The government's internal revenue collection has taken a beating this fiscal year as economic activities in the country go through a sharp slowdown. The Inland Revenue Department (IRD) which is responsible for the administration of value-added tax (VAT), income tax, excise duties, health service tax, and education service fees in the country, has missed the revenue collection target in the first five months of the current fiscal year. The department missed the target by 14 percent as it collected revenue worth Rs 150 billion till mid-December against the target of Rs 155 billion. IRD's revenue collection in the first five months of this fiscal is lower than that of the same period of the last fiscal; in FY 2021/22, the department collected Rs 155 billion in revenue in the first five months. Revenue administration officials attribute multiple factors to the decline in the collection of revenues. According to them, import restrictions, and slackness in the financial market, weaker demands in the market have affected economic activities.

The import cost has also gone up due to the new provision on the letter of credit (LC) margin. High revenue-generating sectors such as real estate, construction and automobile are going through a phase of recession while capital market business has declined notably as well as retail and wholesale trade.

  Similarly, a surge in illicit trade in areas bordering Nepal and India has also affected IRD's revenue collection. As law enforcement agencies were busy with election duties, the smuggling of goods from the southern neighbor increased, say the department's officials. The Department of Revenue Investigation (DRI), which has been tasked to control the leakage of revenues, also failed to work assertively during this period as there was frequent change in its director general position. The IRD Director General Dirgha Raj Mainali said revenue collection will gradually improve in the coming months as the department is now working on controlling the loopholes in order to increase revenue collection. "Of late, the authorities including IRD, DRI have increased their vigilance," said Mainali, "The overall revenue will move in an upward trajectory." According to Mainali, compared to earlier months, there have been some improvements in the fifth month. The IRD's overall revenue target has been affected as it failed to collect income tax and value-added tax (VAT) as equal to last year. The department collected Rs 46.48 billion in income tax, which is 80 percent of the target of Rs 57.66 billion. Corporate profit tax, remuneration tax, and investment tax are the major sub-headings of income tax that the department collects as direct tax. Income tax collection during the first five months of the last fiscal year was Rs 56.96 billion.  Likewise, the IRD also fell short of the VAT target. The department collected Rs 42.3 billion in VAT which is 82.98 percent of the target. This year's VAT collection is also lower than last year's when the department collected Rs 44.53 billion. However, excise duty collection is better than that of the last year, it still fell short of the target by 7 percent. IRD received Rs 42.45 billion in excise duty against the target of Rs 43.64 billion during this period.