VAT and Customs Drive 52% of Nepal’s Tax Revenue Despite Overall Slowdown

Nepal’s government revenue structure in the first month of 2025/26 highlights a familiar trend: Value Added Tax (VAT) and Customs duties together contribute over 52% of total tax revenue, making them the backbone of fiscal resources despite an overall slowdown in collections.

According to the latest fiscal data, VAT accounted for Rs. 27.6 billion (32.4% of total revenue) while Customs duties stood at Rs. 16.6 billion (19.6%), together forming more than half of the government’s tax income. This reliance underscores Nepal’s dependence on consumption and imports as primary revenue drivers.

However, the overall revenue picture is not encouraging. Total collections fell 10.5% year-on-year to Rs. 84.7 billion, driven by a collapse in non-tax revenue (−78%) and a small decline in income tax (−1.8%). While excise revenue rose 14.8% and educational service tax grew nearly 70%, these remain minor contributors compared to VAT and Customs.

Economists warn that excessive reliance on VAT and Customs makes Nepal vulnerable to trade shocks, border disruptions, or downturns in consumption. Without strengthening domestic income tax compliance and diversifying non-tax sources, fiscal stability may remain fragile.