VAT Return Process in Nepal
Value Added Tax (VAT) is a tax imposed on the value added to goods and services. In Nepal, businesses registered under VAT must comply with the tax laws and regulations set by the Inland Revenue Department (IRD). Here's an overview of the VAT return process, relevant laws, and penalties for non-compliance.
- VAT Return Process
Step 1: Collect VAT on Sales
Businesses must collect VAT from customers on the sale of goods and services at the applicable rate, which is generally 13% in Nepal.
VAT should be charged on the invoice and recorded properly in the books of accounts.
Step 2: Maintain Proper Records
Maintain proper records of all sales and purchases, including invoices, credit notes, and other relevant documents.
Businesses must issue VAT invoices for each taxable sale and maintain a Purchase Book and a Sales Book for all transactions.
Step 3: Calculate VAT Payable or Refundable
VAT Payable = Output VAT (VAT collected on sales) - Input VAT (VAT paid on purchases)
If the output VAT exceeds the input VAT, the difference is the VAT payable to the government. If the input VAT is higher, the business may carry forward the excess amount or apply for a refund.
Step 4: File the VAT Return
VAT returns must be filed monthly or quarterly (depending on the nature of the business and tax regulations).
The VAT return form can be filed online through the Inland Revenue Department’s Taxpayer Portal or submitted manually at the concerned tax office.
Step 5: Pay the VAT Liability
After filing the return, the business must pay the VAT amount due to the tax office within the specified deadline.
Payment can be made through banks authorized by the IRD or using digital platforms as provided by the tax authority.
- Relevant Laws and Regulations
Value Added Tax Act, 2052 (1996): The primary law governing VAT in Nepal, detailing the registration, calculation, filing, and payment procedures.
VAT Rules, 2053 (1997): The rules provide detailed procedures and requirements for businesses registered under VAT.
Taxpayer's Responsibility: Every VAT-registered person must file accurate returns and make payments within the stipulated time.
Fines and Penalties for Non-Compliance
Late Filing of VAT Return:
A fine of 0.05% of the monthly turnover or NPR 1,000 (whichever is higher) is imposed for failing to submit the VAT return on time.
- Late Payment of VAT:
Interest of 15% per annum (calculated on a daily basis) is charged for late payment of VAT.
Additionally, a penalty of 10% of the VAT amount due may be imposed for failing to pay VAT within the deadline.
- Failure to Issue VAT Invoice:
A penalty of NPR 10,000 per invoice can be imposed for not issuing a proper VAT invoice as required by law.
Repeated offenses may result in more severe consequences, including business closure.
- False or Fraudulent Returns:
If a business is found guilty of submitting false VAT returns, a penalty of up to 100% of the underreported tax may be imposed, in addition to the tax liability.
Legal action, including imprisonment, may also be pursued for serious cases of tax evasion.
- Failure to Register for VAT:
Businesses that are required to register for VAT but fail to do so may be fined up to NPR 50,000 and are liable to pay the tax due along with interest and penalties.
Summary
Complying with the VAT regulations in Nepal involves timely filing of VAT returns, accurate record-keeping, and proper calculation of VAT liability. Businesses must be aware of the laws under the Value Added Tax Act, 2052 and ensure compliance to avoid fines, interest charges, and legal consequences.
