VAT Recovery
1
1.
VAT payment or VAT recovery will have two different stages of VAT recovery
▪
▪
VAT recovery on supply - by Registered person from buyer/receiver (Sec. 8 (1), Sec.5)
at the point of Supply of Goods or Services
VAT recovery from supplier - by tax officer after Supply (self-assessment or
reassessment) including reverse-charging VAT
1.1
2.
VAT Recovery
Recovery on supply
Where to levy VAT (Sec. 5) – VAT is a territorial jurisdictional tax on the supply of Goods
or Services, that:
▪
▪
▪
Delivered within Nepal (either by Nepali or foreigners)
Import into Nepal (either by Nepali or foreigners)
Export from Nepal (either by Nepali or foreigners)
Therefore, import, each supply within domestic supply-chain and export again will be
taxable. VAT credit facility will neutralize the cascading effect.
3.
What is supply (Sec. 2) – for Goods or Services, either
▪
4.
5.
6.
Factual economic event
o Sales, where consideration will be in cash (CBD, COD or credit)
o Exchange or barter, where consideration will be non-cash (goods or service)
o Transfer – no -consideration (non-market transaction)
▪ Permission for [effective due to earliest concept of timing of supply]
o Sales, followed by either issuance of tax-invoice or consideration
o Exchange or barter, followed by either issuance of tax-invoice or consideration
▪ Contract for [effective due to earliest concept of timing of supply]
o Sales, followed by either issuance of tax-invoice or consideration
o Exchange or barter, followed by either issuance of tax-invoice or consideration
What is Goods for VAT purpose (Sec. 2) – All movable or immovable items, includes:
▪ trading stock
▪ used-assets, machinery, garbage, debris, kabàds, vehicles, furniture, etc.
▪ land, building, road, trees etc.
What is Service for VAT purpose (Sec. 2) – All items of supply other than goods is service
for VAT purpose.
When to recover VAT on supply (timing of supply, Sec. 6) – Only for the purpose of VAT
recovery by Registered person, the timing (not the date for) of Supply will be earliest of:
▪
▪
Invoicing time (when tax-invoice has written)
Delivery time (when the goods handed over or received by the recipient; service
completed, including installment due date and agreed milestones);
▪ Consideration time (cash or non-cash either consideration)
Ex - 1. When is 'delivery time' – point of time for transferring risk associated with the goods
▪ For goods
o Ex-factory (EXW) – handed-over at the seller's premises
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VAT Recovery
▪
– to the buyer itself (as general purchases)
– the first transporter (appointed by buyer or appointed by seller on the request
of the buyer)
– the buyer's transporter if agreed by the buyer as independent transport
o Door to door (CIP) – handed-over at the buyer's agreed premises
o Handed over at the other places as agreed in the sales agreement
For service
o General-rule – Completion date of service
o Exceptional-rule – earliest of installment or milestone due date or payment
Ex - 2. Agreement for barter and timing of Supply
S co. and E co. entered into a barter agreement on Magh 27; S co. will give 20 tables
having market price Rs.5,000 each and E co. will give 30 computer tables on Chaitra 6.
According to exchange-agreement, S co. delivered 20 tables on Falgun 2 as per the
agreement. Comments the impact in both companies.
Date of barter-agreement is Magh 27. In this date, no VAT impact on both parties.
On Falgun 2, S co. delivers tables worth Rs. 100,000 to E co. The timing (date) of supply,
as per Sec. 6 is:
Earliest of:
Invoicing time
Delivery time
Consideration time
Earliest date
S co. (20 tables)
Not invoiced yet
Falgun 2
Not received yet
Falgun 2
E co. (30 com. tables)
Not invoiced yet
Not delivered yet
Falgun 2
Falgun 2
Therefore, for the VAT purpose (not for income tax or financial accounting or contract
law), S co. deemed as it supplies 20 tables at Rs. 100,000 on Falgun 2. Similarly, E co.
received its consideration against the agreement for supply of 20 computer tables on
Falgun 2. In this case also, E co. deemed as it supplies 30 computer tables (even they
may not be commissioned in the factory too) at Rs. 100,000 on Falgun 2.
1.2
7.
Taxable-amount
Taxable-amount is the tax-base for recovery on the Supply of goods or service. There are
five scenarios on determination of Taxable-amount.
▪
Generic rule is Market price of supplied goods or service and supply-associated
burdens or benefits to the buyer (Sec. 12)
o Market price of goods or services
o Amount recovered by the supplier on the supply-associated services, e.g.
– Transportation, if any – own carrier or third-party carrier through supplier
– Laboratory cost, if any – own lab or third-party lab through supplier
– Other cost, if any – own or third-party cost through supplier
o Supply-associated taxes and duties except VAT itself (excise-duty, customsduty, telecom-duty, environment duty, health tax, etc.)
o Supply-associated benefits in form of quantity discount or trade discount (but
not payment-associated cash-discount) will be reduced from taxable amount.
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VAT Recovery
Ex - 3. Ideal cost for determination of taxable amount as general
Items as example
Quantity Rate
Amount
(mkt. price)
Rs.
Rs.100
200,000
Certifications
1,000
1,000
Lab. test
2,000
2,000
Packaging
1,000
1,000
Transportation
10,000
10,000
Other (self or 3rd party's)
1,000
1,000
Goods
(specification, Units
2100
dimension,
size,
type, Less: qty discount (100)
brand, model no.)
2000
Service (details)
Supply-associated services:
Supply-associated taxes:
Excise-duty
2,000
Other duties (Federal,
provincial or local)
5,000
Sub-total
220,000
Less: trade-discount
(say 10%)
20,000
Taxable-amount
200,000
VAT @ 13%
26,000
Total
226,000
▪
Market price or higher than market price (Sec. 12A) – in the case of sale of wood
either from national forest, community forest or private forest will be valued at
higher of wood-royalty or selling price.
Ex - 4. taxable amount for log-wood may be higher than market price
Seller
Royalty
Selling
price
National forest to anyone
10,00,000
11,00,000 11,00,000
National forest to anyone
10,00,000
9,00,000
Community forest to members
10,00,000
11,00,000 exempt
community forest to anyone
10,00,000
9,00,000
10,00,000
Community forest to members
10,00,000
9,00,000
exempt
community forest to anyone
10,00,000
11,00,000 11,00,000
▪
Taxable
amount
10,00,000
Second-hand goods dealer (Rule 33) obtaining permission from tax-officer and
keeping individual record of each goods under sale, the value will be the difference
between selling price before Vat and cost including repairs with VAT.
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VAT Recovery
▪
▪
In the case of reverse-charging VAT on importation of service (Sec. 8(2), the
conversion rate for the foreign currency will be the selling rate on earliest of
payment date or service completion date.
In the case of reverse-charging VAT on business construction more than Rs.50 lakh
(Sec. 8(3), the VAT unpaid cost (excluding interest-during-construction and design
related legal cost) is the value of taxable amount.
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VAT Registration
2
VAT
Registration
8.
Reasons for registration:
9.
a. VAT is indirect tax; i.e. supplier recovers VAT at single rate of 13% of taxable amount
of supply of goods or services from the buyer. According to Sec. 8(1), only registered
person recovers VAT from its buyer.
b. There is compulsion for registration for a supplier crossing threshold for VAT. To avoid
the high penalty, supplier must apply for registration when crossing the given
threshold.
c. Registration has some benefits to the suppliers:
• Registered persons obtain the VAT credit on their purchases, it reduces the cost
of input.
• Certain buyers [see below] purchases from registered person only.
• Few sectors of business (service, transportation), withholding tax will be lower for
registered person.
Registration threshold
a. In case of goods supplier, turnover of Rs.50 lakh in last 12-months period. For this
case, turnover is higher of VAT-attractive purchase or sales and 12-months will be
calendar months.
Ex - 5.
