Revenue Efficiency in Nepal: The Key Determinants

Revenue is a lifeline for any country; the capacity to collect revenue and its proper spending largely determines the quality and quantity of welfare activities in the country. This chapter attempts to measure the revenue efficiency of Nepal using the data from 1975 to 2023, employing the Stochastic Frontier Analysis (SFA) method of technical analysis. This method helps to identify the determinants of revenue efficiency and those years operating near their revenue capacity, and when things went wrong for the lesson. The results show that import is the backbone of Nepal’s revenue system; increasing per capita GDP has not helped to improve revenue efficiency, as the measures of direct taxes have not been effectively implemented so far. Further, the results indicate a large variation in revenue efficiency across the years. Both agricultural exports and manufacturing exports seem to have a negative association with revenue efficiency; however, the agricultural exports are not statistically significant, indicating a need to revise the export policy and relevant mechanisms.