Excise Duty Grows 14.4% in FY 2025/26, Supporting Nepal’s Tax Revenue Amid Income Tax Drop

Nepal’s excise duty collections increased by a robust 14.4% during the first two months of fiscal year 2025/26, providing critical support to overall tax revenue performance, according to the latest Ministry of Finance (MoF) and Nepal Rastra Bank (NRB) data. The surge in excise revenue helped offset the decline in income tax and non-tax collections, which dragged down total government revenue by 5.3% year-on-year to Rs 157.53 billion.

The report highlights that excise revenue reached Rs 28.95 billion, compared to Rs 25.32 billion in the same period of FY 2024/25. This growth is attributed to increased production and sales of excise goods—particularly alcohol, tobacco, processed foods, and domestic industrial products—alongside stronger enforcement of tax compliance and digital invoicing systems. Excise duty now accounts for 18.2% of total government revenue, up from 14.9% last year.

While excise and customs revenue (up 7.5% to Rs 35.39 billion) showed healthy expansion, income tax collections fell by 8.5%, declining to Rs 33.05 billion. This drop reflects weaker corporate earnings and subdued business profitability amid slower private investment and consumption recovery. Similarly, non-tax revenue plunged by 66.3%, reaching just Rs 7.13 billion, due to reduced dividends and administrative fees from public enterprises.

Value Added Tax (VAT) remained the largest single contributor, climbing modestly by 3.9% to Rs 52.14 billion, reflecting steady consumption trends. However, the overall decline in direct and non-tax income caused total revenue receipts to fall by 6.4%, settling at Rs 158.71 billion including other receipts.

Economists view the excise growth as a short-term relief for Nepal’s fiscal position, noting that consumption-based taxes like VAT and excise continue to sustain the revenue base. However, they caution that overreliance on indirect taxescould limit equitable growth and fiscal stability if corporate and non-tax revenues continue to weaken.

They recommend that the government prioritize broadening the tax base, enhancing tax administration efficiency, and promoting productive industrial output to maintain momentum in excise and customs revenue while strengthening direct tax performance.