Example:
Total purchase
Total sales
Turnover for registration
purpose
Rs. 60 Lakh
Rs. 70 Lakh
Rs. 56 Lakh
(80% VAT attractive)
(80% VAT attractive)
Rs. 60 Lakh
Rs. 60 Lakh
(70% VAT attractive)
(80% VAT attractive)
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Rs. 48 Lakh
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VAT Registration
Ex - 6.
Ex.2
Month
Turnover (Lakh)
Turnover in last 12 months
Chaitra, 2075
5
0
Baisakh, 2076
4
5
Jestha, 2076
4
9
Ashadh, 2076
3
13
Srawan - Magh
32
16
Falgun, 2076
2
48
Chaitra, 2076
3
50
Baisakh, 2077
5
48
Jesth, 2077
6
49
Ashadh
51
b. In case of service supplier, turnover of Rs.20 lakh in last 12-months period.
c. In case of service and goods supplier, turnover of Rs.20 lakh in last 12-months period.
d. In case of business import, Rs. 10 thousand at a time. [registration before import]
e. In case of business loan, Rs. 10 lakh at a time. [registration before application of loan]
f. If the value of stock is higher than Rs.50 lakh at any point of time. In case of common
godown, whole goods will be added to the person. Example in presentation.
Common store
Rs. 20 lakh
Rs. 15 lakh
Shop 1
Shop 2
Front store
Front store
Rs. 20 lakh
Rs. 12 lakh
10.
Types of registration
11.
a. Compulsory registration: application for registration on the basis of VAT-registration
threshold.
b. Voluntary registration: application for registration when the person desires so.
c. Temporary registration: registration of short-term business (exhibition or jointventure).
Timing of registration
12.
a. Compulsory registration: application date within 30-days from the date of crossing
the threshold. For the exceptional date for application, see above.
b. Voluntary registration: application for registration when the person desires so.
c. Temporary registration: before starting of short-term business (exhibition or jointventure).
Non-threshold business
12.1. No-threshold allover Nepal: [prepare the list]
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VAT Registration
12.2. No-threshold in metro and sub-metro: [prepare the list]
13.
Registration procedure/steps
14.
a. Application from the Person in the prescribed format along with prescribed legal
document.
b. Tax officer verifies the application and the documents including business-line. Tax
officer decides the registration [or not required for registration].
c. Tax officer issues the VAT registration certificate. The certificate will be Permanent
Account Number certificate with VAT registration date. Then the Person will be
named as Registered-person.
d. If any changes in the information provided at the point of application changes,
registered person need to inform to tax officer within 15-days of such changes.
e. See the Format of Registration Certificate.
VAT credit at the point of registration:
a. Registered person obtains the VAT credit on the VAT paid on Stock-in-hand
purchased within last 12-months on the date of registration [rationale is
horizontal equity at the transition toward registration].
b. VAT paid on items other than trading stock, no credit is allowed. [therefore,
almost business registers before initiation of their business (why?)].
c. On sale of these stock, registered person needs to collect VAT as usual sales. In
case, purchase bill fails to comply credit requirement, selling VAT may create
cascading-effect of VAT.
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VAT Registration
2.1 What after registration
15.
Registered persons need to comply some additional legal provision on its registration.
Some of the compliances are applicable to all business irrespective of registration. Noncompliance is subject to penalty under Sec. 29(1).
a. Display (by both registered person and un-registered person)
i.
Display of registration certificate, tax officer certified copies in each
branch and commercial departments.
ii.
Display of tax-plate including each branch and commercial departments.
b. Issuing tax invoice
c. VAT Accounting and records
d. Recovery of VAT
e. VAT Reporting/self-assessment
f. VAT payment
16.
Display of registration certificate
Display at main business
place
Registration
certificate
Branch
Tax-officer certified
copies
Tax-plate
Registered
person
requires to
register its
branches to
tax-officer.
16.1. Each branch or commercial departments must be registered to tax officer. Tax officer
issues certified copy of registration certificate.
16.2. Commercial departments are those departments which issues separate tax-invoice to its
departmental customers. Hotels are example.
16.3. In the case of loss of registration certificate, duplicate from tax officer upon application
with fee Rs. 100.
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VAT Registration
2.2 Tax-plate
17.
It is a 30cm × 10 cm normal plate. Name of person need to write in the upper part and
PAN to be written in the lower part.
17.1. It must be kept in place of first sight of customer business place.
17.2. Tax-plate has colored system as:
Registered person
FULL NAME HERE
PAN
Small vendor (VAT unregistered person dealing VAT FULL NAME HERE
attractive goods and services
PAN
Exempt only business
FULL NAME HERE
PAN
2.3 Purchase from registered person only
18.
Following buyers need to purchase from registered persons only:
a. Direct threshold
▪
Public entity [Federal, Provincial, Local-level, their undertakings] – goods
above Rs. 20,000 inclusive of VAT.
▪
Public entity [Federal, Provincial, Local-level, their undertakings,
registered institutions, registered person] – services and contracts above
Rs. 500,000 inclusive of VAT.
b. Indirect attraction
▪
Pharmaceutical Industries, diplomats and certain projects obtains VAT
refund, therefore, indirectly push toward purchase from registered
person only.
▪
Registered persons obtain VAT credit, therefore, indirectly push toward
purchase from registered person only.
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Tax invoices
3
Tax invoices
19.
Registered person requires to issue 'Tax-invoice' in all cases of supply- whether sale of
trading stock or other types of supply.
20.
Invoicing rule:
a. In the face of invoice, the phrase 'Tax-invoice' must be written.
b. First invoice of new fiscal year must start from 1.
c. Tax-invoice must be pre-printed.
d. Tax-invoice numbering must be either pre-printed or pre-stamped.
e. Tax-invoice must be issued sequentially. For the branches, head office must
maintain bill-control register.
f. Invoice must be triplicate except duplicate-only abbreviated tax invoice.
3.1 Types of Tax-invoices
21.
Format of Tax-invoice (see the formats)
a. General Tax-invoice [VAT is separately levied on taxable value]
b. General Insurance Tax-invoice [VAT is separately levied on taxable value]
c. Abbreviated Tax-invoice
d. Consumer level Tax-invoice [for notified-goods or rate-published items sold to
unregistered person]
22.
Abbreviated Tax-invoice: Form of tax-invoice issued by permitted retailer up to Rs. 10,000
inclusive of VAT is abbreviated tax-invoice.
a. Retailer's invoice to the retail customers.
b. Need to apply to the tax officer and may permit to issue it.
c. Retailer obtaining permission, may use abbreviated tax-invoice to the sales up to
Rs. 10,000 inclusive of VAT.
d. In case of buyer seek tax-invoice instead of abbreviated tax-invoice, retailer must
issue tax-invoice.
e. Retailer need to segregate VAT included in the abbreviated tax invoice using taxformula.
f. Price tag, menu-price, shelf-price must be VAT inclusive in following cases u/R 14B
– Industrial exhibition, sales outlet, hotel, restaurant, bar.
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Tax invoices
ABC firm
PAN 303030306
Abbreviated tax-invoice
Date: 2077/03/12
SN
Particulars
Quantity
Rate
Amount Rs.
1.
Oil-dhara
3 Lt
125
750
2.
Sugar
5 Kg
80
400
3.
Tokla Tea
½ Kg
300
150
Total
1,300
What is special in above bill?
23.
Tax-formula
a. Formula prescribe in VAT rule to segregate VAT on the abbreviated tax-invoice is
tax-formula.
b. The formula is:
𝑇𝑎𝑥 =
𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑖𝑛𝑣𝑜𝑖𝑐𝑒 × 𝑉𝐴𝑇 𝑟𝑎𝑡𝑒
100 + 𝑉𝐴𝑇 𝑟𝑎𝑡𝑒
Example
24.
Amount of invoice
Tax-formula
VAT
1300
1300 × 13
100 + 13
149.56
2000
2000 × 13
100 + 13
230.08
5000
5000 × 13
100 + 13
575.22
10000
10000 × 13
100 + 13
1150.44
Notified goods:
a. The goods notified under Sec. 14(6) by Director General of Inland Revenue
Department for publication of selling price [mainly negative-externalities as
controlled items].
b. Liquor, cigarette and recharge chard for mobile are notified goods.
