What is Value Added Tax in Nepal?

Value Added Tax (VAT) in Nepal is an indirect tax levied on the value added at each stage of production and distribution of goods and services. It is a consumption tax that is ultimately borne by the end consumer. VAT is charged on most goods and services supplied within Nepal as well as on imports. The tax is collected by registered businesses on behalf of the government at each stage of the supply chain.

What are the laws governing VAT in Nepal?

The main laws governing VAT in Nepal are:

1. 1. Value Added Tax Act, 2052 (1996)

1. 1. Value Added Tax Rules, 2053 (1997)

1. 1. Annual Finance Acts

These laws provide the legal framework for imposition, administration and collection of VAT in Nepal. The VAT Act lays down the fundamental provisions while the VAT Rules provide detailed procedures. The Finance Acts make yearly amendments to VAT provisions.

What is the procedure for VAT Registration in Nepal?

The procedure for VAT registration in Nepal is as follows:

1. 1. Determine eligibility: Businesses with annual turnover exceeding Rs. 5 million for goods or Rs. 2 million for services must register for VAT.

1. 1. Obtain application form: Get Form VAT-01 from the Inland Revenue Office or download it from the IRD website.

1. 1. Fill the application form: Provide details like business name, address, nature of business, estimated turnover etc.

1. 1. Attach required documents: PAN certificate, company registration, citizenship certificate of proprietor/partners, rental agreement etc.

1. 1. Submit application: File the completed form and documents at the local Inland Revenue Office.

1. 1. Verification: The tax office may conduct physical verification of the business premises.

1. 1. Issuance of certificate: If approved, the VAT registration certificate with a unique 9-digit number is issued within 30 days.

1. 1. Display certificate: The VAT certificate must be prominently displayed at the place of business.

1. 1. Comply with VAT obligations: Start charging VAT, maintain records, file returns and deposit tax as per rules.

The entire process typically takes 4-6 weeks. Online registration facility is also available now.

What is the VAT Rate in Nepal?

The standard VAT rate in Nepal is 13%. This rate applies to most taxable goods and services supplied within Nepal as well as on imports. However, there are two other VAT rates:

1. 1. Zero rate (0%): Applies to exports and specified goods/services listed in Schedule 2 of the VAT Act.

1. 1. Exempt: Certain goods and services listed in Schedule 1 of the VAT Act are exempt from VAT.

The 13% rate is uniform across goods and services with very few exceptions. The government can modify rates through Finance Acts.

How is VAT calculated in Nepal?

VAT in Nepal is calculated as follows:

1. 1. Determine the taxable value of goods/services

1. 1. Apply the applicable VAT rate (usually 13%)

1. 1. VAT amount = Taxable value x VAT rate

For example: Selling price of goods: Rs. 1000 VAT @ 13%: Rs. 130 Total price including VAT: Rs. 1130

For imports, VAT is calculated on the customs value plus import duties. Businesses can claim input tax credit for VAT paid on purchases against output tax liability on sales.

What items are exempt from VAT in Nepal?

Some key items exempt from VAT in Nepal include:

1. 1. Basic agricultural products

1. 1. Basic food items like rice, lentils, vegetables

1. 1. Medicines and health services

1. 1. Educational services

1. 1. Books and newspapers

1. 1. Passenger transportation services

1. 1. Financial and insurance services

1. 1. Electricity and fuel

1. 1. Raw materials for export industries

1. 1. Goods for diplomatic missions

The full list of VAT exempt goods and services is provided in Schedule 1 of the VAT Act. The government can modify this list through Finance Acts.

What are the requirements and documents for VAT Registration in Nepal?

The requirements and documents for VAT registration in Nepal are:

Requirements:

1. 1. Annual turnover exceeding Rs. 5 million for goods or Rs. 2 million for services

1. 1. Business must have a fixed place of business

1. 1. Maintain proper books of accounts

Documents:

1. 1. Completed VAT registration application form (VAT-01)

1. 1. PAN (Permanent Account Number) certificate

1. 1. Company/firm registration certificate

1. 1. Citizenship certificate of proprietor/partners

1. 1. Memorandum and Articles of Association for companies

1. 1. Rental agreement of business premises

1. 1. Bank statement of business account

1. 1. Photographs of business premises and owners

1. 1. Location map of business

Additional sector-specific documents may be required. The tax office may also conduct physical verification before registration.

How to asses and recover VAT in Nepal?

Assessment and recovery of VAT in Nepal involves the following steps:

1. 1. Self-assessment: Taxpayers calculate and pay VAT themselves through monthly returns.

1. 1. Desk audit: Tax officers review returns and records to check for discrepancies.

1. 1. Field audit: Detailed examination of books of accounts at taxpayer’s premises.

1. 1. Reassessment: Tax office issues revised assessment if discrepancies are found.

1. 1. Demand notice: Taxpayer is notified of additional tax liability, if any.

1. 1. Recovery measures: For non-payment, tax office can:
      1. Freeze bank accounts
      1. Seize and auction assets
      1. Restrict foreign travel

       

      1. 1. Prosecute for tax evasion

1. 1. Appeal: Taxpayers can appeal against assessments to review committee and tribunals.

The tax office has powers to conduct searches, seize records and prosecute offenders to ensure VAT compliance and recovery.

