Double-taxation, profit repatriation and capital gains tax have always been a headache for foreign investors in dealing with rent-seeking that Nepal is infamous for.
When Dolma Impact Fund, the only international venture capital company in the country, applied last year for exemption from capital gains tax citing Nepal’s Double Taxation Avoidance Agreement (DTAA) with Mauritius, bureaucrats at the Finance Ministry gave it the runaround.&nbsp;
But the interim government’s Finance Minister Rameshore Khanal, himself a respected former bureaucrat, is someone who knows that international treaties take precedence over national law.&nbsp;
On 30 October he gave Dolma a strategic capital gains tax break, convinced that Nepal needed to restore investor confidence especially after videos of the arson, vandalism and looting of the Hilton and Hyatt hotels and businesses on 9 September went all over the world.&nbsp;
Dolma’s stakeholders include other investment funds in the UK, US, Japan, Netherlands, Finland, Austria, Sweden as well as the World Bank. Nepal needs investment for future large infrastructure projects, and to tap those funds it has to &nbsp;streamline its bureaucracy, increase transparency and adhere to international obligations.
The argument is that making it easier for Foreign Direct Investment (FDI) is a much more efficient way to spur the economy and create jobs than the government raising revenue mainly through taxation, since the chances of that money being leaked through corruption or wastage in Nepal is high.&nbsp;
After news of Finance Minister Khanal’s decision on 3 October exploded in the media, Prime Minister Sushila Karki inquired about it. Chief Secretary of the GoN Eaknarayan Aryal clarified that the decision was not in the minutes of the Cabinet.
TAXING TWICE
Critics like economist Pushkar Bajracharya argue that it is important for Nepal to have a consistent taxation policy for FDI, and apply it uniformly so it does not deter investors. The Dolma decision could encourage other offshore investors to demand similar treatment, hurting Nepal’s tax base.
“Besides, the evidence just isn’t strong that tax cuts lead to higher investment, or more jobs,” Bajracharya adds.
Nepal has double-taxation avoidance treaties with 11 countries, and there are reports of moves to end the DTAA with Mauritius signed in 1999. But just like with the Ncell’s capital gains row and the controversy over the US-funded Millennium Challenge Corporation (MCC) there has also been nationalist flag-waving in Nepal.&nbsp;
“We were raising a fund that could have brought $1 billion in for energy, and we had to stop it due to the reputational damage to Nepal by not upholding an international treaty,” Tim Gocher, CEO of Dolma, told Nepali Times on the phone from London.
Dolma claims that Nepal’s DTAA with Mauritius means profit arising from sale of shares should be taxed only in the resident state and not in Nepal, and also cited the Treaty Act 1990 which states that treaties signed by Nepal supersede domestic law in case they contradict each other.
Gocher said it makes sense for his fund to be based in Mauritius: “When you have investors from all over the world, you have to choose a domicile, and Mauritius is probably the most popular for development finance institutions due to strong governance, anti-money laundering laws and treaties with developing countries like Nepal.”&nbsp;
Nepali officials, however, see Dolma as a conduit company sourcing funds from outside Mauritius or Nepal and label it as possible ‘treaty shopping’. A similar case involving the sale of Ncell ownership went to the Supreme Court and all the way to the International Tribunal at The Hague, and both ruled against exemption to DTAA.
Officials argue that approving an exemption for Dolma would contradict that precedent. The Attorney General’s office cited Section 73 of the Income Tax Act of 2002 which states that to avoid double taxation, more than half of the company has to be owned by individuals residents of both Nepal and a foreign country.
Bureaucrats also seem to be wary about being hauled over the coals at the Commission for the Investigation of the Abuse of Authority (CIAA) if they agree to Dolma’s demands, even though there is a legal argument that the Nepal treat act stipulates that in case of disagreement international obligations take precedence over domestic laws..&nbsp;
“It was when the new government decided to uphold the treaty that the whole hoo-hah started,” said Gocher. “It is crystal clear, and the way international treaties are dealt with all over the world.”
Chief Secretary Acharya, who is retiring next week, seems to want to avoid being haunted by any whiff of controversy before he leaves, but also faces intense lobbying by the international community for Dolma’s exemption.&nbsp;
Dolma currently invests in companies such as Chirayu National Hospital, CloudFactory Holdings Limited, Foodmandu, FuseMachines, Rhododendron Biotech, Setikhola Hydropower, and Solar Farm Nepal.&nbsp;
Dolma has asked to be exempt from being taxed twice: in Nepal, where it invests, and in Mauritius, where it is based, and points to a law that says international treaties override domestic law in the case of a contradiction. Government officials point to the Ncell precedent saying it will be illegal. But the government is not giving in, due to the Ncell precedent and to prevent others in future asking for similar exemptions.&nbsp;
<a href="https://www.youtube.com/watch?v=uNdMuD_4yGw&amp;t=5s" target="_blank">Watch interview</a> on Nepali Times Studio with Tim Gocher.