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Tax invoices
c. Notified goods cannot be sold without publishing the price.
Example [who is the owner?]
Ex-factory price
Rs. 20,000
Distributor's price
Rs. 20,400
Whole-seller's price
Rs. 21,000
Retail price/consumer price
Rs. 22,000
▪
If factory sells to registered person, selling price will be Rs. 20,000.
▪
If factory sells to unregistered person, selling price for the VAT purpose
will be Rs. 22,000 as taxable value.
▪
If whole-seller sells to unregistered person, selling price for the VAT
purpose will be Rs. 22,000 as taxable value.
d. The phrase 'sell to unregistered person' has different meaning than its usual
meaning. Registered-person not having business of notified goods or purchasing
as customer is treated as 'unregistered person' for this purpose.
Example
Lamsal Ltd. is registered person selling furniture. Rana Ltd. produces and sells
liquor at the above published selling price. The pricing for VAT purpose will be Rs.
22,000.
Consumer level Tax Invoice
Liquor
1 cartoon
Rs. 22,000
Rs. 22,000
Taxable amount
Rs. 22,000
Add: VAT @ 13%
Rs. 2,860
Total
Rs. 24,860
Less: discount
Rs. 2,000
Net amount
Rs. 22,860
What is special in above bill?
25.
Rate-published items- Registered person can publish its selling price suo-motto basis. In
such cases, billing rule will be same as of Notified goods.
26.
Foreign currency tax-invoice- NRB exchange rate.
27.
Computerized billing:
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Tax invoices
▪
Registered person may apply to the tax officer for computerized billing. Computerized
billing will have three components- the hardware, the software and the permission
from tax officer.
▪
Computerized billing is of two types:
o Certified hardware and software, where taxpayer maintains its database.
o Certified hardware and software, where taxpayer maintains its database with the
real-time communication with Central Billing Monitoring System (CBMS)
maintained by IRD. In this case, the interface must be approved by the tax officer
under Sec. 14A. Taxpayer having annual turnover more than Rs.35 crore should
use CBMS billing system mandatorily.
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Tax invoices
3.2 Debit Note or Credit Note
28.
Tax-invoice must be issued sequentially. What will be the impact if the goods were
returned or pricing were renegotiated or mistakes were detected after issuance of
invoices? It is addressed through an instrument named as Debit Note or Credit Note.
29.
Instrument issued by a person debiting to another person without any payment is Debit
Note. Similarly, the instrument issued by a party crediting another party of the
transaction without any payment is Credit Note.
30.
Debit or Credit Note will be used in the case of any adjustment of issued tax-invoice:
▪
Goods return
▪
Price renegotiation
▪
Correction of mistakes in the issued tax-invoice
31.
Debit or credit note is to be issue in adjustment of each invoice.
32.
The format of Credit Note is as follows:
Registered Person
PAN
Debit/Credit Note
Dr/Cr Note no.
Date of Issue:
Name of Party: … … … … PAN:
Referral Tax-invoice no. …..
Particulars of
goods or services
Reason for
Debit/credit
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Debit/credit
amount
Debit/Credit tax
amount
14
VAT records
4
33.
VAT records
Following are major VAT records:
Purchase-based
Supply-based
Purchase tax-invoices
Sales tax-invoices
Debit note
Credit note
Purchase book
Sales book
Debit-note book
Credit-note book
Import document
Export document
Stock ledger including samples goods and
free goods separately
34.
Certification rule of VAT records
34.1. VAT Purchase-book and Sales-book need to be certified from the tax-officer.
▪
Within 1st tax-period of fiscal year.
▪
If fails, at the time of inspection or at the time of assessment by tax-officer.
▪
Computerized billing interfaced with CBMS need not be certified yearly.
34.2. Remaining document are self-certified documents.
35.
Recording rule:
Retention period of documents
Six-years
Language
Nepali or English
Format
Manual or digital (in original format)
Place of document
Nepal
Who to maintain
Taxpayer, in case of business transfertransferee under Sec. 5A
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Compliance by Unregistered person
5
Compliance by
Unregistered person
36.
Unregistered person needs to comply VAT law.
36.1. Following are minimum compliance requirement:
▪
Display of PAN registration certificate
▪
Display of tax-plate
▪
Issuance of INVOICE
▪
Under-invoicing clause
▪
Self-certified purchase book and sales book
▪
Stock record
▪
Reverse-charging VAT in the case of importation of services and business
construction more than Rs. 50 lakh.
36.2. Following unregistered person requires to collect VAT without registration:
▪
Log-wood sellers u/s 12.
▪
Public entities (federal, provincial or local-level) – sale of goods u/s 15(3)
▪
International institutions – sale of goods u/s 15(3)
▪
Public enterprises (PEs) mainly dealing VAT-exempt supply - selling VAT attractive
goods or services u/s 15(3)
▪
Reverse-charging of VAT u/s 8(2) and 8(3).
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VAT Assessment
6
VAT Assessment
Tax-assessment
Self-assessment
Reassessment
Special assessment
(filing VAT return)
(assessment by TO)
(jeopardy assessment)
1.
Assessment is the determination of amount of tax for a reporting period.
2.
Reporting period is Tax-period: monthly or trimester [four-months].
2.1.
Some cases, special tax-period as:
2.2.
3.
▪
Date of registration to tax-period end is 1st tax-period.
▪
From the 1st of tax-period to date of deregistration is last tax-period.
▪
From the 1st of tax-period to date of special event as defined in Sec. 22 is taxperiod.
▪
Exhibition period is tax period for temporary registration under Sec. 10A.
▪
Assessment of tax by the tax officer in the event of evasion – date of possession
under Sec. 23D.
▪
Date of assessment itself may be tax-period for penalties under Sec. 29.
Trimester [Four-months]:
▪
Bricks industries, newspaper including online, hotel, tourism, cinema hall,
transportation business (6 businesses).
▪
Srawan – Kartik, Manshir – Falgun, Chaitra – Ashadh.
Types of assessment [conditions, timing, procedures, impacts]:
▪
self-assessment – VAT reporting by taxpayer
▪
re-assessment /management audit – assessment by tax officer
▪
jeopardy-assessment – assessment by tax officer in the special cases.
VAT discussion paper during online sessions
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VAT Assessment
6.1 Self-assessment
4.
Self-assessment is the determination of own tax based on own transactions. Why it is
said as self-assessment, the reasons are: Purchase, production, sales, recording,
accounting, determination of tax, filing tax-return all the activities by taxpayer itself.
5.
For the self-assessment (filing VAT return),
a. Tax-period: monthly or trimester
b. Filing method: online submission or manual submission
c. Filing responsibility: taxpayer (see exceptions below)
d. Filing deadline:
6.
▪
within 25 days from end of tax period.
▪
For the taxpayers in the districts not having either IRO or TSO, may file within
15 days from end of tax period to District Treasury Comptroller's Office
(DTCO).
▪
Delay filing is subject to penalty u/s 29: Rs. 1000 or 0.05% of VAT payable perday, whichever is higher
Example: a. Hardware shop b. Bricks industry c. Liquor shop
Month
Purchase
Sales
Kartik
1200,000
1000,000
Manshir
1000,000
1200,000
Paush
900,000
1300,000
Magh
1100,000
1200,000
Falgun
700,000
900,000
We are discussing on Ashadh 21st.
7.
Tax payment:
a. Based on the self-assessment, the registered person needs to pay VAT. The
deadline for payment is same as filing deadline.
b. Delay payment is subject to:
▪
interest at 15% p.a. on month basis.
▪
additional duty at 10% p.a.
This additional duty may be waived by the DG upon request in written with
reasons and procedure as prescribed in Rule 35 – conditions beyond the
control [prepare the list].
Example: interest and additional duty on above example if payment date is
Ashadh 21st.
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VAT Assessment
8.
