The proposed national budget for the 2026–27 financial year signals a significant overhaul of the country’s fiscal policy and taxation framework. The forthcoming budget, expected to be presented on Thursday in Parliament by the first budget of the Nationalist Party–backed government, is being framed against the dual backdrop of revenue shortfalls and mounting expenditure pressures.
Despite constraints linked to revenue collection and conditions associated with the International Monetary Fund (IMF), policymakers are prioritising measures aimed at easing the cost of living, stimulating investment, and strengthening domestic industrial capacity. According to sources within the finance establishment, the government intends to expand targeted tax reliefs rather than broadly reducing exemptions, with a strategic focus on sectors such as manufacturing, export-oriented industries, renewable energy, information technology services, and environmentally sustainable enterprises.
A key feature of the proposals involves reducing the advance tax rate on approximately sixty essential commodities—including rice, wheat, potatoes, spices, and other daily necessities—to 0.5 per cent. Authorities are also considering the withdrawal of regulatory duties on these items to ease supply chain pressures and help stabilise market prices.
On personal taxation, the tax-free income threshold is likely to be increased from 350,000 to 400,000 currency units, offering relief to lower- and middle-income earners. In addition, the abolition of the five per cent tax slab is under active consideration, a move that could further reduce the tax burden on small taxpayers.
In the corporate sector, the government is expected to maintain existing corporate tax rates in order to preserve production stability. However, full tax exemptions are being proposed for freelance professionals and digital content creators, a step designed to promote the digital economy and enhance foreign currency inflows.
Renewable energy is another priority area, with proposed long-term tax holidays for solar power generation projects, alongside import duty exemptions on equipment and preferential arrangements for utility payments. Similarly, incentives are planned for eco-friendly transport, particularly electric vehicles and buses, including reduced registration fees and tax concessions.
The health sector will also benefit from tax relief measures, with exemptions under consideration for essential medical imports such as dialysis filters, cardiac stents, and intraocular lenses. Additionally, many raw materials used in pharmaceutical production are expected to receive duty waivers.
Small and women-led enterprises are set to gain further support through enhanced turnover-based exemptions. Small businesses may remain exempt for annual turnover up to 5 million, while the threshold for women entrepreneurs is proposed at 7 million.
Summary of Proposed Tax Changes
| Sector | Proposed Change |
|---|---|
| Essential goods | Advance tax reduced to 0.5% on ~60 items |
| Income tax | Tax-free threshold raised to 400,000 |
| Freelancers & digital creators | Full tax exemption |
| Eco-friendly transport | Reduced registration tax and incentives |
| Solar energy | Long-term tax holiday and import duty relief |
| Medical imports | Duty and VAT exemptions on key items |
| Small entrepreneurs | Tax-free turnover up to 5 million |
| Women entrepreneurs | Tax-free turnover up to 7 million |
Officials at the Ministry of Finance and the National Board of Revenue (NBR) believe the proposed budget aims to strike a delicate balance between fostering investment-friendly conditions and maintaining macroeconomic stability. However, they acknowledge that the greatest challenge will lie in compensating for reduced revenue intake while ensuring that the expanded tax relief measures do not widen the fiscal deficit.