BRS Neupane & Co.

VAT Act 2052

1. Introduction:

Value Added Tax (VAT) is a major source of indirect taxes. It is an improved version of sales taxes. It is a tax imposed on value addition on goods & services made by business entities at the successive stages of production & distribution.
2. Coverage of VAT (Sec.5):

Vat covers the following transaction of goods & services: a) Transaction between person within Nepal (inland) b) Transaction from outside Nepal to inside Nepal (import) c) Transaction from inside Nepal to outside Nepal (export) But, exemption of VAT is provided on transaction of goods & services which are set forth in schedule 1 of the VAT act. Schedule 1 of the VAT act is an inclusive negative list of goods & services that are exempted from VAT, which means no VAT.
3. Registration:

Conditions for VAT registration are as below:

a) Conditions for compulsory registration (Rule 7):

i. In case any person whose annual taxable transaction shall excess 2 million rupees. Transaction means Purchase or sales whichever is higher. ii. In case any person who has conduct their business in a metropolis, sub metropolis or a municipality, and is dealing in hardware,sanitary,furniture&fixture,furnishing,automobiles,ele ctronics, & marbles.
b) Proxy conditions for compulsory registration:

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At the time of the inspection by a tax officer the stock of the taxable goods exceeds the limit prescribed by IRD based on the nature of the goods or it is found that the person has sold taxable goods worth Rs.200, 000 or more in any month. ii. In case a persons telephone expenses & house rent exceeds Rs.100,000 during a year, or iii. In case the business place of a person is situated in any market specified by IRD or it has occupied an area exceeding as specified by IRD for different roads areas.
i. c) Voluntary registration(sec 9):

Any person engaged in taxable transaction & there are no conditions applicable on it for compulsory registration as per sec 10 & rules 6 & 7, it may apply for voluntary registration. It has to file an application for registration after completing the process of Sec 10.
d) Temporary registration (sec 10 kha):

First time introduced by finance Act, 2064; Any unregistered person, who conducts taxable transactions of goods or services at fair, exhibition, etc either as an organizer or as a participant, before participating in the fair or exhibition, has to obtain a temporary registration number.
4. Cancellation of registration (sec 11):

Any registered person who desires not to continue his taxable business due to any reason may apply for cancellation of the registration for VAT purpose. Section 11 has specified certain conditions under which the VAT registration once obtained may be cancelled. IRO may cancel the VAT registration under any of the following conditions: i. In the case of an incorporate body, if the incorporate body is closed down, sold or transfer or if it otherwise ceases to exist; ii. In the case of an individual ownership if the owner dies; iii. In the case of partnership firm if it is dissolved or any of the partners expires;

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iv. If a registered person ceases to be engaged in taxable transactions; v. If a person is registered in error; vi. In case the registered person submits zero tax returns continuously for 1 year or it has not submitted tax return till the date; vii. If the registered person acquires the registration voluntarily, he shall not be allowed for cancellation of registration before the expiry of one year from the date of registration. After such period, it may apply for cancellation of the registration.
5. Use of registration number {sec10 (6)}:

A registered person shall have to use its registration number for all transaction related to VAT, excise duty and custom duty and to transaction as prescribed as well. According to Rule13, the registration number shall also be used for: a) Documents relating to income tax; b) Documents relating to import & export; c) Documents relating loan application for commercial or industrial purpose from any bank or finance company for an amount of Rs.1 lakh or more.
6. Collection of Tax:

VAT is collected by custom offices and by registered taxpayers in Nepal. In case of import, the respective custom office collects the VAT on the taxable value calculated as per this Act. Each registered person has to collect tax on its selling price. Unregistered persons are not allowed to collect tax. According to Sec.15, Unregistered person are not allowed to collect VAT, but Government of Nepal & local authorities are allowed to collect tax even these are unregistered persons.