Exceptional self-assessment:
▪
assessment by successor or beneficiary [Rule 27]
▪
assessment by legal representatives [liquidator, trustee, etc.– Rule 27]
▪
joint-assessment in above cases [Rule 28]
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VAT Assessment
6.2 Reassessment
9.
Conditions for reassessment [prepare the list of conditions given under Sec.20(1)]
10.
Basis of reassessment [prepare the list of conditions given under Sec.20(2)]
11.
Timing of reassessment
a. Four year from later of i) filing due date or ii) filed date.
b. no time limit of four years, in case:
i. In case of tax-fraud,
ii. In case of reassessment due to court order.
Example
12.
Procedure for reassessment (seven -steps)
a. Risk-based selection
b. Notice for information and VAT records u/s 23
c. Submission of information and VAT records
d. Full-audit and full-audit report by tax officer
e. Preliminary assessment notice for clarification u/R29(1)
f. Reply with documents within 15-days u/R 29(2)
g. Final assessment order u/R 29(3).
13.
Conditions for reassessment – Sec. 20(1).
▪
▪
▪
▪
▪
non-filer,
incomplete return, erroneous return, fraudulent return;
Tax officer has a reason to believe that:
o amount of tax was understated or otherwise incorrect.
o under-invoicing.
o Supply within Group at partial-consideration.
Tax officer finds that:
o dealing business without Registration
o sales without issuing invoice.
o Tax recovered by unregistered Person
o Goods exit from use for VAT-attractive business
Reverse charging tax not paid on:
o Importation of service
o Business construction more than Rs. 50 lakh.
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VAT Assessment
6.3 Special assessment
14.
Section 22
15.
Conditions:
▪
Leaving Nepal [for long-time]
▪
Transferring assets and properties avoiding payment of tax
▪
Concealment of assets and properties avoiding payment of tax.
16.
Procedures: Notice and determination of tax
17.
Timing: immediate on knowledge to tax-officer
18.
Impacts: assessment of:
19.
▪
VAT on supply goods or services
▪
Potential VAT on potential supply of goods
Example
Jestha 1
Purchase
2000 Kg
Jestha 4
Sales
Rs. 1200
40 Kg
Jestha 25
Sales
Rs. 1200
160 Kg
Ashadh 4
Sales
Rs. 1200
200 Kg
Ashadh 9
Sales
Rs. 1200
100 Kg.
Ashadh 21, special assessment (jeopardy assessment)
VAT on supply of goods
500Kg × 1200 × 13% =
78,000.00
VAT on potential supply
1500Kg × 1200 × 13% =
234,000.00
312,000.00
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VAT Assessment
6.4 Tax-evasion
20.
Meaning of tax-compliance, tax-planning, tax-evasion
21.
Response to tax-evasion – Sec. 22A (reassessment), 23C (purchase of under-invoiced
goods) or Sec. 23D (possession and assessment).
22.
Reassessment of tax-evasion (Sec. 22A)
a. Conditions [unilateral tax-evasion, contractual tax-evasions)
b. Procedures [usual procedure of reassessment]
c. Impacts (recharacterization, derecognition)
23.
▪
Intentionally reduction of or arrangement for tax liability without knowledge of
another party is unilateral tax-evasion; example
▪
Intentionally reduction or arrangement for tax liability on the help of one or more
parties is contractual tax-evasion; example
Purchase of under-invoiced goods (Sec. 23C)
a. Conditions:
(i)
Remaining stock under-invoiced goods
(ii)
Tax officer decides for purchase at under-invoiced price
b. Procedures:
(i)
Usual reassessment for under-invoiced goods
(ii)
Decision of purchase for remaining stock
(iii)
Instruction to sell the goods at under-invoiced price
(iv)
Taxpayer sales goods and issues the tax-invoice, OR, if refused to do
so, tax-officer takes the possession on goods without invoicing. Upon
the written request, price will be paid at under-invoiced price.
(v)
Director General makes sale of possessed or purchased goods.
c. Impacts:
24.
(i)
For the sold - out goods – VAT recovered at market price
(ii)
For the stock – potential risk of VAT recovery minimized
(iii)
Taxpayer having under-invoicing penalized.
Immediate possession and assessment (Sec. 23D)
a. Conditions:
(i)
If the tax-officer finds that any person, firm, company or organization
has done transaction by evading tax;
(ii)
there is a possibility that the accused may go away;
(iii)
or the evidence and proof of offence may disappear,
b. Procedures: the tax-officer may, with the approval of the DG, do or cause to be
done any of the following acts:
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VAT Assessment
(i)
To seal the place of transaction,
(ii)
To take custody of the Electronic Media or records thereof,
(iii)
To demand cash deposit or mortgage of assets (jèthà-jàmaní) in a sum
equivalent to the tax evaded from the person believed to have
committed the offence, by executing a memorandum to that effect,
(iv)
To withhold the bank account in the name of taxpayer for up to 3months. Provided, further 3-months may be withheld during the
ongoing assessment process on the approval of the DG.
(v)
To imprisonment of 15-days at a time and maximum up to 45-days in
case no deposit or guarantee as above.
c. Impacts: as above
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Appeal
7
Appeal
25.
Applicable Sec. 31A, 32 and 33
26.
Meaning: Taxpayer's written application of unsatisfaction on tax assessment by a taxofficer is appeal against reassessment.
27.
Types (and layers of appeal):
a. Administrative Review
b. Appeal to the Revenue Tribunal
c. Appeal to the Supreme Court if permitted (not applicable to CAP II)
28.
Administrative Review
a. Appeal to Director General of IRD
b. Within 30-days of the date of receipt of a Final assessment order. In the conditions
beyond the control, if applies with reasons within seven-days of end of 30-days,
DG may extend another 30-days.
c. Written appeal application with evidences, if any, after paying:
(i)
Full amount of undisputed tax; and
(ii)
Payment of 1/4th of disputed tax.
d. DG may, by executing a memorandum [Pàrchà] setting out the clear reasons,
(i)
void that tax assessment order and direct the concerned tax-officer to
make re-assessment of tax or order any tax-officer to do that; OR
(ii)
may refuse the appeal application.
e. DG shall make decision on the application within 60-days from the date of appeal.
After 60-days, if not decided by the DG, the taxpayer is free to make an appeal to
the Revenue Tribunal (deemed decision)
29.
Appeal to the Revenue Tribunal
a. Revenue Tribunal is equivalent to the court having three members – law, revenue
and account
b. Within 35-days of the date of receipt of a DG's appeal decision or deemeddecision. In the conditions beyond the control, if applies with reasons within 30days of end of 35-days, Tribunal may extend another 30-days.
c. Written appeal application with evidences, if any, after paying:
(i)
Full amount of undisputed tax; and
(ii)
Payment of ½ of disputed tax.
d. Tribunal decides with the clear reasons,
(i)
void that tax assessment order; OR
(ii)
may refuse the appeal application.
e. Decision of the Tribunal in the case of question of fact, is final.
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Appeal
30.
Example: Company A,
tax-period
20XX, Manshir
Self-assessment
Output tax
Reassessment
Rs. 15,00,000
Rs. 17,00,000
Rs. 9,00,000
Rs. 8,50,000
Opening Credit
Rs. 150,000
Rs. 50,000
VAT payable
Rs. 450,000
Rs. 800,000
(two points: Rs. 25,000 and Rs. 175,000)
Input tax
(two points: Rs. 20,000 and Rs. 30,000)
Interest and penalty
Rs.200,000
Date of reassessment 2077 Jesth 1.
Deadline for administrative appeal: Jesth 30
Application for extension: Jesth 31, 32, Ashadh 1-5
Extension deadline: Ashadh 28
On Ashadh 28, VAT payable on the regular self-assessment Rs. 550,000 (say).
Taxpayer wishes to appeal against reassessment of Rs. 175,000 and Rs. 30,000.
Payment of undisputed tax:
a. Regular self-assessment Rs. 550,000
b. Reassessed tax
i. Output tax Rs.25000
ii. Input tax disallowed Rs. 20,000
iii. Impact of opening VAT Rs.100,000
iv. Interest and penalty on above (say) Rs. 40,000
Payment of 1/4th of disputed tax
v. 25% of additional output tax of Rs. 175,000
vi. 25% of disallowed input tax credit Rs. 30,000
vii. 25% of interest and penalty on above.