Vishad Raj Onta

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Double trouble with taxes

With Saturday's deadline on Malaysia’s announcement of new criteria for selecting private recruiting agencies for migrant workers having lapsed, Nepal and Bangladesh have rejected the conditions.
The Malaysian move three weeks ago came in the aftermath of deadly GenZ riots in September, when Nepal’s interim government does not have designated heads in the Foreign Ministry and the Labour Ministry.
Interim Prime Minister Sushila Karki instructed the Labour Ministry to examine the implications of the standards and recommend appropriate steps to address them, but it has said it cannot send Nepali workers to Malaysia based on those criteria.
“In line with Nepal’s foreign employment policy and regulations, we are currently unable to accept or implement the proposed criteria,” says Pitambar Ghimire, spokesperson at the Ministry of Labor, Employment and Social Security in Kathmandu.
In response to the government’s request for their opinion on the Malaysian stipulation, the Nepal Association of Foreign Employment Agencies (NAFEA) has also flatly rejected the criteria, saying it could create a harmful syndicate and restrict fair competition, violate Nepal’s Constitution and laws, and increase recruitment fees that workers must pay.
On 25 October, the Malaysian Ministry of Foreign Affairs sent letters to the governments of Nepal, Bangladesh, Burma, Pakistan and India with 10 criteria meant to ‘rationalise the number of licensed private recruitment agencies permitted to facilitate recruitment and placement of workers to Malaysia’.
The proposed criteria include: at least five years of operating experience, deployment of 3,000 workers in the past three years of operation, experience sending workers to at least three countries, valid licenses and good conduct certificates, five employer testimonials, operating their own training and accommodation centres, and even a requirement for the staffing agency to have a 10,000 sq m office maintained for three years.
“We have communicated our views to the Ministry of Foreign Affairs, and have proposed discussing various labour related matters with our Malaysian counterparts diplomatically through bilateral dialogue and negotiations including renewal of the Nepal-Malaysia labour agreement,” Pitamber Ghimire said.
NAFEA has urged the government to prevent this measure from moving forward using diplomatic channels, and has held &nbsp;several gatherings and press conferences opposing the proposal since the Malaysian letter was received three weeks ago.
“We have taken commitment letters from members that they will not be engaged in activities related to the syndicate,” said Sujit Shrestha of NAFEA. “And if they break the commitment, they will face consequences including the revocation of their NAFEA membership. These letters also send a strong message to the government that this is irrevocably and collectively rejected by the industry.”
Bangladesh has also not accepted the proposal despite the 15 November deadline to send a list of recruiters that meet the criteria. That in itself would have been an impossible task to complete to begin with even if the government had accepted the proposal.&nbsp;
According to media reports, Bangladesh has sent a letter to the Malaysian government requesting that three of the proposed criteria be relaxed. This includes flexibility regarding the requirements for a 10,000 sq ft office, a dedicated training center, and the condition of having deployed 3,000 workers in the last five years. Despite the official request to Malaysian authorities, the Bangladeshi Government has also been collecting applications from recruiters who meet Malaysia’s proposed criteria, raising confusions about the contradictory stance.&nbsp;
Just like NAFEA, the recruitment association in Bangladesh, the Bangladesh Association of International Recruiting Agencies (BAIRA) has also outright rejected the proposal including in a letter to the Bangladeshi government, calling the criteria ‘unprecedented and exclusionary, unreasonable, discriminatory and syndicate-driven &nbsp;that would effectively disqualify 99% of legitimate agencies from participation’.&nbsp;
Now that the ball is back in Malaysia’s court and the proposal has not gained much support from two of the major origin countries, it will be interesting to see how they respond.

