Analysis of Recurring Tax Amnesty and Waivers Provision in Finance Act

-CA Santosh Bista

The author is Member of ICAN, currently serving as an Deputy Director at ICAN. He can be reached at: santosh.bista@ican.org.np

 

Abstract

Over the past five fiscal years from FY 2079/80 (2022/23) to FY 2083/84 (2026/27), successive Finance Acts in Nepal have included various provisions offering relief from taxes, interest, penalties, and ongoing disputes to taxpayers who failed to register, did not file returns, or did not deposit due amount of taxes in government’s coffer. What started as an occasional policy tool that has now become a near annual policy practice. The number of waiver provisions has grown sharply, covering almost every tax head and every stage of noncompliance. Despite these repeated amnesties, Nepal’s fiscal performance has continued to weaken. Over the years, the tax-to-GDP ratio has declined, revenue collections have repeatedly fallen short of targets, tax arrears has increased and non-filing rates among both income tax and VAT-registered taxpayers remain persistently high. Thereby, indicating that compliance behavior has not improved meaningfully despite repeated relief measures.

This article attempts to examines why tax waivers in Nepal keep recurring, their fiscal and governance costs, and how they compare with international practices. It finds that repeated waivers weaken enforcement, create unfairness to compliant taxpayers, and may encourage non-compliance. It concludes that waivers should be used only in exceptional cases, followed by stronger enforcement and full transparency on their revenue impact on the budget.

Key Words: Finance Act, Tax Waiver, Tax Amnesty, Tax Expenditure, Tax Compliance, Tax Policy

 

Background

 

A well-functioning public finance system depends heavily on the relationship between governments and taxpayers. Governments use tax revenues as a key source of funding for public services, infrastructure projects, and national development programs. Consequently, taxpayers are expected to voluntarily comply with tax laws by reporting their income correctly and meeting their tax obligations on time. However, when taxpayers fail to comply voluntarily with tax laws, the governments must consider various policy measures that, generally falling into two broad categories, to improve tax compliance.

 

1. First Option: To collect the applicable tax along with interest and penalties by invoking all enforcement instruments available under tax laws. However, taxpayers may challenge such enforcement through administrative or judicial proceedings, significantly delaying revenue collection. In country like Nepal, where tax disputes often take years to be finally resolved, the government faces not only prolonged delays in revenue collection but also the risk of losing its claim if the final decision is rendered in favor of the taxpayer.

 

1. Second Option: Grant tax amnesty by fully or partially waiving tax, interest, penalties, or other charges, subject to prescribed conditions, in return for taxpayers’ voluntary disclosure and payment. Such amnesty may also support broader policy goals. For example, governments may provide temporary tax relief to taxpayers whose ability to meet their obligations has been seriously affected by extraordinary events, such as the 2015 earthquake, the COVID-19 pandemic, and, most recently, the Gen-Z protests. In these cases, tax relief helps affected taxpayers while also supporting economic recovery, restoring tax compliance and cleansing of tax arrears etc. Tax amnesty and waivers are provisioned in Finance Act.

 

Ideally, the first option is the more sustainable and equitable approach to tax administration. The second option should be used only as a one-time corrective measure, enabling the government to recover revenue that might otherwise remain uncollected, reduce accumulated tax arrears, and resolve long-standing disputes or compliance failures.

 

However, in context of Nepal it can be observed that Finance Act enacted each year has contained provisions granting relief from penalties, interest, additional fees and, in certain cases, principal tax liabilities. The scope has expanded to cover almost every head of tax such as income tax, value added tax (VAT), excise duty and customs duty, taxes under Finance Act etc. and every class of noncompliance such as non-registration, non-filing, non-payment of tax, and tax disputes pending at administrative review, Revenue Tribunal, and other Courts etc.

