With revenue collection falling short of expectations in recent years, the government has turned to long-pending tax disputes as a potential source of additional income, offering taxpayers a limited-time settlement facility to clear outstanding dues.

Finance Minister Swarnim Wagle is relying heavily on the recovery of tax arrears to meet the revenue target set for the next fiscal year. He has directed the revenue administration to focus on collecting more than Rs100 billion from disputed and unpaid taxes as the government aims to raise Rs1.4 trillion in revenue.

The move comes as the government has set an ambitious 20 percent revenue growth target for the new fiscal year. Officials say the new arrangement could encourage taxpayers who have avoided payments due to years of litigation, accumulated penalties and additional charges to settle their liabilities.

Under the scheme introduced through the Finance Bill, 2026, taxpayers with pending cases can withdraw their disputes by paying the assessed tax amount along with an additional one percent. In return, the government will waive fees, additional charges, penalties, interest and late payment charges.

Including the revenue share to be distributed to provincial and local governments, the federal government will need to collect more than Rs1.5 trillion in total revenue. After the distribution, the federal government is expected to retain Rs1.405 trillion.

“The target is to collect at least Rs100 billion from tax arrears,” a senior official at the Ministry of Finance said. “The possibility of achieving this appears realistic.”

Section 46 of the Finance Bill allows taxpayers with cases pending before the Inland Revenue Department for administrative review or before judicial bodies to withdraw their cases and pay the assessed value-added tax, income tax and excise duty, along with an additional one percent amount, by mid-January 2027. Once the payment is made within the deadline, taxpayers will receive waivers on applicable fees, additional charges, penalties, interest and late payment charges.

For the new fiscal year, the government has set a revenue collection target of Rs1.405 trillion. Officials at the Ministry of Finance said recovery of outstanding taxes is a major part of its strategy to achieve the target.

Uttar Kumar Khatri, chief of the Revenue Management Division at the Ministry of Finance, said the facility was introduced to help taxpayers who have accumulated dues for various reasons.

“This facility does not reduce the original tax liability. Taxpayers must pay the assessed tax amount,” he said. “However, they have been allowed to settle by paying an additional one percent on the initially assessed tax amount, while additional charges, penalties and other liabilities have been waived.”

Khatri said the scheme was also designed to bring businesses operating informally into the formal economy.

“We have introduced this scheme for long-pending tax dues, unsettled audit issues and cases that have remained in litigation for years, allowing taxpayers to pay the assessed tax amount along with an additional one percent,” he said. “Similar schemes were introduced in the past, but the current arrangement offers greater benefits than previous ones.”

According to the Finance Bill, taxpayers involved in cases where the Inland Revenue Department or tax offices have received permission to appeal at the Supreme Court or seek a review, or where applications for such appeals or reviews are pending, can request withdrawal of cases by depositing the disputed tax amount and an additional one percent by mid-January 2027.

The department said 1,311 cases related to outstanding tax dues are currently pending.

From the previous fiscal year, 1,381 cases were carried forward into the current fiscal year. Another 396 cases were added during the year, taking the total number of pending cases to 1,777. Of these, 466 cases were settled during the current fiscal year, leaving 1,311 unresolved, according to the department.

The outstanding amount linked to these unresolved cases stands at around Rs172.33 billion, including fees, additional charges, penalties, interest and late payment charges. However, tax officials said the entire amount is unlikely to be recovered because taxpayers settling under the scheme will only have to pay the original tax amount plus one percent.

In the fiscal year 2023-24, there were 1,742 cases carried forward from the previous year. During fiscal year 2024-25, another 741 cases were registered. Of those, 1,102 applications were settled during the year, according to the department.

The Finance Bill also includes provisions for cases where taxpayers have not received permission to appeal to the Supreme Court or seek a review, but where tax reassessment has not yet been completed by the concerned office. In such cases, taxpayers can apply for a settlement by depositing the disputed tax amount and an additional one percent by mid-January 2027. The government will waive related fees, additional charges, penalties, interest and late payment charges.

However, the exemption provision will not apply to businesses involved in providing telecommunications services, according to the bill.

Officials at the department said some taxpayers have already started approaching tax offices to take advantage of the facility.

Keshav Raghuvanshi, information officer at the department, said taxpayers have begun visiting the department to withdraw cases by paying the one percent additional charge.

“Taxpayers have started coming to the department to withdraw their cases after paying the one percent amount,” he said. “The number is increasing.”

Araniko Rajbhandari, chairman of the Tax and Revenue Committee of the Federation of Nepalese Chambers of Commerce and Industry, said the government’s decision to include provisions for recovering old tax arrears in the economic ordinance would benefit businesses.

“Some businesses have been unable to pay taxes, income tax and excise duty on time due to various reasons,” he said. “In other cases, when the government conducts unilateral tax assessments and slaps fines when taxpayers disagree, the total outstanding amount swells significantly. The government’s decision would benefit business owners who were holding back because they couldn't afford the heavy fines.”

Rajbhandari said the decision would provide relief to the private sector. He also welcomed the government’s plan to introduce legislation related to credit recovery, which has long been demanded by businesses.

“It will benefit businesses of all sizes, from small enterprises to large companies,” he said.