Nepal, Bangladesh reject Malaysian conditions

New and old, businessmen and former diplomats, engineers and academics — they have all been trooping to the Election Commission to register political parties ahead of the Sunday deadline.
Till press time Thursday, five new parties had been registered and 21 new parties were in the process of applying. Behind the scenes, new parties are head-hunting, well-known figures are shopping for parties to join, while older parties are splitting or uniting to form new united parties.
“It is reason for optimism that people are enthused to form new parties,” notes political analyst Indra Adhikari. But, she adds, this does not mean that despite the celebrity status they will win votes and succeed in politics.
The outlier in all this are the Nepali Congress (NC) and the UML, which are still licking the wounds after being swept out of power by the GenZ protests in September. Neither are too keen on elections because of the prospect of losing badly.
Former prime minister K P Oli is the most recalcitrant, and seems to want to scuttle elections so Parliament will be reinstated. After announcing that he was stepping down, the NC’s Sher Bahadur Deuba has had a change of heart in Singapore and is gunning to restore Parliament.
Neither party and their leaders have shown any remorse for the 8 September massacre, or understood the outrage on the streets against their decades-long incompetence and corruption. &nbsp;
Among those registering parties are various GenZ youth groups and family members of those killed during the September protests. Notable among the new parties certified this week was Gatishil Loktantrik Party (गतिलो) backed by Buddha Air founder Birendra Basnet and led by sociologist Dinesh Prasai. Dharan Mayor Harka Sampang’s Shram Sanskriti Party is also registered.
Energy and Infrastructure Minister in the interim government Kulman Ghising has backed the Ujyalo Nepal with former secretary Anup Kumar Upadhyaya as its chair. Ghising has been playing coy about his political ambitions, and is planning to resign from his cabinet post before elections.&nbsp;
Ghising had been talking to Rabi Lamichhane’s RSP about joining, but that negotiation failed. Former RSP lawmaker Sumana Shrestha was supposed to join Ghising, but pulled out following Ghising’s reluctance to resign from government.
Ghising has much public support because he is credited with ending power cuts as head of the Nepal Electricity Authority, but is now getting flak for being unwilling to give up his ministerial portfolios while still wanting to contest elections. &nbsp;
Ujyalo has hit other snags. GenZ activist Tashi Lhazom, who was considered for a Cabinet position last month but was dropped by Prime Minister Sushila Karki, has said she is not in Ujyalo despite being listed as a Central Committee member. Another member has said that he will not be a part of Ujyalo due its “a lack of political culture”.
Even though Nepalis from across backgrounds and professions are eager to participate in the country’s new political landscape, there are doubts about the structure of their parties, ideology and electoral platforms.&nbsp;
Hurriedly set up parties without a shared philosophy have less chance of political influence and longevity. For example, the RSP was formed just months before the 2022 polls to become the fourth-largest party in Parliament, has lost its momentum, and its leader is in jail.
“Parties like the RSP, which did some positive work after being elected, have still not been able to establish a clear ideological roadmap or organisational structure,” Adhikari says. &nbsp;“It is easy to form parties, the real work goes into building an institution, which is the hard part”
Meanwhile, despite expectations of increased and inclusive youth participation not just at the polling booths but also on the ballot, only a few GenZ-led parties are applying at the Election Commission. They include the Rastriya Pariwartan Party and the Rastriya GenZ Party Nepal. Most other parties are led by men in their 40s, even in their 70s.&nbsp;
Analysts note that despite hopes of young blood in politics, Nepalis are still inclined to trust those with experience, as evidenced by GenZ’s choice of Sushila Karki to succeed KP Oli as Prime Minister after the September protests.&nbsp;
“So it will be difficult for young Nepalis without prior political experience to lead parties and it will be even more difficult for them to cultivate enough public trust to get votes,” says Adhikari.&nbsp;
Then there are the old political players, who have been breaking up and making up new alliances. Resham Chaudhary quit his Nagarik Unmukti Party and registered a new one.
Last week, Puspha Kamal Dahal’s Maoist Centre, and Madhav Kumar Nepal’s Unified Socialists merged along with smaller leftist parties to form the Nepali Communist Party (NCP). Disgruntled former UML members like Bhim Rawal have also joined the NCP. On the other hand, Janardan Sharma has fallen out with Dahal and is going his own way.&nbsp;
Even though the NC, UML and NCP show little sign that they have learnt their lesson and will be turning a new leaf, they still have the party organisation and vote banks to fall back on at election time in the runup to 5 March. &nbsp;
Says Adhikari: “At the end of the day, Nepali society remains hyper-partisan. And although the newly-formed parties and their popular candidates may give older leaders a run for their money, established parties will still benefit from their solid vote base.”

