ILLUSTRATION: KATMANDU JOURNAL
THERE IS A reason salaried Nepalis end up carrying more of the tax burden than the law’s progressive rate table suggests they should: their income gets reported before they ever see it. An employer withholds tax every month, sends it straight to the Inland Revenue Department (IRD) and the employee has essentially no room to manoeuvre. As one tax guide puts it flatly, “salary tax cannot be avoided legally.” That’s true. It’s also why salary is the worst kind of income to have if you’re trying to minimise what you owe—and the best kind of income to have if you’re a government trying to collect. Everyone else has options.
Start with agriculture, which Nepal’s Income Tax Act treats with unique gentleness. Section 11(1) completely exempts agricultural income from individuals, provided they stay under corporate registration ceilings. For a smallholder farmer scraping by, this exemption is a big relief. But for wealthy landowners looking to scale up, the loophole has been partially tightened: registered firms and companies doing agricultural business now only receive a 50% exemption. While no longer an absolute tax haven, routing money through agricultural ventures still grants a massive 50% discount on standard corporate rates—a door a salaried teacher or bank officer cannot open.
Then there’s the new federal budget for the coming fiscal year, presented by finance minister Swarnim Wagle on May 29th.Headline reforms brought some middle-class relief by expanding the 1% minimal-tax threshold to Rs1m and slashing the top personal income tax bracket from 39% to 29%.
However, a highly contested change unfolded in the stock market. Wagle put an end to years of policy warfare by declaring that capital gains tax on listed NEPSE shares is officially a “final tax”, meaning it will never be folded into an investor’s regular progressive income brackets. To balance this major concession to the investor class, the budget simultaneously hiked the rates: short-term capital gains (held for a year or less) jumped to 10% while long-term gains climbed to 7.5%. Even with the rate hike, the victory belongs to top-tier investors. A wealthy trader moving millions in profit caps their tax liability at 10%, while a senior manager paying salary tax sees their top slice of income eaten away at 29%.
Freelancers and tech professionals earning in foreign currency enjoy an even sweeter deal. Under current IRD regulations, they pay a flat 5% final withholding tax on foreign-sourced earnings processed through local banks. Compare that to the 29% a salaried professional now faces on their top bracket. The catch, of course, is that “freelancer” is often a question of how your income gets labelled—and the elite consultants with the leverage to negotiate a B2B contract instead of a standard payslip are rarely the ones earning baseline wages.
Layer onto this the tax holidays Nepal hands out to “priority” sectors—full or partial exemptions written into law for businesses that qualify, something no individual wage earner has ever been offered. And layer onto that the fact that the country’s biggest family conglomerates mostly keep their core holding companies private. No public quarterly filings and minimal visibility for tax officers trying to track capital shifting between a steel plant, a cement factory and a family trust.
None of this is illegal. Every mechanism described here exists in the statute books, openly doing what it was designed to do. Meanwhile the taxes that hit everyone identically—regressive consumption taxes, fuel levies and telecommunication charges—land hardest, proportionally, on people with the least.
The tax reform commission appointed in 2025 reached the obvious conclusion: Nepal has too many overlapping tax types, an enormous informal economy sitting outside the net and a tax base that desperately needs widening before rates get cut. The May budget cut the personal rates anyway. The salaried Kathmandu professional checking their payslip this July will see a lower TDS deduction, and they’ll be right to notice it. They’d just be wrong to think it makes the underlying system any fairer. ■
