The rate of VAT levied at 13% on goods and services remains unchanged from the previous year. VAT on exports of goods shall attract a rate of ‘zero’ per cent. The industries most affected by COVID-19 will be permitted to submit tax returns on a trimester basis to Inland revenue department.
Major changes in VAT laws of Nepal for the FY 2077/78 are:
❒ Removal of provision for compulsory registration for waste management, municipality, motor parts and tailoring business and legal service.
❒ Provision of registration of Micro-insurance in VAT has been deleted.
❒ Provision of filing of returns and payment of taxes on a trimester basis for transportation, tourism and movie theatre sectors have been introduced.
❒ The VAT amount paid by the United Nations Organization and specialized agencies on purchase of goods and services for staying in Nepal for their objectives shall be refunded.
❒ The tax paid by pharmaceutical industries on local purchases of raw materials, auxiliary and packing materials will be refunded:
a. if it applies for a refund of tax on trimester basis
b. The tax officer shall refund such tax within 60 days of application.
❒ In case a person does not register in VAT even when the condition for compulsory registration u/s 10(1) and 10(2) arises, a penalty of Rs 20,000 (previously Rs 10,000) per tax period shall be levied.
❒ In case a person requiring VAT registration operates without registration, the person may be penalized with 50% of payable tax amount.
❒ Section 25(Ga 1)- excess tax refund on contract payment
a. If any public entities or an association with full or partial ownership of GoN, imports goods or services or goods and services both under a contractual agreement under the Public Procurement Act, while making payment to the contractor or supplier can set off its tax with the tax payable by such contractor or suppliers.
b. In case when excess tax cannot be set off, as mentioned in subsection (1) up to next 4 months, such excess amount can be refunded to such contractor or suppliers, after submitting an application to the tax officer.
c. The tax officer should refund such tax within 60 days of application.
If such credit is applied for a refund, it cannot be carried forward in next month.
Are all goods and services subject to VAT? If not, what are the goods, services or Industries that are exempt of VAT?
VAT divides all goods and services into two basic categories, taxable and tax-exempt. Goods and services are either taxed at the standard rate of 13 per cent or they are taxed at 0%. Those taxed at the standard rate include all goods and services except those which are specified as taxed at 0% or tax-exempt.
Tax-exempt Goods/ Services/ Industries
The purchaser will NOT pay VAT on tax-exempt goods and services and the supplier is not allowed input tax credits on purchases related to the following goods and services:
(a)Goods and services of basic needs which include rice, pulses flour, fresh fish, meat, eggs, fruits, flowers, edible oil, piped water, wood fuel.
(b)Basic agricultural products are also tax-exempt, for example, paddy, wheat, maize, millet, cereals and vegetables.
(c) The expense of buying goods and services required to grow basic agricultural products are tax-exempt. This includes live animals, agricultural inputs including machinery, manure, fertilizer, seeds, and pesticides.
(d)Social welfare services including medicine, medical services, veterinary services and educational services.
(e)Goods made for the use of disabled persons.
(g) Educational and cultural goods and services such as books and other printed materials, radio and television transmissions, artistic goods, cultural programmes, non-professional sporting events and admissions to educational and cultural facilities.
(h)Personal services are also tax-exempt. These are services provided, for example, by actors and other entertainers, sportsmen, writers, translators and manpower supplies agents.
(i)Exemption from VAT is also extended to the purchase and renting of land and buildings
(j)Financial and insurance services.
(k)Postage and revenue stamps, bank notes, cheque books.
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VALUE ADDED TAX (VAT) rates, rules and updates of Nepal for F/Y 2073-74
A Brief overview of VAT in Nepal
Value Added Tax (VAT) is an indirect tax levied on the value creation or addition. Concept of VAT in Nepal was introduced in FY 2049/50 but the act was developed in BS 2050. VAT was implemented in 1998 and is the major source of government’s revenue. It is administered by Inland Revenue Department of Nepal.
VAT Rates in Nepal
There are two rates of VAT: Normal VAT rate is 13%, some goods or services are subject to VAT at 0%. In addition some goods or services are exempt from VAT.
Now lets look into the important changes of rates, rules and updates of VAT in Nepal for F/Y 2073-74. Here are the important highlights:
– No changes in the existing rate of 13 percent for the fiscal year 2072/73.
– As per the Budget Speech threshold limit of Rs 20 lakhs has been increased to Rs 50 lakhs for the registration.
– As per the Budget Speech threshold limit of Rs 10 lakhs has been increased to Rs 20 lakhs for the registration purpose for business involving services however, the same is to be incorporated while updating VAT Regulation. (New)
– New provision has been added in the Section 11 (sub sec (1)) of Vat Act 2052 for cancelation of registration which includes: “any person registered under Vat not having turnover of 50 Lakhs in respect of goods and 20 Lakhs in respect of business involving both goods and services or services for last 12 months. (New)
Provided that the person desirous of registering voluntarily as per Sec. 9 of the Act may continue to be a registered person by making an application as prescribed within Ashad End 2073.
– The threshold of bank guarantee provision has been reduced to 40% of the export sales from 60% of the export sales made in last 12 months to import raw materials attributable to production of goods to be exported equivalent to the VAT applicable on such import.
– New additional condition u/s 4 (4) of Income Tax Act has been inserted for voluntarily registration of the person limiting registration only to those person who doesn’t opt for presumptive taxation.
– New section 10 kha has been inserted for temporary registration of two or more persons working together in joint venture for specific period and prescribed work which shall be cancelled after the expiry of the term prescribed.
– If during stock verification of the taxpayer excess stock item which has not been mentioned in stock register is found the tax officer has authority to charge 50% of market price of such excess stock as penalty.
– For green house and irrigation equipment imported by agricultural and horticulture firms are to be exempt from value added tax.
– The liability to inform the tax officer in case of transfer of business resulting due to death or sales has been divided among the registered person(transferor) and the transferee which previously was liability of registered person(transferor) alone.
– Any person either registered or not, receiving services from any person residing outside Nepal, should assess and collect the Vat amount at the time of payment, applicable as per the provision of Vat Act 2052 and Vat rules. (New)
– Schedule 1 on Vat Act has been updated to include :
Equipment mentioned in Heading 87.14, spare parts and accessories, required for manufacturing of electric rickshaws imported by entities established with purpose of manufacturing electric rickshaws.
Lithium Batteries less 12 volt and 10 amp power used in solar powers on recommendation of Alternative Energy Promotion Centre.
– Schedule 2 of Vat Act has been updated to include: Deep Cycle Lead Acid Batteries (Sub Head-8507.20.00) used in Clean Tempo on recommendation of Ministry of Environment. (New)
– New Subsection Gha has been added on section 25: “Notwithstanding anything mentioned elsewhere in act, any amount to be refunded under the provision of act, if application for such refund is not provided within 3 years of due period shall not be refunded.” (New)
– Section 19 subsection 7 has been modified to include electric payment for deposition of VAT liability and date of payment shall be the date on which approval for payment has been submitted. (New)
– In case of sale of Mustard Oil, Banaspati Ghee and any refined edible oils produced by national industries to registered entities, 40 % rebate is granted on Vat amount charged by them on such sale. Such amount shall be refunded as per the prescribed procedure. In case of sale of such oil and ghee on bulk to any other person rebate shall not be provided. Similarly rebate shall not be provided to entities importing refined oil and selling to any industries in bulk and industries selling by refilling such oils. (New)
Information source for VAT in Nepal and rates/rules: Official website of IRD, Wikipedia, Income tax manual of Nepal