DG disapproves the appeal from taxpayer. Taxpayer wishes to appeal to Revenue
Tribunal for reassessment of Rs. 175,000.
Deadline – 35+30 days extendable
Payment of tax in form of security deposit or bank guarantee to the extent of:
Payment of undisputed tax:
a. Regular self-assessment as on the date of appeal
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Appeal
b. Reassessed tax (additional)
i.
Output tax Rs.30,000
ii.
Interest and penalty on above.
Payment of 1/4th of disputed tax
iii.
50% of additional output tax of Rs. 175,000.
iv.
50% of interest and penalty on above.
v.
Already paid tax is deductible for this payment.
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Servicing of documents
8
Servicing of
documents
31.
Sec. 36 of VAT Act, 2052, Rule 31 of VAT Regulation, 2053 and Sec. 79 of Income tax Act,
2058.
32.
Servicing of documents from taxpayer to tax officer – registration in 'registration section'
of the office.
33.
Servicing of documents from tax officer or Director General to taxpayer –
a. Manual servicing
i.
Handover to concern person
ii.
Handover to taxpayer's office
iii.
Registry post.
b. Digital servicing
iv.
Fax
v.
Email
vi.
Other digital method
c. Public notice
34.
vii.
Broadcasting in radio
viii.
Broadcasting in television
ix.
Publishing in newspaper
Days will be counted from the date of servicing of document (not from the date of issue
of document).
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Deregistration
9
35.
Deregistration
Sec. 11 Deregistration, cancellation of registration
Conditions:
a. Exit from existence
i.
Corporate body – liquidation, sale, winding up
ii.
Partnership firm – death, dissolution
iii.
Proprietorship firm – death
b. Exit from VAT attractive business
i.
Shifting business to VAT-exempt goods or services
ii.
Shifting goods or services to VAT exempt by law
iii.
Transaction below threshold
c. Exit from regular business
i.
Non-filer for 12-months or more
ii.
Zero-return for 12 months or more
d. Registration by error
Procedure for deregistration:
a. Application to tax officer in the prescribe form
b. Submission of VAT records for reassessment within 15 – days from the date of
application
c. Filing regular VAT return for first 3 – months, if not deregistered before it
d. Tax officer decides the application – say deregistration
e. Filing last return and paying VAT on all the assets and stock in hand on the date
of deregistration assuming self-supply at market price
Impacts:
a. After deregistration – unregistered person or deregistered person
b. VAT at market price of self-supply will be paid.
36.
Depreciation impact on VAT
VAT paid on purchases is allowed for VAT credit at full amount of VAT payment.
Therefore, there is no concept of depreciation in VAT.
However, not a depreciation, but similar event occurs in the following two cases, whether
taxpayer pays VAT on self-supply at market price:
a. Self-supply of remaining stock and assets at the time of deregistration – Sec. 11
b. Self-supply of assets if exit from use in VAT attractive business – Sec. 17(4)
Example:
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Deregistration
Company purchases two assets at Rs. 20 lakh each and pays VAT Rs. 260,000 each. At the
time of purchase, whole amount of Rs. 520,000 (=2×260,000) is allowed for VAT credit.
Therefore, it is like the expense and nothing remaining to deduct in future.
Assume in the fourth year, one of the assets remove from use, market price at that point
was Rs. 500,000. Company needs to pay VAT Rs. 65,000 assuming self-supply under the
provision of Sec. 17(4). In this case, company consumes Rs. 15,00,000 as the value of
asset. Effective deduction of VAT is also 13% of Rs. 15,00,000.
Value in terms of Cost
VAT
Original credit deducted
2,000,000
260,000
Self-supply – VAT paid
500,000
65,000
Effective consumption
1,500,000
195,000
Further assume in the sixth year, company deregistered from VAT (by whatever
condition) having value of remaining asset as Rs. 200,000. Company needs to pay VAT Rs.
26,000 assuming self-supply under the provision of Sec. 11. In this case, company
consumes Rs. 18,00,000 as the value of asset. Effective deduction of VAT is also 13% of
Rs. 18,00,000.
Value in terms of Cost
VAT
Original credit deducted
2,000,000
260,000
Self-supply – VAT paid
200,000
26,000
Effective consumption
1,800,000
243,000
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Temporary registration
10
38.
Temporary
registration
Rationale for temporary registration
Registration in VAT has soft idea of 'going concern concept'. The taxpayer having the
business with 'going concern' will be registered as regular taxpayer. For the business,
which has pre-defined acceptable time-frame will be registered temporarily. They are of
two types: exhibitions etc. and joint-venture.
39.
Exhibition etc. Sec. 10A: applicable to unregistered person participating in exhibitions etc.
Rationale:
Suppose A factory produces some articles and sold at Rs. 2000 per item. The buyers pay
Rs. 2000+ 13% in these sales. Further suppose, two exhibitors R (registered person) an U
(unregistered person) are trader selling the article manufactured in A factory. Both R and
U expects a profit of Rs. 200. Their selling price will be:
R (registered person)
U (unregistered person)
Cost
2000
2260
VAT
260
Total
2260
2260
Profit
200
200
Selling price (cost + profit)
2200
2460
VAT
286
Consumer price
2486
2460
In the exhibition, if you are the consumer, where do you purchase?
VAT became consumer decision making factor in this case. As per tax principles, tax
should not be an economic-decision-making factor. Therefore, tax law addresses this
obstacle through temporary registration.
Conditions:
i.
Short-term business by many suppliers to many buyers at a time, whatever named
either exhibition, trade-fair, shows, exposition, demonstration, or expo;
ii.
Arranged by someone – named as organizer
iii.
Participating by unregistered person
Processes:
a. Application to tax officer for temporary registration using prescribed form and
recommendation letter from organizer
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Temporary registration
b. Depositing security deposit, if tax officer instructed
c. Tax officer registers temporarily for the period of exhibition
d. Selling goods and services through tax-invoices
e. Filing VAT return for whole period of exhibition and request for deregistration within
7-days from end of exhibition. If fails, organizer is responsible to pay VAT.
f. Tax officer deregisters.
Impact:
a. Fair competition between registered-person and unregistered-person
b. Supply from JV falls within VAT-net
c. Consumer behavior has not affected by VAT itself.
40.
Joint Venture Sec. 10B
Rationale:
Joint venture is short-term partnership of different business-persons for a defined task
having estimated tenure. JV will not follow going concern concept by its nature of
association.
Conditions:
A joint venture
Processes:
a. Application to tax officer (office of either venture) for temporary registration using
prescribed form and recommendation
b. Tax officer registers temporarily
c. VAT return – monthly as regular taxpayer
d. Reassessment as regular taxpayer
e. Upon completion of the agreed tax, apply for deregistration
f. Tax officer deregisters as regular taxpayer
g. If JV fails to pay VAT, its partners are liable jointly or severely.
Impacts:
a. Short-term business registered temporarily
b. Supply from JV falls within VAT-net
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VAT on import of goods
11
41.
42.
VAT on import
of goods
According to Sec. 5, VAT is levied on supply of goods or services:
▪
Delivered within Nepal;
▪
Imported into Nepal; and
▪
Exported from Nepal.
Therefore, VAT is levied on importation of goods or services. For the importation of
goods, customs offices collect VAT as per Sec. 28.
Example:
Import of electronics from Shanghai, China
USD exchange rate as prescribed by NRB:
On the payment to vendor date: Rs. 119
On the payment to foreign service provides: Rs. 118 – Rs. 121
On the customs declaration date Rs. 120
Custom officer will compute as follows:
Cost paid or payable to
the Shanghai Vendor
$20,000.00
Rs. 2,400,000.00
Transportation
$ 2,000.00
Rs. 240,000.00
Insurance
$ 1,000.00
Rs. 120,000.00
Haldiya port clearance
INR 30,000
Rs.
