This paper reviews the existing forest policies in Nepal mainly focussing on the fiscal policy of Community Forestry (CF), and discusses some of the existing and potential issues on the implication of fiscal policy. The review shows that Nepalese CF has some unclear and inconsistent legal provisions related to fiscal policy. The semi-structured interviews and focus group discussions with individuals from governmental and non-governmental organizations, Community Forest User Groups (CFUGs) from Parbat, Baglung and Dolakha districts of Nepal, and forest product traders from these districts demonstrate that there are a number of issues and challenges related to fiscal policy that have affected the promotion of sustainable and market-oriented management of forest resources. These issues and challenges have a direct impact on CFUGs to optimally benefit from their forest resources. As several stakeholders (including non-governmental organizations) are involved in implementation of CF program and yet do not have a direct influence on policy formulation, good coordination among government units, CFUGs and non-governmental organizations and their active involvement in the policy-making process could help to address the practical issues and challenges related to CF policy. This in turn would help to develop the policy consistent and unambiguous.