Party Time

The very first frame in The Lama’s Son starts with a vision of Shangrila and the quest of a mythical utopia in the Himalaya when the rest of the world is crumbling away. It is also the personal search of filmmaker Kesang Tseten, but what he finds there are adherents of the Bon Po faith clinging to the last remnants of a culture as it erodes away like the sandstone cliffs of Mustang. “It was while editing the documentary that the story became distilled: how does what we see in the high Himalaya relate to the notion of the Shangrila idyll that especially the West ascribed to them,” asked Tseten during a recent trip to Kathmandu from Berne where he now lives. He continued: “Often and perhaps rightly criticised as an orientalist construct, I wondered if there was any basis at all to the Shangrila notion, and I hung the film on that idea.”&nbsp; Tseten takes us to the vast vistas of Mustang and Dolpo, a landscape of his Tibetan ancestors. This is as much an intimate documentation of families on Nepal’s Himalayan rimland torn between remoteness and globalness as it is about Tseten’s own quest for rootedness.&nbsp; We start from Lubra, a 3,000m village in Mustang the 15 households of which follow the Bon faith. Lama Tsultrim is from a 900-year-old lineage of the animist faith and an exponent of the tradition that is slowly being subsumed first by Buddhism and now modernism. For Tseten, the material is familiar, and not at all exotic as it is for non-Nepalis and indeed for many urban Nepalis. Bon, founded in Tibet, predates Buddhism, but over time, the two religions have come to resemble each other.&nbsp;  <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20251113111156_ecf8148fbaa17b93c81ddfa3ed244bed266e3ef6af0cd5e6ca7b64c181b97d45.jpg" data-media-id="editor_0" data-image-id="20251113111156_ecf8148fbaa17b93c81ddfa3ed244bed266e3ef6af0cd5e6ca7b64c181b97d45" data-rendition-name="original" width="1920" height="1080" loading="lazy" alt="The periphery cannot hold NT"> </figure>  ‘Both believe in karma, rebirth, and that humans can become enlightened. Nature and spirits are predominant in Bon, and rituals are what keep them benign and alight,’ says Tseten, who rarely narrates in his documentaries. “This is not really a personal film as such, but it has a point of view,” Tseten said. “I decided to have a voice-over on this one and cast my presence in the film.”&nbsp; Lubra's Lama Tsultrim is called upon to perform rituals from Kagbeni and other villages, but there is no one to continue the tradition after him, which is passed from father to son. Lama Tsultrim’s son (hence the title of the film) is a sushi chef in New York and has been gone for 20 years. “The Lama is like a setting sun, his son should come back and take over his father’s responsibilities,” says a local youngster chatting with friends. “If he dies tomorrow, where do we go? We can’t just light butter lamps ourselves to the gods.” It is not only the Lama’s son who has left. The village is nearly empty, and more are planning to leave. One of them is Chimi, a teacher who will be joining her fiancé who is an Uber driver in New York. Her brother is already in Hong Kong. In Lo Manthang a local is back home for a three-month vacation after being in New York for 12 years. A shopkeeper was in Japan for several years, and has returned. “Everything has changed, our language, our tsampa, our religion. We used to work and live together, now the children live separately,” says a middle-aged woman. “There are roads now, and vehicles stop right outside our house, but what’s the point? No one stays home.”  <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20251113111156_47b4c4984fa33e42791b16dba1f078aaa7f9d8bd51ca3bfd5415b436c3a0bf2c.jpg" data-media-id="editor_1" data-image-id="20251113111156_47b4c4984fa33e42791b16dba1f078aaa7f9d8bd51ca3bfd5415b436c3a0bf2c" data-rendition-name="original" width="1920" height="1080" loading="lazy" alt="The periphery cannot hold NT"> </figure>  Like most of Tseten’s films, The Lama’s Son is an honest documentation of a place and people whose lifestyle, culture and heritage cling precariously to the past. In Dri village we come across local women filling their buckets with water. Tseten asks them why the village is so empty: “Where is everyone?” The women reply that they are “here, there and everywhere”. Then it is their turn to ask Tseten about where he lives and what he is doing in their village. Migration is a recurring theme in Tseten’s documentaries from We Corner People, In Search of the Riyal, or Saving Dolma. His previous film Diversity Plaza documented the lives of Nepali and Tibetan emigrants in Jackson Heights in the borough of Queens in New York.