48,045.00
Other cost till Nepal border
various
Rs.
50,000.00
Transit cost
Landed cost at Customs point
Rs. 2,858,045.00
Customs duty (say 30%)
Rs. 857,413.50
Tax-base for other duties
Rs. 3,715,458.50
Other duties (say 5%)
Rs. 185,772.93
Taxable value for VAT
Rs. 3,901,231.43
VAT @ 13%
Rs. 507,160.09
Rs. 4,408,391.51
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VAT on import of goods
Total duties
Customs duty
Rs. 857,413.50
Other duty
Rs. 185,772.93
VAT
Rs. 507,160.09
Rs. 1,550,346.51
43.
Principles of VAT on customs
a. Computation of landed cost
i.
All the foreign cost (either paid or payable both) must be included,
otherwise customs officer revalues the cost (revaluation method in CAP
III)
ii.
Nepal cost must not be included in any case
iii.
Exchange rate is selling rate of NRB
iv.
Date for exchange rate is declaration date
b. First duty is customs duty
c. Other duties like excise duty, health-risk duty, infrastructure tax, road
construction duty, road maintenance duty, pollution control duty etc. will be
levied in second stage of computation.
d. VAT will be levied in the total of above all.
e. VAT paid at the customs office; the importer claims the VAT credit as usual
purchases.
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Reverse-charging system
12 Reversecharging system
44.
Reverse – charging concept
Payment of VAT at 13% of taxable value of purchases by the buyer directly to the tax
officer is the concept of reverse – charging.
[What happens on charging system? – Registered person recovers VAT from buyer and
pays to the tax officer ~ tax officer charges VAT to the supplier, whereas the supplier
recovers it form the buyer.]
Tax officer
Charging
Regd. person
45.
46.
col
lec
tin
g
System of
VAT
Buyer
Reverse – charging are two types [as being said two types]:
▪
importation of services Sec. 8(2)
▪
business construction Sec. 8(3).
Importation of services - Sec. 8(2)
Conditions:
a. Import of services
b. Either by registered person or unregistered person
Timing:
Earliest of:
a. Date of service received
b. Date of payment for service
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Reverse-charging system
Procedures:
a. Service importer imports service from foreign state [on CBD, COD or credit]
b. Value of service will be converted into NPR using selling rate of foreign currency
on the date as above
c. Importer pays 13% of taxable value of service directly to the tax officer on the
earliest date as above
d. Imported service is deemed equivalent to purchase for input tax credit.
Impacts:
a. Same tax has levied on similar transaction of purchase (horizontal equity)
b. Input tax credit is allowed.
Example
Cinema hall, registered person, pays USD 100,000 on digital content of cinema on Srawan
18. Cinema broadcasted on:
i.
Srawan 12
USD 1= Rs. 121
ii.
Srawan 18
USD 1= Rs. 120
iii.
Bhadra 27
USD 1= Rs. 123
Cinema hall needs to pay VAT directly to the tax officer under reverse-charging VAT as:
Case
Effective date
Taxable
Rs.
value Reverse-charging VAT Rs.
i.
Srawan 12
Srawan 12
12,100,000
12,100,000×13%
ii.
Srawan 18
Srawan 18
12,000,000
12,000,000×13%
iii.
Bhadra 27
Srawan 18
12,000,000
12,000,000×13%
Cinema hall obtains input tax credit on above payment, because cinema hall is registered
person and the service has used in VAT-attractive supply.
47.
Business construction more than Rs. 50 lakh.
[a questionable provision of the act]
Conditions:
a. Business construction
i.
building, apartment, mall, stadium, road, …
ii.
for sale, rent or self-use
b. Either by registered person or unregistered person
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Reverse-charging system
c. Having construction value more than Rs. 50 Lakh
i.
Pre-construction cost (legal, engineering)
ii.
Construction cost (material, labor, service)
iii.
Interest during construction (IDC)
iv.
No. of years is immaterial
Timing:
Within 25 days from end of month of payment
Procedures:
a. Owner of construction purchase the goods or services for construction
b. Out of purchases during the month, owner classifies the cost in the following
classes:
Total cost during the month (SAY)
Rs. 22,00,000
i. VAT paid cost
Rs. 13,00,000
ii. VAT unpaid cost in form of legal cost
Rs. 100,000
iii. VAT unpaid cost in form of supervision
Rs. 100,000
iv. Interest during construction
Rs. 400,000
v. Cost attracting reverse-charging system of VAT
Rs. 300,000
c. Owner of construction (not the contractor) pays 13% of taxable value of cost
attracting reverse-charging system of VAT (Rs. 300,000×13% in above example)
directly to the tax officer within 25-days from end of month.
Impacts:
a. It is an anti-avoidance measure to attract the parties to deal with VAT registered
person.
b. Input tax credit is NOT allowed.
c. It makes cascading effect of VAT. [How?]
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Bank Guarantee facility
13
Bank Guarantee
facility
48.
Bank-Guarantee: A written letter of indemnity to someone, issued by a bank with
authorized signatures, promising to pay the stated sum of money if claimed before the
stated deadlines with stated conditions or unconditional is bank-guarantee.
49.
There are three places in VAT, where bank-guarantee (BG) provisions apply:
50.
▪
Import of raw materials for exportable goods – Sec. 8A
▪
Import of trading goods by duty-free shop – Sec. 8A
▪
Security for the appeal to Revenue Tribunal – Sec. 33.
Import of raw materials for exportable goods – Sec. 8A
Conditions:
a. Import of raw materials for exportable goods
b. By a factory [not a trader or service-provider] having export of more than 40% of total
sales in last 12-months
c. Having bonded house permission from customs officer [Bonded house is the store or
godown, certified by customs officer to store duty-unpaid goods, either form of raw
material, WIP or finished goods]
d. Exporting goods having at least 10% domestic value add [domestic value add is the
part of cost of production added by Nepal material, labor or overhead. For this
purpose, overhead cost associated with the equipment produced in foreign state will
be deemed as foreign value add].
Procedures:
e. Certification of godown for bonded warehouse from customs officer [yearly and
renewable]
f. Import of raw materials for exportable goods
g. Request for BG-facility to the customs officer along with Declaration of usable for
exportable finished goods and BG
h. Customs officer release the raw material without collecting duties
i.
Export of finished goods and request to release BG
j.
Customs officer releases the BG upon submission of export documents.
Impacts:
k. Burden of payment of VAT on import reduces
l.
Cost of sales reduces
m. VAT refund as significant exporter will not allow.
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Bank Guarantee facility
51.
Import of trading goods by duty-free shop – Sec. 8A
Conditions:
a. Import of trading goods
b. By a duty-free shop [duty-free shop is a shop approved by customs officer and tax
officer to sale goods to person having diplomatic privilege or duty-privilege]
Procedures:
c. Certification of duty-free shop, its show-room and godown for bonded warehouse
from customs officer [yearly and renewable]
d. Import of trading goods
e. Request for BG-facility to the customs officer along with Declaration of trading to
persons having diplomatic privilege or duty-privilege and BG
f. Customs officer release the goods without collecting duties
g. Duty-free shop sells goods to persons having diplomatic privilege or duty-privilege
and request to release BG
h. Customs officer releases the BG upon submission of sales documents.
Impacts:
i.
Persons having diplomatic privilege or duty-privilege obtains hassle-free place for
shopping
j.
Cost of VAT-refund reduces to both parties [They need not pay VAT and refunds to
them]
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VAT Refunds
14
VAT Refunds
52.
Tax officer refunds VAT to the person fulfilling the conditions for refund.
53.
Timing for the refund is different for individual conditions. Mainly, timing for refund is:
54.
▪
Thirty-days from date of request to significant exporter
▪
Sixty-days from date of request to other cases
▪
Immediate refund in few cases.