 

 

Type of Tax Amnesty and Waivers

Tax amnesty and waiver provisions introduced by Finance Acts for last five fiscal years i.e. from FY 2079/80 (2022/23) to FY 2083/84 (2026/27) can generally be grouped into the following six categories:

 

1. Registration amnesty: Persons who have carried on taxable transactions without obtaining a Permanent Account Number (PAN) or registering for Value Added Tax (VAT) are provided with a time-bound opportunity to regularize their status. Relief is granted upon registration, filing the required tax returns, and paying the principal tax (and, in some cases, a prescribed portion of the interest). The remaining interest, penalties, and late fees are waived.

 

1. Return-filing amnesty: Taxpayers who have obtained a PAN, registered for VAT or excise duty, or are registered under the Companies Act or the Private Firm Registration Act but have failed to file periodic tax returns are granted relief from non-filing penalties and interest, subject to filing all outstanding returns and paying the tax due.

 

1. Sector-specific waivers: Targeted tax relief is provided to specific industries, businesses, or groups of taxpayers to address sector-specific compliance issues or practical difficulties.

 

1. Dispute-settlement windows: Taxpayers whose tax assessments or reassessments are under administrative review or are pending before the Revenue Tribunal or the courts are given an opportunity to withdraw their appeals and settle the dispute by paying the principal tax together with a prescribed portion of the interest, penalties, or additional tax. In return, the remaining interest, penalties, and fees are waived.

 

1. Unconditional waiver and write offs: Certain taxpayers are granted blanket exemptions from prior-year tax liabilities, typically where the liabilities arose from ambiguous legal provisions or long-standing administrative practices. In addition, outstanding tax liabilities below specified monetary thresholds that have remained uncollected for extended periods are occasionally written off.

 

1. Targeted relief for exceptional circumstances: Time-bound tax relief is provided to taxpayers whose ability to comply with their tax obligations has been seriously affected by extraordinary events such as natural disasters, political instability, public health emergencies, economic crises etc.

 

Analysis of Tax Amnesty and Waivers Provisioned in Recent Five-Year Finance Acts (FY 2079/80 – FY 2083/84)

 

An analysis of Nepal’s Finance Acts for the past five years Finance Act, 2079; Finance Act, 2080; Finance Act, 2081; Finance Act, 2082; and Finance Bill, 2083 shows a recurring pattern of tax amnesty and waiver provisions. These provisions have varied in number and scope across the reviewed fiscal years.

 

Source: Finance Act 2079 to 2083 retrieved from Ministry of Finance: https://mof.gov.np/category/economic-act---bill/

 

Besides, the different types of amnesty and waiver provisions contained in each finance bill are presented in table below:

 

Amnesty and Waiver Categories across Finance Acts

Types of amnesty and waiver provisions	2079	2080	2081	2082	2083
Person with taxable income without PAN-PAN Registration Amnesty	✓		✓		✓
Income Tax Return Non-Filler -Overall Amnesty			✓		✓
Income Tax Return not filled, tax not deposited -Sector Specific Amnesty	✓	✓		✓	✓
VAT Return Non-Filler -Overall Amnesty			✓	✓	✓
VAT Return not filled, tax not deposited- Sector Specific Amnesty	✓	✓	✓	✓	✓
Excise Return Non-Filler -Overall Amnesty				✓	✓
Excise Return not filled, excise duty not deposited-Sector Specific Amnesty	✓	✓			✓
Return non-filled, charge not deposited-Companies Act, Private Firm Registration Act Amnesty	✓				✓
Tax Relief in Response to Pandemics and Political Protests	✓				✓
Tax Dispute Settlement Windows		✓	✓		✓
Unconditional Waiver/Write Off		✓	✓		✓

Source: Finance Act 2079 to 2083 retrieved from Ministry of Finance: https://mof.gov.np/category/economic-act---bill/

 

Potential Cause for Recurrence of Amnesty and Waiver Provision

 

The continued inclusion of similar tax waiver provisions in successive Finance Acts raises an important question. If these measures are introduced to address exceptional or temporary situations, why are they continued year after year? After analyzing the practice of the Government of Nepal enacting Finance Acts over last five years I have outlined below the probable causes of recurring amnesty and waiver provisions in Nepal’s Finance Acts:

 

