BUDGET 2009-10 R&D Department Finance Minister of Nepal, Mr. Surendra Pandey, presented the annual budget of Rs. 285.9 billion for the fiscal year 2009/10 on 13th of July. Major highlights from the Budget speech: • • • •
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The GDP is likely to expand at 3.8% at base price and 4.7% at the producer’s price in the current fiscal year 2008/09. Average inflation for the current fiscal year is projected at 13%. Of the total budget, Rs. 160.6 billion, Rs 106.2 billion and 19.01 billion has been allocated for recurrent expenditure, capital expenditure and principal repayment respectively. With the proposed budget, the fiscal deficit will be 5.47% of the GDP. The government expects to raise Rs. 176. 5 billion in revenue in fiscal year 2009/10. Nepal Rastra Bank to announce monetary policy in order to make positive effects on macroeconomic indicators including the price situation as well as to complement the implementation of the proposed budget.
Targets for the coming fiscal year: GDP growth Agriculture Sector growth Non-Agriculture Sector Growth Average annual Inflation
5.50% 3.30% 6.60% 7%
Fig1: Major Sector-wise allocation in the current budget (figures in '000)
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Expenditure Recurrent Capital Principal Repayment Total Expenditure
Estimate for 09/10 Revised Estimate for 08/09 % change 160632361 122079524 31.58% 106284793 73309549 44.98% 19012846 285930000
18189301 213578374
4.53% 33.88% (figures in '000)
Figure 2: Proposed Expenditure outlets and their respective share for 2009/10
Revenue Tax Revenue Non Tax Revenue Principal Refund Total Revenue
Estimate for 09/10 Revised Estimate for 08/09 % change 150245640 116996653 28.42% 22200110 21375301 3.86% 4058000 3839376 5.69% 176503750 142211330 24.11% (figures in '000) Figure 3: Proposed Revenue source for 2009/10
Sources of Deficit Financing Estimate for 09/10 Revised Estimate for 08/09 % change Foreign Grant 56955576 34570432 64.75% Foreign Loan 21560674 10405414 107.21% Domestic Borrowings 30910000 25000000 23.64% Total Deficit 109426250 71367044 53.33% (figures in '000) Fig 4: Sources of Deficit Financing for 2009/10
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Sources of Tax Revenue Commodity tax based on foreign trade VAT Excise Duties Education Service Fee Income tax Tax on house, land and other property Total
Estimate for 2009/10 % Share 33,125,740 22.05% 51,560,000 34.32% 19,641,900 13.07% 120,000 0.08% 36,298,000 24.16% 9,500,000 6.32% 150,245,640 (figures in '000)
Fig 5: Sources of Tax Revenue
KEY HIGHLIGHTS Financial Sector • • • • • •
Capital gains tax has been reduced from 15% to 10%. In order to protect the deposit up to Rs.200, 000 in fixed and saving deposit, compulsory insurance by banks and financial institution will be introduced. Infrastructure Development Bank will be established under the investment of Government of Nepal and the commercial banks of private sector by the end of midDecember. Concerned municipalities to prescribe designated areas for the opening of banks. Expansion of branchless banking technology to be encouraged to facilitate financial institutions to enter rural areas. Nepal Rastra Bank to review the policy of expansion of bank’s branches and establishment of new banks.
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Infrastructure / Hydropower • • • • • • •
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A High level investment board is to be formed to attract national and foreign investment in large industries and infrastructure. Rs. 18.49 billion has been allocated for construction, upgrade and maintenance of roads. Rs. 14.69 billion has been allocated for the hydropower sector. Plans to mobilize Nepal Army for the construction of Kathmandu-Nijgadh fast track road. Construction of an international airport in Nijgadh to be given high priority. The construction of Raxaul-Amalekhganj petrol pipe-line to begin next year as a joint venture of Nepal Oil Corporation and Indian Oil Corporation. An arrangement has been made to issue "Infrastructure Development Bond" amounting to Rs. 7 billion by Nepal Rastra Bank fixing pegged exchange rates targeting the Nepalese working abroad through Nepalese Embassies in South Korea, Malaysia, United Arab Emirates, Saudi Arabia and Qatar. Such Bonds can be purchased only from workers working abroad. Rs. 14 billion 690 million has been allocated in the electricity sector for the coming fiscal year. This amount is 131 percent higher than the revised estimates of the current fiscal year. On the basis of the objectives laid by the Water Resources Strategy, 2002 and current evaluations of hydro electricity development, programs will be formulated to develop at least 25000 MW capacities within two decades. An autonomous electricity regulatory commission to be formed for the effective regulation of the production and transmission of electricity. Arrangements to waive license fee for up to 3 MW and detailed environment impact assessment to be waived for up to 50 MW of power production.
Tax (Income taxes, Customs, Excise, and other duties…) • • • • • • • • • • •
Scrap Tax levied by local bodies to be abolished Arrangement has been made to levy capital gains tax on such house and/or land transaction exceeding five million rupees with a view to bringing them into the tax net. Arrangement has been made to bring commodity future market transactions into the tax net. Compulsory collection of VAT on the construction of buildings, apartments or shopping complexes for commercial purposes exceeding the value of Rs. 5 million. The export duty on stones, crushed stones, and sand has been raised. The customs duty and excise duty on liquor and cigarettes which are harmful to health have been raised. The prevailing highest rate of customs duty of 40 percent has been reduced to 30 percent. The customs duty on sugar has been reduced. License fee for sugar cane industries producing molasses using power crusher has been reduced by 50 percent. The tax exemption limit for individual and couple has been increased to Rs. 160,000 and Rs. 200,000, respectively. Capital gains tax has been reduced from 15 percent to 10 percent Eighty percent duty on milk tanker has been exempted.
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Taking into account business sector complaints against the two - tiers excise system on import of vehicles, arrangement has been made to collect excise from single customs point only.
CAR CUSTOMS EXCISE DUTY LOCAL DEVELOPMENT TAX
PICK-UP CUSTOMS EXCISE DUTY LOCAL DEVELOPMENT TAX
STOCKS Capital Gain Tax
2008/2009 80% 45% 1.50%
2009/2010 80% 50% 0
2008/2009 40% 35% 1.50%
2009/2010 30% 50% 0
2008/2009 15%
2009/2010 10%
OTHERS Custom and excise duty on liquor and cigarette has been raised Two-tier excise system on import of vehicles has been abolished Capital gains tax on house and land transactions exceeding Rs 5 million Fig 6: Major changes in tax and other duties
Agriculture • • •
Rs. 8.6 billion has been allocated for the agriculture sector. Rs 1.5 billion to provide subsidy for chemical fertilizer. A fifty percent rebate on interest payable will be given to those small farmers and entrepreneurs who have borrowed upto Rs. 50 thousand from the Agricultural Development Bank, Nepal Bank, Rastriya Banijya Bank and Small Farmers Cooperative Bank and pay installment in FY 2009/10.
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