How can VAT Registration be cancelled in Nepal?

VAT registration can be cancelled in Nepal through the following process:

1. 1. Submit application: File VAT de-registration form with reasons to the tax office.

1. 1. Final VAT return: Submit closing VAT return up to the date of cancellation.

1. 1. Tax clearance: Pay any outstanding VAT dues.

1. 1. Stock verification: Tax office may verify closing stock and assets.

1. 1. Final audit: Books of accounts may be audited before cancellation.

1. 1. Cancellation order: Tax office issues order cancelling VAT registration.

1. 1. Surrender certificate: Return original VAT registration certificate.

1. 1. Public notice: Publish cancellation notice in a national newspaper.

Grounds for cancellation include:

• • Business closure

• • Turnover falling below threshold

• • Change in legal status of business

• • Death of proprietor

The tax office can also cancel registration suo moto if a business fails to comply with VAT obligations.

Read More:

• Income Tax Return Filing in Nepal
• Business Tax Rate in Nepal
• Tax Rates in Nepal

What is the Taxable value of VAT in Nepal?

The taxable value for VAT in Nepal is determined as follows:

1. 1. For sales: The actual selling price excluding VAT, including all charges and taxes except VAT.

1. 1. For imports: The customs value plus import duties and taxes, excluding VAT.

1. 1. For barter transactions: The open market value of goods/services exchanged.

1. 1. For own consumption: The cost price or market value, whichever is higher.

1. 1. For gifts/free supplies: The cost price or market value, whichever is higher.

1. 1. For hire purchase: The cash price, excluding interest charges.

1. 1. For related party transactions: The open market value.

The taxable value cannot be less than the cost of production/acquisition. The tax office can determine a fair market value if the declared value appears unreasonably low.

How should VAT be recorded in Nepal?

VAT should be recorded in Nepal as follows:

1. 1. Maintain VAT sales register: Record all sales with details of customer, invoice number, taxable value and VAT charged.

1. 1. Keep VAT purchase register: Record all purchases with supplier details, invoice number, taxable value and VAT paid.

1. 1. Issue VAT invoices: For each taxable sale, with prescribed details like PAN, invoice number, item description, taxable value and VAT amount.

1. 1. Preserve tax invoices: Keep all purchase invoices to claim input tax credit.

1. 1. Maintain stock records: Keep updated inventory of goods with quantity and value.

1. 1. Prepare VAT account: Summarize output tax, input tax and net VAT payable/refundable monthly.

1. 1. File VAT returns: Submit monthly returns with sales/purchase details and tax calculation.

1. 1. Keep records for 6 years: Preserve all VAT related documents for at least 6 years.

1. 1. Computerized accounting: Get approval from tax office for computerized VAT records.

Proper record keeping is essential for smooth VAT compliance and audits.

How to file for Tax Return in Nepal?

The process to file VAT returns in Nepal is as follows:

1. 1. Prepare VAT account: Summarize sales, purchases, output tax and input tax for the month.

1. 1. Get VAT return form: Obtain Form VAT-20 from tax office or download from IRD website.

1. 1. Fill the return form: Enter details of sales, purchases, tax collected and paid.

1. 1. Calculate tax: Determine net VAT payable or refundable amount.

1. 1. Pay tax: Deposit any VAT payable amount in the designated bank.

1. 1. Submit return: File the completed return along with payment receipt at the tax office.

1. 1. Online filing: Returns can also be filed electronically through the IRD portal.

1. 1. Due date: Returns must be filed and tax paid within 25 days of the end of each month.

1. 1. Nil return: Even if no transaction, a nil return must be filed.

1. 1. Late filing penalty: Fines apply for delayed filing or payment.

Monthly filing is mandatory for all VAT registered persons. Proper record keeping helps in timely and accurate return filing.

What is the Tax on Import and Export in Nepal?

The tax treatment for imports and exports in Nepal is as follows:

Imports:

• • VAT at 13% is levied on imports in addition to customs duty

• • Taxable value includes CIF value plus customs duty and other taxes

• • VAT is collected by Customs at the point of import

• • Importer can claim input tax credit later

Exports:

• • Exports are zero-rated i.e. no VAT is charged on exports

• • Exporter can claim refund of input VAT paid on exported goods

• • Supporting documents like export invoice, customs declaration required

• • Refund claim to be filed within 3 years

Special provisions:

• • Bonded warehouses for exporters to import inputs without paying VAT

• • Duty drawback schemes to refund taxes on inputs used for exports

• • Simplified procedures for temporary imports and re-exports

The zero-rating of exports aims to promote export competitiveness by avoiding tax cascading.

Value Added Tax in Nepal

Q1: What is the standard VAT rate in Nepal?

A1: The standard Value Added Tax (VAT) rate in Nepal is 13%.

Q2: Who needs to register for VAT in Nepal?

A2: Businesses with annual turnover exceeding NPR 5 million must register for VAT.

Q3: How often must VAT returns be filed in Nepal?

A3: VAT returns in Nepal are typically filed monthly.

Q4: Are there any goods or services exempt from VAT?

A4: Yes, certain essential goods and services are exempt or zero-rated for VAT.

Q5: How is VAT calculated in Nepal?

A5: VAT is calculated on the value added at each stage of production or distribution.