&nbsp; Diversity Plaza was shown at DOC NYC in 2023, and The Lama’s Son will be one of only two Asian films shown next week at one of the biggest documentary film festivals in the world.&nbsp; “The Lama’s Son is not loud, not attention grabbing but intimate, so I was surprised they chose a quiet film for a big, flashy event,” Tseten told us. In Lama’s Son, we also see how climate breakdown is impacting Nepal’s trans-Himalayan regions. Lama Tsultrim shows us the aftermath of a recent glacial flood that swept away houses and fields. The debris-covered farms are as hard as cement.  <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20251113111156_c82126a3c2dc4577b99beb9bef20aafa16f532a3f41e59caea17c93914c59fff.jpg" data-media-id="editor_2" data-image-id="20251113111156_c82126a3c2dc4577b99beb9bef20aafa16f532a3f41e59caea17c93914c59fff" data-rendition-name="original" width="1920" height="1080" loading="lazy" alt="The periphery cannot hold NT"> </figure>  The nearby village of Dhey at 3,900m is a high and dry cold desert. Farmers get one crop in a year, but the springs have gone dry and there is no snow in winter. So they are relocating to New Dhey, closer to the road. We follow Kesang Tseten to Samling in Dolpo, which at 4,200m is another Bon village. Locals are preparing for the Walchu festival in which Lama Sherrab carries out elaborate rituals to appease spirits that can turn malevolent. But unlike Lama Tsultrim in Lubra, Lama Sherrab has a community of lamas to help him, including two sons, one of whom will eventually take on his role. We move on to the adjacent village of Bicher and listen in as locals talk about how despite being dirt poor, they thrive in scarcity and are resilient. “We wear sheepskin, eat stew and yak meat, and drink wine. But we are very poor, we have nothing. Look at how dirty our clothes are. We may be dirty, but we have few illnesses,” says one. But even here in Upper Dolpo, a week’s walk from the nearest road, things are changing. There are mobile phones, readymade clothes and instant noodles.  <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20251113111156_d1472165cfa9ffa6edbf72de59167e8cbddcc2bf4a7928f7830e099966259a78.jpg" data-media-id="editor_3" data-image-id="20251113111156_d1472165cfa9ffa6edbf72de59167e8cbddcc2bf4a7928f7830e099966259a78" data-rendition-name="original" width="1920" height="1080" loading="lazy" alt="The periphery cannot hold NT"> </figure>  At the Walchu ritual, Tseten watches men and women with hand-woven blankets and down jackets sing and dance after the main ceremony. He narrates: “Bon is sustained by a way of life that fosters a fine but fragile balance between nature and people, where humans come before gods. This is what lies at the heart of Shangrila if there is such a thing.” The film then takes us half-way around the world to a Bon centre in New York, but (spoiler alert) the eponymous Lama’s son never appears. He did not want to be filmed, but it makes for a more powerful portrayal of the life of emigrants forever trapped between two worlds. “Bon villages may be in danger, but the Bon has spread widely across the world,” narrates Tseten, a director who likes to call his storytelling ethnographic, and avoids coming to an apt conclusion. Lama Sherrab’s words after the Walchu ritual is a perfect segue:&nbsp; “Whether you say om mani padme hum (in Buddhism) or matri mi yu (in Bon) they are the same. When you go up, it’s the same heavenly realm. If you go down, it’s still the lord of death who awaits. There isn’t a separate heaven and hell for Buddhists and Bon, it has to be the same for both.” &nbsp;  <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/2025111312110_82817ef48840bb6baa1732d5b0b90c90ead2f9bd9eb0c289940fa61d8058de8d.jpg" data-media-id="editor_4" data-image-id="2025111312110_82817ef48840bb6baa1732d5b0b90c90ead2f9bd9eb0c289940fa61d8058de8d" data-rendition-name="original" width="7087" height="10004" loading="lazy" alt="The Lama's Son NT"> </figure>  The Lama’s Son by Kesang Tseten, 2025 Shunyata Films To be screened at DOC NYC 16 November at 2:05PM local time, Online: 17-30 November Details <a href="https://www.docnyc.net/film/the-lamas-son/">here</a>.

