Skip to content

Issues and Challenges of Governmet Revenue Mobilization in Nepal

The revenue mobilization of the government in Nepal faces several structural, administrative, economic, and political challenges and issues. These issues have limited the ability of the government to mobilize revenue efficiently and effectively.

Major issues and challenges are:

  1. Narrow Tax Base:
    • Large informal sectors
    • A small number of registered taxpayers
    • Limited coverage of income and property taxes
  2. More progressive tax system:
    • Over-reliance on indirect taxes such as VAT, Excise duty, and customs.
  3. Import dependent economy
    • Import-based tax revenue is dependent and vulnerable to import shocks.
  4. Weak tax administration
    • Limited capacity og tax offices
  5. Weak auditing and monitoring mechanism
  6. Insufficient staffs and their capacity
  7. Widespread tax evasion and avoidance
    • Under invoicing, under-reporting of income, and profit.
    • Use of fake bills, etc
  8. Poor awareness and tax compliance
    • Poor tax literacy
    • Lack of incentive for voluntary compliance
    • Weak enforcement and penalties
  9. Poor use of digital technology
    • Lack of integration between the customs, business registration of tax officers
    • Limited electric billing system
  10. Overlapping tax jurisdiction
    • Conflicts among the federal, provincial, and local governments
    • Lack of clarity in the division of responsibility
  11. Weak capacity of the local and provincial governments
    • Limited institutional capacity
    • Poor record keeping, auditing, and monitoring
    • Reliance on federal transfer
  12. Slow economic growth and poor diversification
    • Lower consumption results in lower VAT and other taxes
    • Lower business activity results in lower income tax
  13. Natural disaster and other shocks
    • Frequent disasters reduce investment, production, tourism, and trade-related activities
  14. Corruption and revenue leakage
    • Political protection for the tax evader
    • Collusion between businesspeople and government officials
    • Smuggling across the border
  15. Low tax morale
    • Lack of trust in government spending
    • Poor public perception of the use of tax money
    • Limited tax literacy

Other Posts