Everything You Need to Know About the 2026/27 National Budget

The government has unveiled a budget of Rs 2.124 trillion for the upcoming fiscal year, but the immediate public reaction has followed a familiar pattern. Supporters of the government have rushed to praise it, opponents have dismissed it, and much of the discussion has focused more on political alignment than on the actual contents of the budget.

For ordinary citizens, however, the more important questions are straightforward: where will the money go, how will it be raised, and what impact will the budget have on daily life?

Most of the Budget Goes to Running the State

The budget allocates nearly 60 percent of total spending to recurrent expenditure. A total of Rs 1.27 trillion will be spent on salaries, allowances, administration and the day-to-day functioning of federal, provincial and local governments.

Another Rs 422.64 billion has been allocated for financial management, including repayment of domestic and foreign loans and investment in state-owned institutions.

Capital expenditure, which covers infrastructure development and public investment projects, has been set at Rs 431.10 billion, or 20.3 percent of the total budget.

The figures mean that only around one-fifth of the national budget is earmarked for roads, bridges, transmission lines, public buildings, machinery and other development projects.

The distribution reflects a long-standing pattern in Nepal’s budgeting process. Successive governments have faced criticism for allocating a relatively small share of spending to productive investment while recurrent obligations continue to grow.

How the Government Plans to Raise the Money

The government expects to finance the budget primarily through tax revenue.

• Rs 1.405 trillion from revenue collection
• Rs 410 billion through domestic borrowing
• Rs 247.28 billion through foreign loans
• Rs 61.74 billion through foreign grants

In total, the government plans to borrow more than Rs 657 billion during the fiscal year.

The revenue target remains one of the biggest challenges. If projected tax collection falls short, the government may be forced either to increase borrowing further or reduce planned spending.

Measures Likely to Benefit Citizens

Several announcements in the budget are expected to provide some relief to households and businesses.

The personal income tax threshold has been expanded, allowing individuals to earn more before becoming liable for income tax.

The government has also proposed an automated VAT refund system for digital payments. Consumers paying through QR codes or mobile banking at VAT-registered businesses will receive a refund equal to 10 percent of the VAT amount paid. The refund will be credited automatically without additional paperwork.

Excise duties on 360 products have been abolished, while customs duties on 273 industrial raw materials have been reduced by one slab. The government expects these measures to lower production costs and help ease prices of some domestically produced goods.

Social nutrition allowances for children from Dalit and economically vulnerable families will be doubled.

The existing 80 percent subsidy on agricultural and livestock insurance will continue.

Government employees will receive a 21 percent salary increase.

Concerns Raised by the Budget

One of the most debated provisions is the decision to impose VAT on electricity consumption above 50 units.

The measure is likely to affect households in the Tarai more heavily because of higher electricity use during extreme summer temperatures. Farmers using electric motors for irrigation could also face higher costs.

The policy may also discourage the wider adoption of electric cooking and electric vehicles at a time when many countries are attempting to reduce dependence on fossil fuels.

The government’s plan to raise substantial domestic borrowing has also generated concern. Higher government borrowing can absorb liquidity from the banking system and potentially place upward pressure on interest rates, increasing borrowing costs for small businesses and entrepreneurs.

Tax changes affecting electric vehicles could increase the price of family-oriented EVs. The government argues the changes are intended to address concerns over tax avoidance linked to motor-capacity declarations by importers.

Capital gains taxes on shares and real estate have also been increased, creating additional costs for investors.

A new Green Tax on selected imports, including petroleum-related products and certain vehicles, is expected to raise prices for consumers.

Cuts to some agricultural subsidy programs have drawn concern from farmers, while additional charges on private schools and private hospital services are likely to be passed on to service users.

The Larger Debate

The budget has also revived a broader question about spending priorities.

While government employees are set to receive a substantial salary increase, many citizens struggling with inflation, unemployment and stagnant incomes see little direct relief. Critics argue that resources devoted to administrative costs could have been directed toward development projects, industrial expansion or broader tax relief measures.

The deeper concern is structural. With development spending continuing to occupy a relatively small share of the budget, many fear Nepal could see rising debt without corresponding improvements in productive capacity or public infrastructure.

For many citizens, the debate is no longer about whether the budget is good or bad in partisan terms. It is whether the country’s spending priorities are capable of delivering economic progress in the years ahead.