IMAGE VIA THE ANNAPURNA EXPRESS
IMAGINE WORKING happily at a foreign embassy for years, never once being asked to pay income tax on your salary, and then one day getting a notice telling you that you actually owed it the whole time, going back to 2022. That is roughly what just happened to thousands of Nepalis.
The government’s new budget bill requires Nepali citizens who work locally for the United Nations, other international organisations and foreign embassies to register with the tax office and declare income going back three fiscal years, to 2022-23. Pay what is owed, plus a small one percent top-up, before mid-December, and the government will forgive all the interest and late fees that would normally pile up on a backlog of unpaid tax. Miss that deadline and the usual penalties apply.
The government’s reasoning is actually quite simple, even if it sounds technical at first. Diplomats themselves, the ambassadors and accredited foreign officials, are protected from local taxes under a long-standing international agreement that almost every country in the world honours.
That protection exists so that host countries cannot pressure foreign governments by squeezing their diplomats’ wallets. But that same protection has never covered the local people those embassies and UN offices hire on the ground: the drivers, translators, security guards, receptionists and programme staff who happen to be Nepali citizens rather than foreign diplomats.
As one tax official put it, those local staff “do not enjoy diplomatic privileges and therefore are not entitled to such exemptions”. In plain terms, the government is saying it was always owed this money and simply never bothered to collect it.
That part is fair enough. Most countries do tax their citizens who work for foreign embassies and the UN in this way. Nepal appears to have just never enforced it properly. The trouble starts with everything else around that one reasonable idea.
Three years is a long time to suddenly remember a bill is owed. Thousands of Nepali staff across the dozens of UN agencies and every foreign embassy in Kathmandu are now expected to dig up old salary records, get themselves registered with the tax office for the first time and find money for years of tax they had every reason to think was already settled, because nobody ever asked them for it before. Many of these are not high-paid diplomats. They are ordinary local employees on modest salaries, the kind of people for whom an unexpected three-year tax bill, even a discounted one, is a difficult thing to absorb on short notice.
There is also a cost that does not show up in any tax office spreadsheet. Nepal relies heavily on the goodwill of exactly these institutions, the same UN agencies and embassies that fund development projects, support the budget and help the country through every disaster from earthquakes to the political upheavals of recent years. Telling those institutions, with three years of hindsight, that their local hiring arrangements were wrong all along is not the kind of message that builds trust.
And the amount of extra money the government will actually collect from a relatively small pool of local staff is unlikely to make much difference to Nepal’s much larger revenue problems, which makes the goodwill it risks losing look like a poor trade.
There is an irony here too. Nepal is, at the very same time, generous to its own diplomats serving abroad, giving them a substantial tax break on the extra living allowance they receive while posted in places like New York, Geneva or Vienna. So the government eases the tax burden on Nepalis working for Nepal overseas, while reaching three years into the past to collect from Nepalis working for other countries’ missions at home. Neither choice breaks any rule. Side by side, though, they make the government look far more cozy taxing other people’s payrolls than examining its own.
This publication is not saying that the underlying idea is wrong. People who owe tax should eventually pay it, and a one-time amnesty on penalties is a reasonably humane way to bring people into the system without ruining them financially. What looks short-sighted is the execution: three years of silence, followed by a sudden bill, sent to exactly the institutions Nepal can least afford to unsettle right now. ■