7. A) Tax Credit or Tax Set-off (Section 17):

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VAT paid on purchase is allowed to set-off from the VAT collected. Subject to the provision set by this Act & Rules there under. The formula is; Suppose the tax period is Shrawan 2066: Tax collected during the month of Shawna 2066 on supplies made Less: tax paid during the month on purchases =If the result is positive, it is tax payable for the month and if negative it is tax receivable or available for set-off in coming month. B) VAT incurred shall not be allowed for set-off: VAT paid on certain administrative expenses incurred shall not be allowed for set-off. These expenses are as follows; i. ii. iii. iv. Beverage Alcohol or alcohol-mixed beverage such as liquor & beers Light petroleum (petrol) for vehicles, and Entertainment expenses.

C) Partial tax set-off allowed on certain capital goods: According to sec 17, VAT paid on certain capital goods which could be used for official as well as personal use, shall be allowed partially for set-off. For example Vehicle: 40% of the VAT paid on such vehicles is only allowed for set-off Rest off the 60% of the VAT paid shall not be allowed for set-off but could be added to the cost of the vehicle. Where Vehicle means; i. With three or more wheels ii. Used on a road iii. The carriage of passengers.
8. Rate of Tax, Tax Exemption, Zero VAT concept, Tax Invoice

& Tax Account: 8.1 Rates of Vat:

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In Nepal, the single rate system of VAT is imposed. Previously the rate was 10% but later on the rate is increase to 13%. Those goods & services included in list 1 of the Act are exempted from VAT. But the transaction of the goods & services included in Schedule 2 of the Act shall be charged with zero rates. In both the conditions of no VAT & zero VAT, VAT is not collected. But there are fundamental differences in the concept behind each of them. In case of no VAT, input tax is not deductible or shall not be refunded, In case of zero VAT, the input tax or tax paid on purchase is creditable or refundable. 8.2 Tax exemption: 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: 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. (f) Air Transport. (g) Educational and cultural goods and services such as books and other printed materials, radio and television transmissions, artistic goods, cultural programs, nonprofessional 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
(a)

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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.
8.3

Zero VAT concept: Zero VAT concepts include Export of goods & services from Nepal as per schedule 2.
8.4

Tax Invoice:

Each registered person has to issue tax invoice while supplying any goods or services to the buyer. Tax invoice should be issued even the person is selling tax exempted goods or services by indicating that the goods or services are tax exempted. Tax invoice shall be in triplicate. The first copy goes to the buyer; the second copy is to be kept in a file and shall be produced to tax officers as and when required by him. The 3rd copy of the invoice is for the record for the registered person. The tax invoices should have consecutive serial number printed on it. a. Tax invoice as per Annexure 5: This is the general category of tax invoice may be issued by any type of registered person unless specified otherwise. This tax invoice is issued if the taxable value of the goods or services is determined by the taxpayer and VAT is collected on the amount. Generally, the invoice is prepared as under: Selling price of the goods or services Less: any discount =Net amt for VAT Add: VAT @ 13% on the amount =Total amount with VAT

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b. Tax invoice as per Annexure 5(kha): IRD issue a notice publically or to any specified person to publish the retail price of specified goods for specified period. In such a case the person should not sell or transfer such goods without publishing the retail price of the specified goods. The invoice shall be raised as under: Consumer price of the goods Add: VAT on the value Less: Discount or commissions =Net value of the invoice

Till date the following items are included in such lists: 1. Liquors 2. Cigarette 3. Thread by thread industry
8.5

VAT Account:

A taxpayer shall keep an up-to-date account of his transaction of the tax period applicable for him and such accounts wherever placed shall be made available for inspection to a tax officer upon his request. The accounts kept by a taxpayer shall also include: Date of transaction; Value of each transaction; The registration number of the buyer, in case it is a registered person; and Other matters as prescribed. A registered person shall use, for the purpose of keeping accounts, the purchase book and sales book certified by the concerned tax officer. Every taxpayer shall preserve the accounts of transactions for a period of up to six years.

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