1. Insufficient Preparedness in Implementing Tax Amnesty Measures

The effective implementation of tax amnesty and waiver provisions require timely issuance of implementation procedures, development of administrative systems, inter-agency coordination, modification of information technology systems, and sufficient taxpayer awareness programs etc. When tax amnesty provisions are introduced by the government, the concerned offices should act in such a way that most of the taxpayers impacted by such provisions can avail such amnesty provisions. Taxpayer awareness program is very crucial to ensure that taxpayers are well informed about the amnesty provisions, timeline to avail such amnesty, and their obligations. Besides this, they should be provided with sufficient time to do necessary arrangements to meet their obligations, such as filling returns, depositing taxes, withdrawing case etc. In Nepal, delays in or insufficiency of such supporting arrangements have sometimes prevented taxpayers from benefiting from the relief within the prescribed period. As a result, government has had to reintroduce similar waiver provisions targeting same group of taxpayer in later Finance Acts too.

 

Example: An Amnesty provision targeting persons with taxable income but who had not obtained PAN was introduced by the Finance Act, 2079. Due to lack of taxpayer awareness or perhaps due to insufficient effort from the concerned offices, the targeted group of persons did not come into tax bracket. As a result, government reintroduced similar provision in Finance Act, 2081 and Finance Bill, 2083. Similarly, Finance Act, 2079 introduced new heading of tax as Digital Service Tax. Due to limited preparedness of IRD regarding collection of such tax, there was some confusion regarding its applicability due to which some taxpayer could not comply such provisions. For this reason, the government issued waiver provision in subsequent Finance Act, 2080.

 

1. Tax Waivers Used to Resolve Disputed Tax Assessments

Income Tax Act, 2058 of Nepal has provided authority to Inland Revenue Department (IRD) to conduct amended tax assessments of taxpayer. Large Tax Payer's Offices, Medium Level Tax Payers Office and Inland Revenue Offices under IRD conduct amended tax assessments to ensure that taxpayer have filled income tax returns and paid tax in accordance with Income Tax Act. While conducting such assessments, additional tax liabilities are computed on income, assets or transactions of taxpayers that were not taxed before or for which there was some uncertainty regarding their taxability. On completion of such amended tax assessments, the taxpayers may sometimes appeal through administrative appeal or to higher courts, and the government may have to face widespread criticism from taxpayers, professional bodies, industry associations, or even other government agencies. In such circumstances, government may introduce waiver provisions to settle such disputed tax assessments, allowing taxpayer to settle such issues wither with or without filling returns or with without depositing certain portion of tax, interest and charges.

 

Example: An amnesty provision was introduced in Finance Act, 2080 for NGOs whose VAT assessment had been concluded on grants obtained but not paid or were in process of administrative review or in other judicial process; Assessed VAT, and applicable charge, interest and penalty were waived on withdrawal of such litigation. Similarly, another amnesty provision was also introduced through Finance Act, 2080, under which taxpayers were provided with an opportunity to pay applicable tax on bonus share issued out of Share Premium arising from IPO, and on bargain gain; applicable interest and charges were waived.  

 

 

1. Reversal of Tax Policies Through Waiver Provisions

In some instances, the government introduce new tax provisions, through the annual Finance Act with the objective of expanding tax base. However, later it may conclude that the provision were difficult to administer, adversely affected the business environment, or generate widespread non-compliance. In such cases, if the government abolishes such provisions through subsequent Finance Act, it generally introduces amnesty provisions to relieve taxpayers of liabilities that arose for earlier years due to such provisions. These kinds of waivers are not responses to taxpayer misconduct but are instead corrective measures following policy decisions that proved impractical or unsustainable in implementation.

 

Example: Waiver of provisions relating to VAT on potatoes and onions sold by local producers, VAT on air transport services, and luxury tax imposed on gold ornaments for prior years.

