The number of taxpayers who have obtained permanent account numbers (PAN) has increased to 659,836 as of mid-February 2025. A total of 433,703 new PAN holders have been brought to the tax net within the past seven months of the current Fiscal Year. The increase is a noteworthy achievement for the revenue administration of Nepal. The rise reflects the positive impact of concerted government efforts to expand the tax base and promote compliance. The majority of those in the tax net – 69.3% – are personal PANs. It indicates that public involvement in the country's tax system is on the rise. There has also been significant growth in the registrations of VAT – Value Added Tax – and excise duty. The Ministry of Finance indicates that 341,716 business entities registered for VAT while 123,132 firms obtained registration for excise duty. These developments suggest Nepal's largely informal economy is making giant leaps toward a formal economy. The government's efforts at educating and sensitizing the taxpayers appear to be producing results.
Diversifying Government Revenue
But this encouraging advancement is starkly contrasted by the poor revenue collection performance. While total revenue has increased by 10.5%, the government has collected just about a half of its yearly revenue target. Collection of income tax, which has increased by a modest 3.2%, has lagged behind growth in PAN registrations. The government's fiscal targets require steady revenue collection around the year. Although the collection of revenue increased by 10.5 percent in the review period, the amount nonetheless records a deficit compared to the target of the government. The government targets to raise Rs 1.419 trillion revenue in the current fiscal year but has only managed to raise Rs 736.86 billion thus far. That is a 51 percent of target. Paying taxes and the tax mechanism is complex in Nepal. The experts have consistently pointed out that the tax risk management and compliance are below par. Likewise, the administration of main revenue-relevant legislation is said to be weak and the revenue administration appears rather lenient. In order to fill the huge gap between the expenditure and the revenue, the government must adopt some tangible measures which involve combating loopholes and stopping tax evasion through strict monitoring systems. No less important is to institute steps to encourage investment and entrepreneurship in high-value domestic production sectors particularly.
Nepal also needs to streamline the tax processes and enhance digital platforms to enable ease and convenience in compliance. This taxpayer registration and revenue collection gap identifies inefficiencies in compliance and enforcement systems. As things stand, the ambitious revenue goal of NPR 1.419 trillion by the government in the current fiscal year looks unlikely to be met, with the collections being NPR 736.86 billion. The deficiency is partly because of reliance on imports rather than domestic production, which limits the tax base. The recurring expenditure occupies a disproportionate chunk of resources, leaving limited room for capital investment. Underuse of capital expenditures is a long-standing issue, since just 23.37% of the budget released had been utilized as of mid-March. The passive pace of utilization threatens infrastructure construction and economic growth. The government's focus on educating taxpayers and awareness initiatives has contributed to registering more people. Through creating a compliance culture, these initiatives can bridge the gap between registrations and collection of revenue. Nepal's taxpayer registration achievement is to be commended, but the way toward fiscal sustainability requires firm will and realistic policy-making, ensuring an open, equitable, and strong revenue system.