Overview of VAT in Nepal 2079/80

Value Added Tax (VAT), which is commonly recognized, is a type of consumption tax implemented in Nepal. It is levied incrementally on the final sale of goods and services, with each participant contributing a certain percentage of the value they contribute to the product during production and distribution. VAT is collected by registered businesses or corporations on the government’s behalf in addition to the sale price. Hence, it is the duty of enterprises involved in the provision of products and services to gather and transmit value-added tax (VAT) to the appropriate tax authorities.

1. Laws and Bodies Governing VAT in Nepal

The Value Added Tax Act, 2052 (1996) serves as the authoritative legislative framework in Nepal governing Value Added Tax (VAT). Its primary aim is to streamline the revenue collection process through the imposition of VAT on the sale, distribution, transfer, import, or export of goods and services, thereby generating the necessary revenue. Acc

2. Differences between VAT (Value Added Tax) and PAN (Permanent Account Number) 

VAT is a consumption tax that is levied on the value added at each stage of the production and distribution chain. It is intended for the final consumer to bear. Value Added Tax (VAT): The tax is levied on the sale of products and services, and it is the responsibility of companies operating in the production or distribution chain to gather and remit the VAT to the government. Value-added tax (VAT) is culpable for remittance by the business entity, which collects the tax at each stage of the supply chain. When engaging in the sale of products or services, VAT becomes applicable. Businesses are required to register for VAT when their revenue surpasses a government-established threshold.

A Permanent Account Number (PAN) is an exclusive identifier that is allocated to entities, enterprises, and individuals for the purpose of monitoring financial transactions and guaranteeing adherence to tax regulations. For tax purposes, PAN is administered to individuals, businesses, and entities. PAN, which is issued and managed by the Inland Revenue Department (IRD) of Nepal, mandates that all entities and individuals engage in financial transactions with a valid PAN. Prior to conducting taxable activities, opening bank accounts, or engaging in financial transactions, individuals and entities are required to obtain a PAN.

3. Criteria for VAT in Nepal

In the case of businesses that solely deal in tangible products, the imposition of VAT occurs when their yearly revenue surpasses Rs. 50 lakhs. Conversely, service-oriented businesses become liable for value-added tax (VAT) obligations once their yearly revenue exceeds Rs. 20 lakhs. The VAT threshold for entities engaged in both the provision of products and services is an annual turnover surpassing Rs. 20 lakhs.

4. Procedure for VAT Registration in Nepal

4.1 Submission of Application

In order to initiate a transaction, an individual must submit a completed application for registration to the Tax Officer in the format specified. Certain transactions or the declaration of taxable products or services necessitate the filing of a registration application within thirty days of the imposition of tax or the initiation of the transaction, respectively.

4.2 Authorization by the Tax Officer

Individuals who have submitted applications will be registered by the Tax Officer, who will then issue a registration certificate bearing a registration number in accordance with the specified time period.

4.3 Display of Registration Certificate

At their principal location of transaction, registered persons are required to prominently exhibit the registration certificate. A copy of the certificate, which has been attested by a Tax Officer, must be prominently displayed at each location if there are multiple locations.

4.4 Application of Registration Number

For all transactions involving value-added tax, excise, customs duty, and other prescribed transactions, registered persons are required to use their registration number. It is mandatory for registered individuals to promptly notify the Tax Officer of any modifications made to the information submitted during the registration application process, within a period of fifteen days.

4.5 Provisions Particular to Joint and Temporary Ventures

Temporary registration is permitted under specific circumstances, including during exhibitions, festivals, and analogous occasions. In order to participate in taxable transactions, joint ventures are required to submit a joint venture registration application to the Tax Officer and comply with particular regulations.

5. VAT Rate of Nepal

Although such adjustments are specified to be zero for certain goods, the tax rate to be levied for the added value is required to be a single rate of thirteen percent.

6. Compliance with VAT in Nepal

Compliance with the VAT Act necessitates the periodic submission of VAT returns, which are generally due monthly or quarterly, contingent upon the enterprise’s turnover. It is mandatory for registered entities to uphold comprehensive records of their transactions, encompassing purchases and sales, and to generate tax invoices. Certain products and services are eligible for exemptions from tax, and the government has established taxable transactions.

7. Cancellation of Registration

The Tax Officer may revoke the registration of a registered individual or business entity under the following conditions:

(a) In the context of body corporates, closure, sale, transfer, or cessation of existence of the body corporate

(b) Ownership of an individual

(c) Dissolution of a partnership firm or demise of a partner

(d) Cessation of taxable transactions by a registered person

(e) Non-compliance with the taxpayer’s obligation to file returns for a consecutive twelve-month period

8. Conclusion

Value Added Tax (VAT) is a consumption tax that is levied on the ultimate sale of products and services in Nepal. Businesses are obligated to collect and remit value-added tax (VAT) to the government, which is imposed gradually at each stage of production and distribution. The Value Added Tax (VAT) regulations vary according to annual revenues, with thresholds of Rs. 50 lakhs for goods, Rs. 20 lakhs for services, and Rs. 20 lakhs for entities engaged in both services and goods. The registration procedure consists of application submission, Tax Officer approval, and the presentation of registration certificates. With exemptions for specific products, the standard VAT rate is 13%. 


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