 

1. Influence of Stakeholder Consultations

During the annual budget preparation, it has been customary that the Ministry of Finance consults with business groups, professional bodies, chambers of commerce, industry associations etc. to gather input on tax policy. Over time, these groups have developed a practice of submitting requests for exemptions, tax waivers, dispute resolution measures, and other forms of relief on behalf of their members. Different business groups/taxpayers may request for different types of amnesties, waivers and policies relief. However, it may not be possible to address all those demands in same fiscal year. Business groups/taxpayers whose demands for amnesty and relief are not incorporated in existing fiscal year keep on lobbying on later years. Due to this practice, different types of amnesty and relief provisions relating to different groups of taxpayers are incorporated in almost every Finance Act.

 

Example: Finance Act, 2079 provided amnesty related provision to VAT-registered joint ventures  who had failed to file VAT Return or pay VAT. Finance Act, 2080 provided 25% exemption on income tax of Media House for FY 2079/80.  Finance Act, 2080 provided amnesty related provision to Eye hospitals  who had carried out taxable transaction but had not collected VAT, Hire purchase businesses who had not collected and deposited VAT, VAT-registered construction businesses who had failed to file VAT returns or pay VAT. Finance Act, 2081 provided amnesty related provision to Transport vehicle rental and transport service providers who had failed to register and collect VAT.

 

 

Fiscal and Governance Consequences of Recurring Tax Amnesty and Waivers

 

1. Revenue Performance

The growing tendency to provide tax amnesty and waivers needs to be analyzed on the backdrop of continued revenue shortfalls and declining tax compliance indicators of Government of Nepal. The annual financial performance of government of Nepal of recent years shows that actual tax collections for every year are less than the annual revenue target projected at the time of formulation of budget, despite the repeated introduction of waiver and amnesty provisions through successive Finance Acts.

 

According to the Budget for FY 2083/84, it has been estimated that NPR 1,171.5 billion tax revenue will be collected in FY 2082/83 which is approximately 12 percent below the original target of NPR 1,325.5 billion. Likewise, in FY 2081/82, actual tax revenue collection was NPR 1,049.8 billion which was 18 percent less than the actual tax revenue target of NPR 1,284.2 billion. Similar gaps have been observed between projected and actual revenue collections in preceding fiscal years too.

 

The accumulation of tax arrears in last five years presents a similar picture. According to the latest IRD Annual Reports, outstanding tax arrears increased from NPR 254.04 billion from involving 3,19,381 taxpayers in FY 2080/81 to NPR 275.05 billion from 3,33,007 taxpayers in FY 2081/82. Another alarming fact is that Nepal's tax-to-GDP ratio declined from 19.99 percent in FY 2077/78 to 17.19 percent in FY 2081/82. It  indicates a weak institutional capacity to mobilize domestic revenue.

 

1. Compliance Context

Tax compliance indicators are also equally important while analyzing the impact of tax amnesty and waivers. As per the IRD annual reports for the past five years, the proportion of registered taxpayers failing to file income tax returns has been consistently high, averaging around 47 percent over the past five fiscal years. Even more concerning is the trend in VAT compliance. The percentage of taxpayers registered under VAT failing to file returns has been increased from 10.65 percent in FY 2077/78 to 45.49 percent in FY 2081/82. These data show that, tax compliance has not improved in spite of introduction of various opportunities by the government to correct taxpayers' backlog.

Source: Annual Report of IRD for FY 2080/81 and FY 2081/82 retrieved from https://ird.gov.np/category/annual-reports/

 

1. Short-term Fiscal and Administrative Benefits

Tax waivers can provide governments with practical solutions to specific fiscal or administrative challenges when such waivers are provided as exceptional and time-bound measures. The short term fiscal and administrative benefits of tax amnesty and waivers include the following:

 

• Waiver provisions facilitate to recover revenue that might otherwise remain uncollectable. Sometimes, some taxpayers may incur huge tax liabilities, not because they wanted to evade tax but due to their lack of knowledge of the tax provisions. Such taxpayers may be unable to meet such tax liability, or they may be unwilling to settle their full liabilities if the government does not provide waivers to them. Therefore, Partial waiver of interest or penalties may encourage them to pay principal tax or some portion of interest and charge. It may help the government to generate immediate revenue that would otherwise remain unrealized.

