions will continue through the online system. According to Director General Dahal, the decentralization aims to make taxpayer services more accessible and technology-friendly.

“Most services, including PAN registration, business registration, filing, and tax payment, can now be done through local municipalities or online,” he explained.

The IRD has also authorized accountants or officers from local governments and the Treasury Controller Offices to deliver services directly. Dahal described this approach as a “faceless and contactless” model designed to increase transparency and convenience by minimizing direct contact between taxpayers and officials.

“Our goal is to expand tax services to all 753 local governments within the next fiscal year,” Dahal said, adding that full implementation across all municipalities is expected by next year.