Karnali Province starts taxing agriculture and barren land for the first time

Eight years after its formation, the Karnali Provincial government has begun collecting income tax on agriculture for the first time.

Under Schedule-6 of the Constitution, the provincial government has the exclusive right to impose income tax on agricultural earnings. According to Section 8 and Schedule-4 of the Finance Act for fiscal year 2025/26, income from the sale of agricultural products grown within the province will now be taxed. Previously, the agricultural sector was not included in the tax system.

Farmers earning up to Rs 500,000 annually from agriculture will not be taxed. For higher incomes, the rates are:

• 1% for Rs 500,000 to Rs 2.5 million
• 1.5% for Rs 2.5 million to Rs 5 million
• 1.75% for Rs 5 million to Rs 10 million
• 2% for income above Rs 10 million

This new tax system is designed to strengthen the province’s internal revenue. In the last fiscal year 2024/25, Karnali Province collected Rs 659.45 million, which was below the target. Since its establishment, the province has collected only Rs 3.457 billion in internal revenue.

Tax on barren cultivable land

From this fiscal year, the provincial government has also introduced a tax on cultivable land that is left barren. Section 23 and Schedule-13 of the Finance Act 2082 state that first- and second-class cultivable land will be taxed annually if left uncultivated. The tax rates are:

• Rs 500 for up to 10 ropanis
• Rs 1,000 for 10 to 20 ropanis
• Rs 1,500 for more than 20 ropanis

The Ministry of Land Management, Agriculture and Cooperatives will coordinate with local authorities to collect this tax.

Minister Binod Kumar Shah said many farmers leave land barren due to lack of manpower, irrigation, and other reasons. “This tax is not meant to punish, but to encourage cultivation,” he said. The government also plans to support youth farmers with bank loans and interest subsidies. Farmers cultivating more than five hectares will get full interest coverage, while those with less than five hectares will receive 7–10% interest subsidy.

The provincial government will not provide subsidies to local levels that fail to collect and transfer revenue to the provincial fund. The Finance Act also states that if revenues from sources such as advertisement tax, entertainment tax, tourism fee, natural resource royalty, forest product fees, vehicle tax, real estate registration, sales fees, service charges, and environmental protection fees are not paid, the financial equalisation grant will be reduced accordingly.