Value Added Tax (VAT) is a type of indirect tax that is levied on goods at every stage of its production during which value is added to it, from its initial production to the point of sale. VAT is based on consumption rather than income and is charged equally on every purchase. It is a modern tax system that is imposed to improve the collection of taxes, increase efficiency and lessen tax evasion.
Responsibility of collection of VAT
-In the case of Supply of goods/services within Nepal: Inland Revenue Department (IRD) is responsible for collecting VAT on the supply of goods and services within Nepal.
-In case of export of goods/services: The customs office is responsible for collecting VAT on the export of goods/services.
-In case of Import of Supply of goods/services: The customs office is responsible for collecting VAT on import of supply of goods/services.
Place of Supply:
-In case of movable goods: Where such goods are sold
-In case of immovable goods: Where such goods are located
-In case of imported or exported goods: At a Custom Point
-In case of Self- consumption: Where the producer/vendor resides
-In case of service: Where the benefit is received
Reverse Charge :
-According to sec 8(2) any person (registered or not under VAT Act) in Nepal receiving services from a person outside Nepal needs to pay VAT for services received.
-According to sec 8(3) any person (registered or not under VAT) in Nepal engaged in commercial construction of value more than NPR. 50 lacs performs such works/ purchases from the person who is not registered under VAT, need to pay VAT on the construction cost if the purchases are not made through the person who is registered under VAT.
Due date for submission of VAT Return and Amount: A registered person is required to submit the return along with the amount within the 25th of the subsequent month after the completion of the tax period.
Exempt Sectors as per schedule 1 of VAT act :
Group 1: Basic Agricultural Products
Group 2: Goods of Basic needs
Group 3: Livestock and Livestock products
Group 4: Agricultural Goods
Group 5: Medival treatmet and similar health services
Group 6: Education
Group 7: Books, Newspaper and printings
Group 8: Artisitc and sculpturing services
Group 9: Transportation : passengers or goods
Group 10: Professional services
Group 11: Others goods and services
Group 12: Land and building
Group 13: Betting, casino lottery
Zero Rated Transaction:
-Export of goods
- Services provided to any person outside Nepal
- Diplomatic Supply
- Projects exempted under any treaty or agreement effective on the date of enactment of VAT act
- Supply to industries in Special Economic Zone
- Power Sector Supply
- No VAT on scooter user by incaptiacitated person
- Refund of VAT paid on Raw Material
Fines and Penalties:
-Rs. 10,000 per tax period in case of failure to register for VAT as mentioned in Section 5 (B)
-In case a taxpayer fails to submit VAT Return within the due date: Higher of Rs.1,000 or 0.05% per day of applicable VAT.
-In case a taxpayer fails to submit VAT Amount within due date: 10%per annum
Major highlights from Finance Ordinance 2021/22 relating to VAT:
-The rate under VAT Act remains unchanged at 13%
-VAT payment above Rs. 10 lacs should be made compulsorily through cheque, draft or electronically.
-Threshold limit of Turnover as prescribed by IRD to compulsory registration in VAT:-
For taxable Goods: The turnover of the last 12 months should exceed Rs. 50 lacs
For taxable service: The turnover of the last 12 months should exceed Rs. 20 lacs.
For taxable service as well as goods: The turnover of the last 12 months should exceed Rs.20 lacs.
For import: NPR 10,000 ( conditions applied)
-Compulsory Registration requirement in VAT on the basis of the nature of businesses has been removed.
-Provision for certification of Purchase Books and Sales Books by the tax officer has been removed.
-Input VAT Credit on purchase of Diesel & LP Gas shall be allowed. Additionally, Petrol purchased for any purpose other than for vehicle usage shall also be eligible for a claim.
-Under Section 16(3), any registered or unregistered person with the transaction of taxable goods or services shall keep a purchase book and sales book for every financial year verified by themselves. Tax officers can inspect such books at any time.
-Input tax credit can be availed in case of expired goods as well.
-The formats for VAT Purchase & Sales Registers have been revised.
** To be continued at VAT amendments under Downloads.
