KATHMANDU: A high-level recommendation committee tasked with tax system reform, established by the government, has proposed the gradual elimination of all forms of tax exemption arrangements within the next five years. Formed on September 15, 2023, under the leadership of Bidyadhar Mallik, the committee presented its report to the Government of Nepal on February 13 of this year. The report advises the government to overhaul tax laws by phasing out all existing tax exemption provisions.

Despite the committee's recommendations, the government has recently announced significant tax exemptions for the upcoming fiscal year. However, the committee's report urges for a stable value-added tax (VAT) regime over the next five years. It also calls for a review of the goods and services currently eligible for tax exemption, alongside a proposal to broaden the tax base by eliminating such exemptions. Moreover, the committee emphasizes the importance of maintaining stability in tax legislation.

In alignment with the recommendations of the committee, the Office of the Auditor General (OAG) has repeatedly urged the government to discontinue tax exemption facilities. However, the government has yet to implement these suggestions put forth by the OAG, indicating a discrepancy between recommendations and government action in this area.