 

• Registration amnesty provides an opportunity to expand the formal tax base. Waiver provisions relating to PAN and VAT registration encourage previously unregistered person to enter the tax system. It may improve the government's long-term revenue potential.

 

• Dispute-settlement windows help reduce the backlog of tax litigation pending before administrative review authorities, the Revenue Tribunal, and the courts. Early resolution of tax disputes benefits both taxpayers and the government. It reduces the litigation costs of both government and taxpayer. Government can redirect its administrative resources to current compliance activities. Taxpayer can direct their resources to core business activities.

 

• Targeted relief measures introduced in response to extraordinary events, such as the 2015 earthquake, the COVID-19 pandemic, or periods of political disruption, can provide genuine assistance to taxpayers who are facing temporary financial difficulties due to such unpredictable events. Such tax waivers serve as an important tool for reviving the economy disrupted by such extraordinary events.

 

 

1. Long-term Fiscal, Behavioral and Governance Costs

While tax waivers may generate immediate fiscal benefits, their repeated use may create significant long-term costs. Those costs may extend beyond the revenue forgone in any individual fiscal year. The long term fiscal and administrative benefits of tax amnesty and waivers include following:

 

• Behavioral Changes amongst Taxpayers: Repeated tax amnesty programs can weaken voluntary compliance of taxpayers. Taxpayers may delay paying tax or filing returns expecting that government will provide amnesty in near future . Increase in non-filler VAT registered persons in Nepal from FY 2077/78 to FY 2081/82, as discussed in previous sections, may also indicate behavioral shift among taxpayers.

 

• Fiscal Cost: As per Nepal's Tax Expenditure Reports for 2023 and 2024, published by Ministry of Finance, total revenue forgone on 2023 and 2024 was NPR 306.57 billion and NPR 309.25 billion respectively. It represents approximately one-third of total tax revenue of the respective years. Although these reports do not separately quantify total revenue forgone through annual amnesty/waiver provisions and cost of such amnesty may be significant. At present, neither the annual budget documents nor the Finance Acts provide information regarding estimate of revenue sacrificed through these measures. Non disclosure of such information by the government has limited transparency and informed policy decision.

 

• Unfair to honest taxpayers: Repeated tax waivers can create unfairness by benefiting non-compliant taxpayers. When the Government does not provide any incentive to those who are fully compliant and instead provides incentives to non-compliant taxpayers, it may weaken trust in the system and discourage voluntary compliance over time.

 

• Weaken the credibility of tax administration: Repeated tax waivers reduce trust in tax administration by making enforcement less predictable. It may weaken the effect of penalties, as taxpayers begin to expect future concessions instead of consistent application of tax laws.

 

Have Tax Waivers Delivered Long-Term Compliance Gains in Nepal?

 

The repeated use of similar tax waivers raises doubts about their long-term effectiveness.  Based on above analysis and tax compliance data for the last five years, registration amnesties, return-filing waivers, sector-specific relief, dispute-settlement windows, and unconditional write-offs continue to reappear in successive Finance Acts.  However, key compliance indicators, including the proportion of non-filers and the level of outstanding tax arrears, have not improved visibly.

 

This does not imply that every waiver program has failed. Government has undoubtedly generated short term revenue, resolved pending disputes, and assisted taxpayers facing genuine hardship. However, they do not appear to address the deeper causes of non-compliance. Instead, they have become a regular feature of fiscal policy rather than an occasional remedy for exceptional situations.

 

International Practices and Lesson for Nepal

 

On review of most successful tax amnesty programs implemented around the world in recent years, the lessons from such programs are observed as below:

 

• Tax amnesty programs provide meaningful results when it is accompanied by a clear post-amnesty enforcement plan. Amnesty window without consequence for non-participation offers little incentive for voluntary compliance.
• Amnesties programs introduced as one-time opportunity with strong commitment from government to implement such program has created effective result.
• Tax amnesty can contribute to national revenue in short term but their long-term success will be attained only when they are used as wider tax reforms rather as isolated revenue tools.
• Government which has placed significant importance on taxpayers awareness about the amnesty provisions are more likely to achieve set targets and impacts of amnesty active participants of the intended taxpayers groups.
• Repeated amnesty signifies weaker government policy enforcement which ultimately demoralize the compliant taxpayers and may encourage taxpayers to postpone compliance in anticipation of future waiver .

