Nepal is facing a very large revenue shortfall in FY2023. According to FCGO, revenue mobilization in the first seven months of this fiscal (mid-January 2022 to mid-March 2023) is just 40% of the target. In the previous fiscal years, the revenue mobilized by this time was always higher than 50% of target. The following is the progress by the seventh month of respective fiscal:
- FY2019: 61%
- FY2020: 50%
- FY2021: 57%
- FY2022: 58%
- FY2023: 40%
The budget projection on revenue mobilization was too ambitious in the first place. It projected about 29.5% increase over FY2022 revised estimate for total federal receipts (revenue, inclusive of revenue sharing with subnational governments, and foreign grants). Revenue was projected to increase by 25.7% and tax revenue by 31.6% over the revised estimates.
Revenue decreased owing to a slowdown in imports and slower than expected economic recovery. A slowdown in construction and real estate and share transactions also affected revenue mobilization. Faced with the reality of a revenue shortfall, the Finance Ministry proposed a cut in expenses, especially recurrent spending, by 20% in all tiers of government. It also plans to tighten approval of projects that were included in the budget but whose procurement process has not started.
According to news report, the government suspects that informal activities have also reduced revenue mobilization. For instance, based on business operations, some have paid VAT and customs duties, but not paid income tax.