The periphery cannot hold

Nepal’s September protests and regime change created two major unexpected costs that Prime Minister Sushila Karki’s interim government is scrambling to deal with: reconstruction of destroyed government buildings, and holding elections on 5 March.
The buck stops at the desk of economist and former bureaucrat Minister of Finance Rameshore Khanal about where and how to spend limited resources.
“Rameshore-ji is a fresh face and the right person for the role. He is capable and interested, and he knows the system,” says Kalpana Khanal of the Policy Research Institute (PRI).
But Minister Khanal has to grapple not just with the immediate budgeting needs for elections and reconstruction, but also initiate longer term measures to restore investor confidence badly dented by arson and vandalism of 9 September, and mend the economy.
Immediately after taking office, he had set up a three-member task force to cut programs and free up budget to meet immediate expenses.
“We have to hold elections and we have to reconstruct. Both need money, and they are equal priorities for us,” said Ministry of Finance spokesperson Tanka Prasad Pandey. “It is important to find these funds internally, and not look to aid from abroad.”
But Minister Khanal flew into heavy flak last week for his decision to restore investor confidence by giving a strategic capital gains tax break to Nepal’s only foreign private equity fund.
The Mauritius-based Dolma Impact Fund has invested venture capital into Nepal’s hydropower, construction and biotech sectors as well as solar farms and hospitals. It said in a statement that its capital gains are only taxable in Mauritius as per its double-taxation avoidance agreement with Nepal, which predates and overrides the Income Tax Act of 2002 subsequent to the Treaty Act 1990.
“When you have investors from all over the world, you have to choose a domicile and Mauritius is probably the most popular for development finance institutions due to strong governance, AML, and treaties with developing countries like Nepal,” Tim Dolma Investment told Nepali Times on the phone from London.
He added: “Last June we applied for the government to uphold its treaty with Mauritius which under all country laws including Nepal treaty act supersedes any disagreement with domestic laws. But there were delays. It was when the new government decided to uphold the treaty that the whole hoo-hah started.”
Leaks to the media possibly by bureaucrats fearful of being hauled over the coals by the CIAA has set financial circles abuzz for the past week. The Internal Revenue Office refused to grant the exemption, citing the 2002 Act.
Prime Minister Sushila Karki asked Chief Secretary Eaknarayan Aryal for clarification, and learnt that the Cabinet’s decision was not official since it was not recorded in the minutes.
“We were raising a fund that could have brought $1 billion in for energy and we had to stop it due to the reputational damage to Nepal by not upholding an international treaty,” said Gocher.
Gocher added: “Under Nepal’s Treaty Act, if there is ever disagreement between an international treaty and domestic law, then international treaty takes precedence so it is crystal clear and the way international treaties are dealt with all over the world.”
Some experts worry that gifting the fund such perks can set a dangerous precedent and a loss in tax revenue. Professor and economist Pushkar Bajracharya says: “The most important thing is to have a consistent policy about tax cuts and not do it piece-by-piece. Besides, the evidence just isn’t strong that tax cuts lead to higher investment, or more jobs.”
Others hark back to the capital gains dispute of the sale of Ncell ownership, which went to the Supreme Court and all the way to the international tribunal in The Hague.
Khanal has said privately that he is responding to the damage to Nepal’s investment climate from the dramatic visuals beamed worldwide of an international hotel chain and government buildings set ablaze in September. Western embassies are also said to be lobbying to allow Dolma tax exemption and smooth profit repatriation.
There are tradeoffs. Private equity funds like Dolma could funnel foreign funds more efficiently towards successful Nepali companies than the government, which is slowed down by many layers of bureaucracy. The downstream multiplier effect of such investments would outweigh taxes to the government since much of it is misused and wasted.