Types of VAT refund:
a. Significant exporter (Sec. 24)
▪
having export more than 40% of total sales of current months
▪
eligible to claim whole of the credit
▪
request through VAT-return
▪
upon request credit amount will be reduced
▪
deadline for refund is 30-days from date of request. For delay, legally, tax officer
adds interest at 15% p.a. for delayed period
b. continuous four-months credit amount (Sec. 24)
▪
having credit since earlier four VAT-returns
▪
eligible to claim continuous four-months credit amount
▪
request through VAT-return
▪
upon request credit amount will be reduced
▪
deadline for refund is 60-days from date of request. For delay, legally, tax officer
adds interest at 15% p.a. for delayed period
▪
example
c. diplomatic refund – institutional or personal (Sec. 25)
▪
VAT paid purchase (more than Rs. 10,000 at a time) by person having
diplomatic-privilege
▪
Request for refund on the recommendation from MOFA
▪
deadline for refund is 30-days from date of request.
d. UN refund – institutional or personal (Sec. 25)
▪
VAT paid purchase by person having diplomatic-privilege under UN or
specialized agency
▪
Request for refund on the recommendation from MOFA
▪
deadline for refund is 30-days from date of request.
e. Institutional refund – institutional (Sec. 25)
▪
VAT paid purchase by person having duty-privilege
▪
Request for refund on the recommendation from respective regulating agency
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VAT Refunds
▪
deadline for refund is 30-days from date of request.
f. Project refund (Sec. 25)
▪
VAT paid purchase by a project having duty refund facility
▪
Request for refund on the recommendation from respective project office or
regulating agency
▪
deadline for refund is 30-days from date of request.
g. Refund for collection by error (Sec. 25)
▪
VAT deposited by error
▪
Request for refund with the details of deposit and reasons thereto
▪
deadline for refund is 30-days from date of request.
h. Refund for digital payment (Sec. 25)
i.
j.
▪
Customers paying through digital means (card, scan, digital wallet or similar)
▪
No-request for refund – immediate refund of 10% of paid VAT.
Tourist Refund (Sec. 25A)
▪
Foreign tourist [no Nepali] returning through air-route [no other means]
accompanied VAT-paid goods [not service] purchased in Nepal more than Rs.
25,000
▪
Request for refund in VAT-Refund-desk in airport
▪
Immediate refund of whole VAT but service charge 3% of refund is levies
Refund for Re-export (Sec. 25B)
▪
VAT deposited in form of security deposit by exporter retuning exported goods
with the declaration of re-export
▪
Re-export of same goods to any foreign party
▪
Request for refund with the details of re-export
▪
Immediate refund by customs officer
k. Refund for import than export (Sec. 25C)
[indicative white-crime – expert knowledge in CAP III]
l.
▪
VAT deposited during import of trading goods
▪
Re-export of same goods to any foreign party
▪
Request for refund with the details of re-export
▪
Immediate refund by customs officer
Refund for VWHT (Sec. 25C1)
▪
Public entity directly deposits 6.5% of VAT payable to the contractor
▪
Deposited VAT is deemed as paid by the contractor and allows for set off with
VAT liability
▪
In case, over payment for continuous four-months, eligible for refund request
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VAT Refunds
▪
deadline for refund is 60-days from date of request.
m. Refund for pharmaceuticals factories (Sec. 25C2)
▪
Pharmaceuticals are VAT-exempt
▪
VAT paid on raw materials or packing materials is allowed to refund
▪
Request deadlines – trimester (four months)
▪
deadline for refund is 60-days from date of request.
n. Refund of appeal deposit (Sec. 31A)
▪
Tax deposit for administrative review
▪
Decision in favor to the tax-payer
▪
Request for refund after completion of appeal procedure
▪
Deadline for refund is unknown.
VAT discussion paper during online sessions
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Penalties
15
Penalties
55.
Section 29 provides for the penalties. [income tax penalties are beyond the scope of
syllabus for CAPII]
56.
Three types of penalties:
▪
Fees (penalties) for non-compliance – Fee only Sec. 29(1), (1a), (1b)
▪
Penalties for tax-fraud – Fine and imprisonment Sec. 29(1c) and 29(2)
▪
Penalties for abet and abetting – Sec. 29(3)
[List attached]
57.
First two penalties are levied to the taxpayer or the person actually involve in the noncompliance or tax-evasion. The third penalty is levied to the person abetting taxpayer.
58.
Sifting the vail for the taxpayer in the form of entity [Sec. 29B and Sec. 107 of Income Tax
Act, 2058]
▪
For evasion, underlying personnel of entity is personally liable.
▪
For the non-payment of tax of entity, 'Managers of entity' are personally liable
with inclusion and exclusion rules, but they can recover paid tax from entity.
▪
inclusion and exclusion rules:
o existing or retired within last six-months are inclusive
o person not involving decision process or insist for payment of tax as
minority decision maker are exclusive
59.
Penalty to the tax-officer
▪
DG's order, to the same tax officer or other tax officer, for revision of the reassessment procedure, in the case of indication of collusion of tax officer and
taxpayer – Sec. 30A
▪
Departmental action as per civil service law to the tax officer, if tax officer deals
with mala-fide intention during the reassessment – Sec. 38
▪
No department action to tax officer, if his/her failure without mala-fide intention
– Sec. 39.
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Tax education
16
Tax education
60.
Taxpayer education – IRD annual program, free of cost (Rule 58)
61.
Availability of legal documents – free of cost (Rule 58)
62.
Advance ruling – Sec. 32A
63.
64.
▪
Written request from taxpayer using the virtual ambiguous provision of law
▪
DG's written response on the question of request
▪
Applicable to the particular taxpayer to whom it is issued
▪
In case of contradiction with legal provisions, department is bound to allow the
benefits from ruling until its written withdrawn
▪
Example
Public circular – Sec. 32B
▪
Written clarification for the harmonization of process within department or to the
taxpayer issued by the DG
▪
Applicable to the particular taxpayer to whom it is issued
▪
In case of contradiction with legal provisions, department is bound to allow the
benefits from public circular until its written withdrawn
▪
Example
VAT Directives – Rule 61
▪
GON may frame the directives
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Summary VAT
17
Summary VAT
65.
Section-wise summary [30 minutes – 15 minutes course]
Sec.
Matter to be known
1.
2.
Short name and commencement
Definitions:
▪ Goods – movable or immovable all tangible items –
▪ Services – all items of supply except goods
▪ Supply – sale, exchange or transfer of goods or services, permission thereto or
agreement on them
▪ Electronic means – computer, internet, email, fax, electronic cash register (digital
billing), fiscal printer, or similar electronic hardware or software; hardware or
software for digital payment or other as prescribed by department
▪ Export –
o Goods supplied to abord,
o Goods kept in international cargo terminal,
o Goods kept in international flights for use,
o Goods kept in international flights for sale,
o Goods in form of raw materials supply to SEZ
o Goods supply to Export Trading House for export abroad
o Services supplies to foreign party in the foreign state not having any
business representation in Nepal
▪ Tax-officer –
o DDG, Directors, Officers
o Chief Tax Administrators, Chief Tax Officers, Tax officers and other officers
o Other officers as described by GON
Appointment of tax-officer – by GON
Jurisdiction of tax-officer – by MOF, secondment by DG
Levying VAT – supply of goods or services, except exempt goods and services,
▪ Delivered within Nepal
▪ Import into Nepal
▪ Export from Nepal
3.
4.
5.
5A.
No VAT on business transfer
▪
▪
▪
Conditions – sale of business or transfer due to death
Procedures –
o Application in the prescribed form (no. 4) signed by both parties
o Tax officer decides for transfer
Impacts –
o No VAT on business transfer
o VAT benefit transfers to transferee (i.e. credit is allowed)
o VAT obligation transfers to transferee (i.e. reassessment, payables,
retention of VAT records)
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Summary VAT
5B.
Force registration order
▪
▪
▪
6.
Definition – order issued by tax officer to a particular taxpayer for compulsory
registration is force registration order
Why – Sec. 9,10,10A and 10B insist the taxpayer to registration, failure is subject
to assessment by tax officer (Sec. 20) and penalty (Sec. 29) only. ordering for
registration is missed in either section. This gap has addressed in Sec. 5B, where
tax officer has power to issue order for registration.
