Nepal’s ICT Budget & the Road to 2035

The Government of Nepal in a significant push toward achieving the country’s ambition of becoming a digital nation, unveiled an ambitious and forward-looking ICT agenda in the national budget for Fiscal Year 2025/26. The package of incentives, reforms and structural investments laid out in the budget aims to transform the country’s technological landscape and position ICT as a cornerstone of national development. Central to the budget is the strategic focus on increasing digital exports, empowering domestic startups, and building critical digital infrastructure; components that are not only timely but necessary for Nepal to create 1.5 million jobs by 2035 and unlock its digital economy potential. These measures, if effectively implemented, could mark a transformative era for Nepal’s tech sector, just as past industrial policies did for manufacturing and remittances.

One of the boldest initiatives announced is a 75% tax exemption on IT service exports, along with a flat 5% final tax rate for Nepali citizens selling services to foreign clients. This provides a long-overdue recognition to the growing number of digital freelancers, software engineers and outsourced service providers working from Nepal for international companies.

The global gig economy is estimated to be worth over $450 billion, and Nepal is emerging as a player in this space. The government by slashing the tax burden, hopes to formalise the digital workforce and channel foreign earnings into the formal economy. However, tax breaks alone are not enough. They must be supported by efficient registration, invoicing, and payment systems to encourage compliance and discourage underreporting. A dedicated platform for IT exporters similar to the simplified customs portal for physical goods, could significantly help operationalise this policy.

To further empower innovation and entrepreneurship, the government announced a five-year income tax exemption for startups with annual revenues of up to Rs 100 million. This is a substantial increase from earlier thresholds and will benefit a larger pool of early-stage enterprises. Coupled with this is an Rs 730 million allocation for low-interest loans at just 3% interest to help startups access capital; a critical hurdle for many technology-based ventures. This two-pronged approach of reducing tax burden and easing access to finance reflects a maturing understanding of the startup lifecycle. However, the challenge remains in defining a ‘startup’ for policy implementation. Without proper criteria and governance, large firms could misuse these benefits, while genuine entrepreneurs struggle to navigate complex bureaucratic systems. A one-stop digital startup portal with eligibility validation, tax filings and loan applications would help build transparency and foster trust

In another pioneering step, the budget includes the integration of robotic technology and artificial intelligence in Nepal’s health sector. This represents an important step forward in leveraging advanced technologies to improve public services. The application of AI in diagnostic imaging, remote health consultation, and patient record analysis can greatly improve both urban and rural healthcare access. But the integration of AI into such a sensitive sector demands strict standards, digital infrastructure and human capacity development. It also calls for ethical guidelines, data privacy frameworks, and public-private partnerships to drive innovation. HealthTech, a booming global subsector, can also offer Nepal exportable solutions in time, if the groundwork is laid right. Pilot programmes in major hospitals and medical colleges can test AI use cases, which can then be scaled up across the country.

The budget also mandates the compulsory use of domestically developed software in government offices, in a move to promote digital sovereignty and build a sustainable tech ecosystem within the country. This policy has the potential to boost local software firms by giving them a guaranteed market, improve national cybersecurity, and reduce dependency on expensive foreign products. However, its success depends on implementation discipline, product quality and procurement integrity. The government must establish a quality assurance framework, certification body, and transparent tender system to ensure that only credible and capable companies are awarded contracts. Simultaneously, local software developers need support in upgrading skills, integrating security features, and undergoing regular audits. If implemented well, this policy could seed a domestic software industry capable of competing in global markets.

Among the most progressive and future-oriented features in this year’s budget is the legal recognition of sweat equity for Nepali professionals providing services to foreign companies. This measure acknowledges the intangible value that skilled professionals contribute to startups and tech enterprises without immediate financial compensation.

By creating room for equity sharing based on time and expertise rather than capital, the government is aligning Nepal with global best practices in startup equity structuring. However, enabling this will require substantial legal reforms. There needs to be clear guidance on how sweat equity is valued, reported and protected. Without proper frameworks, this progressive measure may be exploited or go unused due to fear of legal ambiguity. Furthermore, public education campaigns will be necessary to help founders and professionals understand the benefits and risks of such equity arrangements.

In an effort to revolutionise Nepal’s financial sector, the budget also introduces a one-time digital KYC (Know Your Customer) system and establishes the groundwork for neo-banks: fully digital financial institutions. These changes aim to increase financial inclusion, reduce operational costs, and bring unbanked populations into the formal economy. With over 30% of the population still outside formal banking services, this measure is both timely and impactful. Yet, regulatory readiness remains a question. Nepal Rastra Bank will need to swiftly issue digital banking licences, adopt cybersecurity protocols, and collaborate with fintech companies to run pilot neo-bank services. It is also important to consider inclusive design principles so that digital banking solutions are accessible to people with low digital literacy and those living in rural areas.

Physical infrastructure remains a crucial enabler for digital growth. This year’s budget addresses this through the construction of an IT Park in Kathmandu and the establishment of new data centres in collaboration with the private sector. These are major infrastructure commitments, complementing existing efforts like the data centre in Khumaltar and the previously stalled IT Park in Banepa. The success of these facilities depends on strategic planning especially in terms of location, power supply, bandwidth access and security. The government should work closely with the private sector to ensure that the IT park offers not just physical space but incubation services, mentorship and international linkages. Similarly, data centres must meet global standards for security, energy efficiency and uptime to attract domestic and international clients.

While the announcements are promising, the most urgent gap remains institutional. Nepal still lacks a dedicated IT Board that can independently oversee, coordinate, and drive the digital transformation agenda similar to how the Nepal Tourism Board oversees tourism. Without such a body, policies tend to be fragmented, short-lived or poorly executed. The establishment of an ICT Board, composed of government representatives, private sector leaders and technical experts, is essential. Such a body could manage funds, certify digital service providers, coordinate R&D investments, and ensure the alignment of education systems with market needs. Additionally, a National Research and Innovation Fund should be established to finance university-led R&D, AI and blockchain pilots, and cybersecurity workforce development. These institutions will provide continuity and strategy far beyond annual budget cycles.

The digital ambitions outlined in the 2025/26 budget represent a major step in the right direction but ambition without execution risks becoming mere rhetoric. For Nepal to realise its dream of becoming a digital nation by 2035 and create 1.5 million ICT jobs, there must be clear implementation timelines, dedicated institutional mechanisms, and ongoing monitoring. This includes setting clear performance indicators such as annual increases in digital exports, startup formation, rural broadband access, and job creation in the ICT sector. It also means empowering local governments to execute policies at the grassroots level.