10015375-Public finance expertise for Nepal

The Government of Nepal has set the goal of achieving a tax to GDP ratio of 23.5% by the financial year 2028/29 in order to reduce the financing gap for the achievement of the development goals. The importance of domestic revenues in financing sustainable development is increasing due to several factors: First, foreign direct investment in Nepal remains low. In 2024, 395.92 crore rupees of investments were planned, of which about 38% of the committed amounts were actually realized. Second, Nepal is on the verge of graduating from Least Developed Country (LDC) status in 2026. This will significantly limit access to grant-based development finance and increase trade barriers. Finally, Nepal is also on the Financial Action Task Force's (FATF) grey list, which could lead to further barriers to financial transactions and a further decline in foreign investment. While Nepal's tax to GDP ratio of 18.6% (fiscal year 2023/24) is above the regional average, but there are numerous challenges in tax system that are hindering an increase. These are evident in the 2023 Tax Administration Diagnostic Assessment Tool (TADAT) Assessment and in various national strategy documents, such as the Public Financial Management (PFM) Reform Strategy 2025-2030 and the Domestic Revenue Mobilization Strategy (strategy for mobilising domestic revenues). These medium- and long-term strategies also provide guidance for the reform of the Nepalese tax system. Objective The programme promotes Nepali tax administration and revenue policy to create the regulatory and technical assistance for sustainable economic development. It also supports the voluntary compliance of the tax administration by enhancing the effectiveness of the tax administration and by providing services to taxpayers. Approach To achieve its objective, the program focuses on the following three key result areas: - Output 1: The capacities of the MoF and the Tax Administration to design evidence-based revenue policy reforms for sustainable development have improved. - Output 2: The effectiveness of the tax administration has improved in terms of professional capacities and digital systems. - Output 3: Output 3: Services for taxpayers to promote an investment-friendly busi-ness environment have improved. This consultancy contract concentrates on the three BMZ-commissioned Outputs (1, 2 and some aspects of 3). Each output area comprises a tailored set of interlinked activities including analytical work; legal and policy advice; organisational development; and capacity. The programme cooperates with national authorities like Ministry of Finance (MoF), Inland Revenue Department (IRD) and private sector. The ultimate beneficiaries of the programme are the taxpayers of Nepal with the improved revenue policy and effective and efficient tax administration.