1. VALUE ADDED TAX
1.1. Concept of VAT
Value Added Tax (VAT) is a major source of indirect taxes. As per the statistics of Government of Nepal, VAT covers almost 50% of Tax Revenue and Income Tax covers almost one-third of Tax Revenue.
Value added tax is levied on the taxable transaction with a single rate of 13% in every point of value addition. VAT is charged on person making value addition.
1.2. Overview
Value Added Tax is applicable on all goods and services supplied in Nepal, imported into or exported from Nepal, except those listed in Schedule 1 of Value Added Tax Act of Nepal
General rate of VAT is 13%, whereas export and some specific supplies listed in Schedule 2 of Value Added Tax Act are subject to 0% VAT rate.
1.3. Registration Requirements
1.3.1. Businesses specified in Schedule 1 of VAT Act
Person doing only the transactions of items listed in Schedule 1 of Value Added Tax Act, 2052 cannot register itself for Value Added Tax.
1.3.2. Conditions for Registration
If a person wishes to conduct transactions not listed in Schedule 1, the registration obligation is created in any of the following conditions:
- If the person obtains business loan exceeding Rs. 10 Lakhs
- If the turnover of the person exceeds Rs. 50 lakhs in last twelve months where it is goods business, or Rs. 20 lakhs in last 12 months where it is service business or mixed business of goods and services
- The person shall register for VAT within thirty days of happening of the events as above.
1.4. Value Added Tax Returns
Every person registered in Value Added Tax must submit VAT return. Usually VAT return is filed every month, within 25 days of end of every Nepali Calendar month.
Tourism service provider or hotelier may submit VAT return every two months, if they applied for a bi-monthly tax period. Publication or broadcasting media either through electronic or other medium and producer of brick may submit VAT return every four months, if they applied for a trimester tax period.
Non-submission of VAT returns triggers penalties and may also trigger VAT assessment by tax authority.
1.5. Payment of Value Added Tax
Payable VAT during any month should be paid within 25 days of the end of month. Any amount less than Rs. 10 lakhs may be paid in cash, however, payment exceeding Rs. 10 Lakhs should be made through cheque, draft or other electronic medium.
1.6. VAT Credit
Value Added Taxes paid in purchase may be claimed as VAT credit. For this, the output from the purchases should be sold by collecting VAT. Normally, VAT paid on purchases can be claimed as credit in full value where the output is VAT-attractive, however, there is certain limitations of credit claim on following purchases:
- 40% of VAT paid can be claimed on purchase of automobiles for administrative purpose
- There shall be no VAT credit (otherwise than where the main business is supply of the items listed below) on following:
- Beverages
- Alcohol, or beverages containing alcohol, e.g. alcohol, beer
- Petrol, diesel and Light Petroleum Gases
- Entertainment Expenses
The VAT paid on purchases used for both taxable and nom-taxable output is allowed credit to the extent it is used for taxable output. If such extent is not easily determinable, the credit is allowed in the ratio of taxable sales to total sales.
1.7. VAT Refund
If there is excess purchase VAT than the sales VAT during any month and the export sales of the month is more than 40% of total sales, the registered person can apply for the VAT refund along with the filing of VAT return of same month. The amount is determined the tax officer and refunded within 30 days of application, failure of which provide opportunity to taxpayer to obtain interest at the rate 15% p.a. on days delay after such 30 days.
In all other cases, excess Purchase VAT may be claimed for refund after utilizing such excess to set off any payable VAT for next four months.
1.8. VAT Invoice
Every registered person must issue VAT invoice. The format of VAT invoice is prescribed by VAT Regulation. Alteration to the format of VAT invoice without written permission from tax officer is not allowed. Retailer may issue Abbreviated VAT invoice with approval from Tax Officer.
Update of Taxpayers’ Registration Information in Biometric System
1.9. [Addition of Sec. 10Ga]
Persons registered pursuant to this Act shall update the registration information in the biometric system as prescribed by Inland Revenue Department.
1.10. Refund of VAT to Consumer (Cash Back to Consumer)
In case a consumer makes payment to vendor through electronic means as per prevailing law, such consumer is entitled to Cash Back Facility at the rate 10% of Value Added Tax paid on such purchases. Such amount is refunded directly in the bank account of consumer as per the procedures prescribed by Inland Revenue Department.