Timing- within 30-days of order, taxpayer needs to apply for registration or needs
to produce evidence for not-requirement for registration.
Place of supply and timing of supply
a. Place of supply:
▪
▪
Goods
o Immovable – place of immovable assets
o Movable:
▪ Trading stock – place of transfer of goods
▪ Import – customs point
▪ Export – customs point (terminal)
▪ Self -consumption – place of benefits from consumption
Services – place of benefits from the service
b. Timing of supply: earliest of
▪
▪
▪
▪
7.
date of invoicing
date of delivery of goods
date of receipt of consideration
exceptions:
o telecom operator – date of consideration
o installment – earliest of installment due date or payment date
Rate of VAT – single rate of 13%, exception is zero-rated facility in Schedule 2.
▪
▪
▪
Zero-rates
Export of goods (six points), export of services (one point)
Power-sector equipment manufacturer to the project (construction phase)
8.
Charging and Reverse Charging (conditions, process, impact)
8A.
Bank guarantee facility – two cases of importation of raw materials for exportable goods
and trading goods for duty-free goods (conditions, process, impact)
9.
Threshold, small vendor and voluntary registration
10.
Compulsory registration – no-threshold issues
10A.
Temporary registration for exhibitions etc. (conditions, process, impact)
10B.
Temporary registration for joint venture (conditions, process, impact)
10C.
Biometric registration
11.
Deregistration (conditions, process, impact)
12.
Determination of taxable value of supply
12A.
Determination of taxable value of log woods
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Summary VAT
13.
Determination of market price
▪
▪
DG – method for valuation
Tax-officer – determination of market price based on DG's method
14.
Tax-invoices
14A.
CBMS interface billing software
15.
VAT must not be recovered by unregistered person, EXCEPTIONs – 8 nos
16.
VAT records- types, period, formats
16A.
Digitized VAT records –
▪
▪
of department,
for taxpayer
16B.
Loss of stock – conditions, procedures, impact
17.
Tax credit –
▪
▪
▪
▪
▪
18.
VAT return
▪
▪
19.
Deadlines
Additional duty
Conditions for not charging interest and additional duties
Conditions beyond control
Assessments by tax officer – reassessment
▪
▪
▪
▪
▪
21.
Tax-period and exceptions
Filing deadlines – LTO/MLTO/IRO/TSO or DTCO
Tax payments
▪
▪
▪
▪
20.
conditions, procedure, impact
no-credit items
partial credit item
VWHT
Credit at the point of registration
Conditions
Deadlines
Basis
Process
Impact
Recovery of tax
▪
▪
Safeguard provisions
Recovery provisions
22. Special assessment (jeopardy assessment)
▪
▪
▪
Conditions
Process
Impact
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Summary VAT
22A.
General anti-avoidance rule (GAAR)
▪
▪
▪
Conditions
Process
Impact
23.
Access, inspection, examination, extract & copy [ITA.83 and 83]
21A.
Local police or local administration needs to support as required by tax-officer [ITA.141]
23B.
Supremacy of VAT law [ITA.142]
▪
▪
▪
23C.
No-provisions in other laws
No-amendments from other laws
Amendment through annual finance law only
Purchase of stock in hand of under-invoiced goods
▪
▪
Conditions, process, impact
Sale of purchased goods
23D.
Search, possession and imprisonment
24.
VAT refund (business refund) – significant export during the month, continuous fourmonths credit amount (conditions, process, timing and impact)
25.
VAT refund – diplomatic person, diplomatic institutions, UN and specialized agencies,
permitted institutions, permitted project and collection by error (conditions, process,
timing and impact)
25A.
VAT refund to tourist (conditions, process, timing and impact)
25B.
VAT refund on re–export (conditions, process, timing and impact)
25C.
VAT refund on export of imported goods (conditions, process, timing and impact)
25D.
Limitation rule – three years for refund or documents
26.
Interest – 15% p.a. on month-basis (26th to 25th is a month, interest for either one day or
full month is levied as a month)
27.
VAT itself, interest, additional duties, penalties, auction cost, safeguard cost etc. will be
treated as 'value added tax' for recovery or payment purpose (not for computation
purpose)
Example: VAT re-assessment by Rs. 200,000; delay – 24 months, penalty – 25%
Computation purpose
Rs.
VAT
200,000
Interest @ 15% for 2 years
200,000×2×15%
60,000
Additional duty@ 10% for 2 years
200,000×2×10%
40,000
Penalty @ 25%
200,000×25%
50,000
Safeguard cost
0
Auction cost
0
VAT for payment purpose (or for recovery purpose)
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47
Summary VAT
28.
Customs officer is tax-officer for VAT purpose during import and export of goods
29.
Penalty: non-compliance, fraud, abetting
29A.
Penalty can be converted into penalty upon written request from taxpayer (worthless)
29B.
Managers and officers of entity are personally liable for VAT [ITA.107]
▪
▪
Fraudulent case – those who involved
Non-payment case – those who are responsible (inclusive rule and exclusive rule)
30.
DG may issue business suspension order for seven-days on repeating the same noncompliance or fraud
30A.
DG may instruct the same tax-officer or may secondment another tax-officer in the case
of collusion or indicative collusion during reassessment process (not for completed
reassessment)
31.
Tax-officers power will be equivalent to the court-power for VAT purpose (summon,
statement, evaluating the evidences and insist for submitting evidences, but not
imprisonment during hearing) [ITA.135]
31A.
Administrative appeal (conditions, timing, process, impact, remedies if unsatisfied)
[ITA.114- 115]
32.
Appeal to Revenue Tribunal (conditions, timing, process, impact, remedies if unsatisfied
– question of fact is final) [ITA.116]
32A.
Advance ruling – definition, process, impact, remedies on contradiction [ITA.76]
32B.
Public circular – definition, process, impact, remedies on contradiction [ITA.75]
33.
Security deposit during appeal
34.
Delegation of power [ITA.72]
▪
▪
34A.
By DG – none (please enlist the powers of DG)
By Tax-officer – all except assessment and punishment (please enlist the powers
of tax-officer)
Appointment of tax- experts [ITA.132]
▪
35.
Tax-officer's identity card (worthless) [ITA.134]
36.
Servicing of documents [ITA.79]
▪
▪
▪
37.
Manual servicing – to intended person, registered office, by registered post
Digital servicing – email, fax or other inscription methodology
Publishing and broadcasting – newspaper, radio, television
Rule of privacy/ governmental secrecy [ITA.84]
▪
▪
▪
To the officer collecting tax
To the court
To the court for public document
38.
Punishment to tax-officer in the case of action with bad intention – as per civil-service
law [ITA.133]
39.
No departmental action for the work performed in good faith [ITA.136]
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Summary VAT
40.
Prizes and informants [ITA.136A]
▪
▪
Prizes
o to the extent of 20% of VAT recovered from evidences provided by the
person.
o In the case of more than one person, proportionate
o None disclosure list of persons
Informants – Up to Rs. 10,000
41.
Power to frame rules – GON [ITA.138]
42.
GON's power to amend schedules [ITA.140]
43.
Supremacy of the act (see Sec. 23B)
44.
Repeals and savings
▪
▪
Repeals – Sales tax, hotel tax, entertainment tax, contract tax.
Savings – earlier legal provisions are applicable for the respective years.
List to be prepared
Power of DG, power of tax-officer, exempt goods and services, conditional exemption, zerorated facilities, refunds, penalties
Additional words, not covered above, to be remember:
Charging person, threshold, catch-up effect, cascading effect of tax, output tax, input tax, nocredit, partial-credit, proportionate credit, full credit, tax-return, jointly-filing, conditions beyond
the control, used-goods dealer, WHVAT
Numerical to be repeated:
Invoicing of each issues of Sec. 12, 12A, 15(3), Sch. 2 and used-goods
VAT return – general and with refund
Exit tax – self-supply
Calculation of interest and penalties
Costing impact.
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