Banking Khabar / Bankers Association Pushes Major Tax and Banking Reforms Ahead of Budget
Nepal Bankers Association has proposed a sweeping set of reforms to the government ahead of the upcoming national budget, including a demand to redefine the legal meaning of “normal interest rate” and reduce multiple taxes imposed on banks, depositors and salaried individuals.
Among its key recommendations, the association has urged the government to revise the current definition that considers an annual interest rate of 15 percent as the “normal interest rate.” Instead, it has proposed that the “bank rate” determined periodically by Nepal Rastra Bank should be officially recognized as the benchmark normal interest rate.
The proposal comes at a time when Nepal’s banking sector is facing slowing credit growth, rising bad loans and increasing pressure on profitability.
Demand for Full Tax Deduction on CSR Spending
The bankers’ body has also called for corporate social responsibility (CSR) expenses made by banks to be fully recognized as deductible business expenses for income tax purposes.
According to the association, CSR activities carried out by banks should be treated as part of their institutional responsibilities rather than as separate charitable spending.
Push to Increase Tax-Free Gift and Donation Limit
Another major proposal involves increasing the tax exemption threshold on gifts and donations.
Currently, tax exemption is allowed only up to Rs 100,000. The association has recommended raising the limit to Rs 500,000 or 5 percent of taxable income — whichever amount is lower.
Provisioning Expenses Should Be Fully Deductible
The association has further demanded that all provisioning made by banks against “good category” loans and non-banking assets, as required by Nepal Rastra Bank standards, should be fully treated as deductible expenses.
Bankers argue that mandatory provisioning directly affects profitability and should therefore receive proper tax recognition.
Relief Sought for Employees and Families
The bankers’ association has also proposed tax relief on financial support and medical assistance provided to employees who die or become disabled during employment, as well as to their families.
According to the association, such humanitarian support should not be subject to tax deductions.
Call to Reduce Tax on Deposit Interest
In an effort to encourage public participation in the formal banking system, the association has requested the government to reduce the tax on deposit interest income from the current 6 percent back to 5 percent.
Bankers believe lower taxation on savings would help attract more deposits into the banking sector.
Other Major Demands
The association has also submitted several additional reform proposals, including:
- Reducing the time limit for the Inland Revenue Department to issue revised tax assessments from four years to two years.
- Waiving penalties and interest on tax disputes pending for more than 10 years if taxpayers voluntarily withdraw the cases.
- Removing the provision that imposes a 50 percent penalty on minor unintentional errors during tax filing, and limiting penalties only to deliberate wrongdoing.
- Allowing education service fees collected from students going abroad for study to be deposited quarterly instead of monthly.
- Raising the minimum threshold for personal income tax to Rs 1 million.
- Reducing the current maximum personal income tax rate from 39 percent to 25 percent.
- Lowering the corporate income tax imposed on banks and financial institutions from 30 percent to 25 percent, bringing them in line with other businesses.
- Removing the mandatory requirement forcing approved retirement funds operated by banks and financial institutions to be integrated into the Social Security Fund or other external funds.
Banking Sector Seeking Relief Amid Economic Pressure
The wide-ranging demands reflect growing pressure within Nepal’s banking sector as the economy continues to struggle with weak investment, slowing business activity and rising financial risks.
Bankers argue that tax reforms, regulatory flexibility and policy stability are now essential to restore confidence, strengthen lending capacity and improve the overall financial environment.
The government’s response to these proposals in the upcoming budget is likely to be closely watched by both the banking industry and the wider business community.
