IMAGE VIA THE KATHMANDU POST
NEPAL’S SOFTWARE industry earlier made its pitch for next year’s budget, and the headline number is the kind that gets quoted everywhere: a 1% corporate income tax on net profits, locked in for ten years, for registered IT companies. The Nepal Association for Software and IT Services Companies, known as NAS-IT, put the proposal to the government in a Kathmandu press meet, with vice-president Deepen Chapagain arguing it would let firms plough money back into innovation, infrastructure and talent rather than handing it to the state. President Gaurav Pandey called the industry’s broader ten-year target—ie $22bn in cumulative exports and 500,000 new jobs, both set by the government itself—achievable on current trends.
Here’s the thing that gets lost in the headline, though: Nepal’s IT exporters are nowhere near paying a normal corporate rate to begin with. Under the Finance Act already in force, export-oriented IT companies get a 75% rebate on the standard 25% corporate income tax owed from export revenue—which alone brings the effective corporate rate down to 6.25%. Separately, individual freelancers and natural persons resident in Nepal qualify for a flat 5% final withholding tax on their foreign export income. Startups under Rs100m in turnover get a full five-year exemption. Companies registered in a special economic zone get a full ten-year exemption. So the leap NAS-IT is actually asking for isn’t from “normal tax” to “almost none”. It’s from “already very low” to “lower still”, and locked in for a decade rather than reviewed every year.
That last part is probably the real ask. One industry figure quoted by the Kathmandu Post put it plainly: “Tax rates change every year. We need stability for at least 10 to 15 years.” Given that Nepal’s own finance minister spent part of June fending off accusations that this year’s Finance Bill had been quietly altered after it was presented, that complaint lands with more weight than it might in a country with steadier fiscal politics. A guaranteed rate, even one a percentage point or two above what firms currently pay, is worth more to a company planning a decade-long investment than a lower rate that might get rewritten at the next budget.
The scale behind the lobbying is real, even allowing for some industry boosterism. NAS-IT puts 2025 IT exports at some $1bn, more than double the figure from three years earlier, when a 2022 study put exports at around $515m. Around 100,000 people currently work in the sector. Getting to the government’s stated target of 500,000 jobs within a decade means roughly quintupling the workforce, which is a large ask whatever the tax rate ends up being.
It’s worth being honest about what those exports actually consist of. A meaningful share isn’t cutting-edge software at allL it’s outsourced data work riding on Nepal’s English fluency and convenient time zone. More than a dozen Nepali firms now process home loan paperwork for Australian banks, employing thousands of people in that niche alone; others handle healthcare data analytics for American clients. This is the sort of business that is sensitive to a few percentage points of tax, because it competes head-on with Bangladesh and Vietnam on cost, and the margins are slim enough that a tax difference shows up directly in whether Nepal wins or loses the contract.
The submission’s smaller asks show where the real friction actually sits. Some Rs400m in VAT refunds owed to IT companies is reportedly stuck in the pipeline right now: a cash-flow problem that has nothing to do with the headline rate. Nepal has tax treaties with eleven countries, and the United States, the United Kingdom and Australia (three of its largest IT export markets) aren’t among them, exposing exporters to double taxation where the money is actually being earned.
And a tax rule currently treats capitalised share premium as ordinary income, a quirk that specifically punishes high-growth startups raising money at a premium valuation, as opposed to the steadier outsourcing firms that make up most of the sector’s revenue.
A 1% rate is a clean number for a press release. What the industry seems to actually need is something less dramatic and considerably tougher to deliver: a government that, having just spent a fortnight defending itself against claims that the next year’s tax provisions changed after the fact, can credibly promise not to touch the rules again for the next ten years. ■