For example, the government is not taxing income in FY 25/26 generated by the US-funded $697 million Millennium Challenge Corporation (MCC) projects to build transmission lines and upgrade highways.
Strategic tax exemptions do provide incentives to investors, to make sure these projects are carried out effectively, which in turn helps Nepal’s development which has been affected by corruption and mismanagement.
The main demand of the GenZ protests that led to the downfall of the government coalition two months ago was to control corruption and make government more efficient so there is investment and job creation. The interim government seems to be responding to that sentiment.
The Dolma issue has distracted from the larger and longer-term need to reform the country’s financial systems and streamline public expenditure. How to reduce corruption and spur development is going to be the main agenda for elections, and the criteria by which voters will select candidates and parties.
TASKED FORCE
Shortly after Rameshore Khanal was appointed he set up a three member task force made up of the heads of Budget and Program, Foreign Aid, and Revenue Management Divisions. The team sent through the budget culling items DOGE-style — projects deemed ‘inadequately prepared,’ ‘fragmented,’ or ‘included through political pressure.’
Khanal hoped to save up to Rs100 billion by cutting all projects less than Rs30 million. However, such a slash and burn method would hurt rural and remote area projects for health and education more, and much bigger corruption-ridden infrastructure projects would be unscathed.&nbsp;
Says Bajracharya, “There are thousands, maybe hundreds of thousands of low-return programs in the budget that are there because of political or personal influence. But the criteria for cutting them needs to be properly defined. Doing it arbitrarily is unacceptable.”&nbsp;
Kalpana Khanal of the Policy Research Institute was involved in the taskforce, and explains: “The decision to mobilise internal funds is a pragmatic move to fund elections and reconstruction.”
However, she also singles out the massively-funded Ministry of Physical Infrastructure and Transport as being particularly problematic: “Time and cost overruns are historically the norm, and many are ‘vote bank’ projects that are politically motivated rather than done for return on investment.”
For example, politicians use their influence to build roads to their home districts to secure popularity even if the funds would have been better spent elsewhere.
“Another problem is the amount of funds that are transferred randomly for things that outside the budget,” continues Khanal.
Bajracharya adds, “While reconstruction and elections are big financial commitments, Nepal could easily find the funds. Cancelling low impact programs is a good move by the ministry of finance, and another option could have been to raise customs or taxes by a few percent. The main problem is that a huge amount of funds are lost to corruption.”
Kalpana Khanal and Dilli Raj Khanal co-authored a technical report last year titled Improving Public Expenditure System in Nepal: Critical Areas of Reform which did a forensic examination of such wasteful projects.
The conclusion: recommendation to have stricter accountability measures in place to check the actual use of funds and merit-based appointments in the National Planning Commission, Ministry of Finance, and the CIAA.
The technocrats in Prime Minister Karki’s cabinet resonate with the latter point. Nepal is so entrenched in the ‘afno manche’ culture of nepotism and connections that it has become the norm.
The report also refers to the well-known off-budget ‘re-allocations’ of big outlays during the seventh and first months of the fiscal year that undermine in-built check and balance. Almost a quarter of the budget is spent in the last month, which results in low quality and low impact work.
The authors call for reward and punishment systems to prevent these practices. The CIAA could also be supercharged to build transparency into the digital Line Ministry Budget Information System, instead of being an agency for political vendetta.

capital-gains-tax

Double trouble with taxes

Nepal, Bangladesh reject Malaysian conditions

Party Time

The periphery cannot hold

Nepal needs to use its money better