Kathmandu, May 11: The Institute of Chartered Accountants of Nepal (ICAN), the regulatory body of Nepali Chartered Accountants, has urged the government to introduce policy reforms through the upcoming budget to promote investment and improve the doing business environment.
Submitting suggestions for the fiscal year 2083/84 BS budget to Finance Minister Dr Swarnim Wagle, ICAN recommended reforms in industry, investment, startups, tax administration, banking, and alternative investment systems.
In the proposal submitted by ICAN President Nil Bahadur Saru, the institute concluded that Nepal’s industrial and manufacturing sectors are losing competitiveness due to structural imbalances, high production costs, weak infrastructure, and policy uncertainty.
According to the institute, domestic products are not being prioritised in large infrastructure projects, while imported materials receive tax concessions despite taxes being imposed on raw materials. Weak energy, transport, and administrative support systems have increased the cost of Nepali products by nearly 30 percent, directly affecting industrial production and export capacity. ICAN suggested that the upcoming budget should address these challenges.
The institute also stated that weak customs and regulatory systems have led to rising illegal imports, exports, and revenue leakage, while complicated procedures for business registration, licensing, and approvals have created difficulties for entrepreneurs.
ICAN specifically recommended amending Section 57 of the Income Tax Act, 2058, arguing that it has become a barrier to restructuring sick industries and attracting investment.
The institute further suggested removing inconsistencies in the legal definitions of micro, small, and medium enterprises by introducing a unified legal framework based on fixed capital, turnover, employment, and financial management.
It also urged the government to implement a priority sector lending policy through the Nepal Rastra Bank, requiring banks to allocate a minimum share of loans to small and medium enterprises.
To expand access to collateral-free loans, ICAN proposed expanding the credit guarantee fund and operating industry registration, tax incentives, subsidies, and loans through a “single-window system.”
The institute also stressed the need for tax exemptions and simplified tax compliance systems for startups and small businesses during their initial years.
In addition, ICAN recommended replacing the current collateral-based lending system with one based on project feasibility, future cash flow, and business potential. It proposed that banks and financial institutions conduct independent technical and financial evaluations and ensure the mandatory involvement of experts affiliated with ICAN as “project auditors” or “financial analysts.”
It has also recommended that the government introduce a risk-sharing programme, expand the credit guarantee fund, and implement a digital monitoring system.
The institute stated that Nepal’s startup ecosystem is 15–20 years behind global trends and argued that the existing five-year tax exemption scheme has not been practically effective. According to ICAN, most startups do not generate profits during their early stages and therefore are unable to benefit from the tax waiver.
It also pointed out that the application of Section 57 of the Income Tax Act, 2058, during investor changes or share transfers in startups has discouraged investment, and called for special concessions for startups.
ICAN suggested establishing a “matching fund” through joint investment by the government and private sector to channel investment into startups through qualified private equity and venture capital funds. The institute urged the government to formulate a clear legal framework in coordination with the Securities Board of Nepal and Nepal Rastra Bank for the operation, regulation, monitoring, and co-investment models of private equity and venture capital (PEVC) funds.
The institute also recommended granting legal recognition to crowdfunding, angel investors, and alternative investment structures in Nepal. It further proposed amending the Income Tax Act to provide income tax and capital gains tax exemptions for angel investors. ICAN suggested allowing tax deductions within five years for seed capital investments of up to Rs1 million in startups.
In addition, the institute proposed establishing a separate “Innovation and Startup Cell” under the Ministry of Communication and Information Technology to prioritise startup promotion. It also recommended forming a specialised unit with experts to study and regulate policies related to artificial intelligence, blockchain, and cryptocurrency.
ICAN further suggested setting up a separate unit under the Inland Revenue Department for the effective implementation of double taxation avoidance agreements. It noted the need for dedicated administrative structures to manage transfer pricing, digital service tax, and international tax administration.
The institute also advised the government to introduce a priority judicial system for foreign investors, issue infrastructure bonds, and provide tax exemptions on such bonds.
ICAN recommended that share premium amounts raised by startups at different investment stages should not be taxed when distributed as bonus shares. Likewise, it proposed that taxes on sweat equity should only be imposed after the shares are sold.
Concluding its recommendations, the institute stressed the need to amend laws so that tax exemptions for startups would apply only after commercial operations begin. It emphasised that investment-friendly and technology-friendly policies are essential for promoting innovation, employment, and a productive economy. #Nepal #economy
What is ICAN ?
The Institute of Chartered Accountants of Nepal (ICAN) was established under a special act, The Nepal Chartered Accountants Act, 1997 to enhance social recognition and faith of people at large in the accounting profession by raising public awareness towards the importance of accounting profession as well as towards economic and social responsibility of the accountants, and to contribute towards economic development of the country. The Institute is an autonomous body and is fully authorized by the Act to regulate accountancy profession in Nepal.