 

In Nepal, tax amnesties are frequently introduced because there is often confusion and uncertainty in the interpretation and implementation of tax laws. Even after granting amnesties, many of these legal ambiguities remain unresolved. In many countries, there are permanent tax dispute resolution or reconciliation units that allow taxpayers to settle disputes and obtain certain benefits without waiting for special amnesty programs in laws. In Nepal, the absence of such a permanent mechanism has contributed to the increasing reliance on tax amnesties. As a result, the government often introduces amnesty provisions through the Finance Act to resolve outstanding tax disputes and encourage compliance for those genuine taxpayers.

 

Hence, Nepal should limit tax amnesties to exceptional circumstances. The Government should announce them as one time measures and enforce them strictly. It should develop permanent tax dispute resolution mechanisms and improve taxpayer awareness. It should also remove ambiguities in tax laws. These reforms will reduce reliance on future amnesties and strengthen voluntary compliance.

 

 

Conclusion

 

Over the period of last five years, waiver provisions have expanded in number, broadened in scope, and grown to cover almost every category of non-compliance and in every stage of the tax administration process. However, the waiver provision seems to have unaddressed the non compliance and meet the revenue objective, as the non-filler rates have remained high, outstanding tax arrears have increased from year to year, revenue collections have consistently fallen short of annual targets and Nepal’s tax-to-GDP ratio has declined over the year. Therefore, Nepal’s practice of providing repeated tax waivers through the Finance Acts has become a practice  rather than a government's strategic tax reform measure.

Policy stability and stakeholder trust serves as a foundation for establishment of good governance. Over a decade Nepal has witnessed major political and fiscal changes. Despite of which Nepal is yet to witness the positive economic impact. Hence, waiver and amnesty shall not be provisioned solely as a political agenda without considering its economic impact. The government should assess the fiscal cost of each waiver/amnesty and its return to the economy. Government should be held accountable for the impact of amnesty and waiver provision. A system for conducting critical analysis prior to issuance of amnesty and post implementation assessment shall be developed by government as a standard procedure. A separate evaluation report should be prepared for every amnesty program and it shall be audited annually. The audited evaluation report shall disclose whether the intended objectives were achieved or not and suggest the lessons for future policy decisions. This process will strengthen accountability of policymakers before introducing new amnesty provisions.

 

Reference

Finance Act, 2079 (2022). Government of Nepal, Ministry of Finance: https://ird.gov.np/content/8320/tax-laws-16604606746/

Finance Act, 2080 (2023). Government of Nepal, Ministry of Finance: https://ird.gov.np/content/9310/tax-laws-16907855323/

Finance Act, 2081 (2024). Government of Nepal, Ministry of Finance: https://ird.gov.np/content/12282/notice-17300060947/

Finance Act, 2082 (2025). Government of Nepal, Ministry of Finance:https://hr.parliament.gov.np/uploads/attachments/vdm3ll9duqnqs0ht.pdf

Finance Bill, 2083 (2026). Government of Nepal, Ministry of Finance. Retrieved from: https://mof.gov.np/content/1742/economic-bill--2083/

Government of Nepal, Ministry of Finance. (2024). Tax Expenditure Report 2023 and 2024. Kathmandu: Ministry of Finance: https://ird.gov.np/content/13464/tax-expenditure-report-for-the-year-2023/

IRD Annual Report 2081-82: http://ird.gov.np/content/13350/annual-report-2081-82/

IRD Annual Report 2080-81: https://ird.gov.np/content/12400/annual-report-2080-81/

IRD Annual Report 2079-80: https://ird.gov.np/content/10043/publication-170133422610/

 OECD Economic Surveys: Indonesia 2018: https://www.oecd.org/en/publications/oecd-economic-surveys-indonesia-2018_eco_surveys-idn-2018-en/full-report.html