Chapter 8 · Part 8 — Value Added Tax
Value Added Tax
The end of single-rate VAT: 0%, 5%, 13% and more, plus reverse charge and e-invoicing.
8 of 14 · 11 min
Nepal's VAT was a single-rate tax for its whole life. The Finance Act 2083 ended that. This Part covers the new rate structure, the reverse charge on ride-hailing, e-invoicing, and the changes to the exempt schedule.
How VAT works — the one diagram
╔═══════════════════════════════════════════════════════════════════╗
║ VAT IS A TAX ON THE VALUE ADDED AT EACH STAGE, ║
║ BORNE ENTIRELY BY THE FINAL CONSUMER. ║
╚═══════════════════════════════════════════════════════════════════╝
ILLUSTRATIVE at the standard 13% rate
┌──────────────┐ ┌──────────────┐ ┌──────────────┐ ┌──────────┐
│ PRODUCER │──►│ WHOLESALER │──►│ RETAILER │──►│ CONSUMER │
└──────────────┘ └──────────────┘ └──────────────┘ └──────────┘
Sells at 100 Sells at 150 Sells at 200
Output VAT 13 Output VAT 19.50 Output VAT 26
Input VAT 0 Input VAT 13 Input VAT 19.50
──── ────── ──────
PAYS 13 PAYS 6.50 PAYS 6.50 BEARS 26
Total remitted to the state: 13 + 6.50 + 6.50 = 26
= 13% of the final price of 200 OK
⇒ Each business pays tax only on ITS OWN value added.
The consumer bears the whole 26.The formula every VAT return reduces to:
VAT PAYABLE = OUTPUT VAT − INPUT VAT Output VAT — VAT charged on your taxable supplies Input VAT — VAT paid on your purchases, where creditable If input exceeds output → a refund position.
The multi-rate structure — the headline change
┌──────────────────────────────────────────────────────────────────────┐ │ BEFORE NOW (Section 7, as amended) │ │ ────── ──────────────────────── │ │ 0% and 13% only 0% │ │ 5% │ │ 13% │ │ + ANY ADDITIONAL RATE the │ │ Government of Nepal may │ │ prescribe by Nepal Gazette │ │ notification │ └──────────────────────────────────────────────────────────────────────┘ Section 7(1a) — the Government may set different VAT rates, up to the legal maximum, and specify which goods and services fall under each rate. Section 7(2) — extended to cover VAT rates prescribed under both Section 7(1) and 7(1a).
The new 5% rate — Section 7(1b)
┌──────────────────────────────────────────────────────────────────────┐ │ 5% VAT APPLIES TO: │ │ │ │ 1. PASSENGER TRANSPORT and CARGO / DELIVERY SERVICES provided │ │ through RESIDENT RIDE-HAILING PLATFORMS │ │ → the platform operator collects and remits the tax │ │ │ │ 2. END CONSUMERS who consume MORE THAN 50 UNITS of electricity │ │ per month │ │ → but EXEMPTS sales of electricity by a business trading in │ │ electricity to another such business │ └──────────────────────────────────────────────────────────────────────┘
Reverse charge on ride-hailing — Section 8(2b)
╔═══════════════════════════════════════════════════════════════════╗ ║ NEW SUB-SECTION 8(2b) ║ ║ ║ ║ At the time of each transaction, the RESIDENT RIDE-HAILING ║ ║ PLATFORM OPERATOR assesses and collects VAT on the taxable ║ ║ value from individuals who provide passenger transport or ║ ║ cargo/delivery services through the platform. ║ ╚═══════════════════════════════════════════════════════════════════╝
Why a reverse charge, and why it works.
THE PROBLEM Thousands of individual drivers, each below the VAT registration threshold, each providing a taxable service. Registering and policing them individually is impossible. THE SOLUTION Shift the obligation to the ONE party that sees every transaction — the platform. ┌──────────────────────────────────────────────────────────────────┐ │ Passenger │ │ │ pays fare │ │ ▼ │ │ PLATFORM ── assesses and collects 5% VAT ──► IRD │ │ │ ── withholds 1% advance income tax ──► IRD (Part 6) │ │ ▼ │ │ Driver receives net │ └──────────────────────────────────────────────────────────────────┘ ⇒ ONE transaction, TWO taxes, BOTH collected by the platform. The driver deals with neither directly.
The 10% digital-payment benefit — changed in a way that matters
┌──────────────────────────────────────────────────────────────────────┐ │ BEFORE — Section 25(1b) │ │ 10% of VAT "IMMEDIATELY REFUNDED" on electronic payments │ │ → consumer pays full VAT, then waits for a refund │ ├──────────────────────────────────────────────────────────────────────┤ │ NOW │ │ 10% of VAT "IMMEDIATELY EXEMPTED" │ │ → the consumer receives the benefit AT THE TIME OF BILLING │ └──────────────────────────────────────────────────────────────────────┘
What it is actually worth.
Standard VAT rate 13%
Benefit = 10% OF THE VAT (not 10% of the price)
Effective discount on the invoice = 13% × 10% = 1.3%
ILLUSTRATIVE — a Rs 10,000 taxable purchase paid electronically
Price before VAT Rs 10,000.00
VAT at 13% Rs 1,300.00
Less: 10% of the VAT, exempted Rs (130.00)
─────────────
Amount payable Rs 11,170.00
Against Rs 11,300 if paid in cash.
SAVING: Rs 130 = 1.3% of the pre-VAT price.E-invoicing and the Central Billing Monitoring System
┌──────────────────────────────────────────────────────────────────────┐ │ Section 14(A) — ELECTRONIC INVOICING │ │ │ │ IRD may set the criteria and procedures for electronic invoicing │ │ and enable electronic invoice issuance. Through public notice it │ │ may require specified taxpayers to: │ │ • issue electronic invoices │ │ • integrate with the Centralized Billing Monitoring System │ │ (CBMS) │ │ • or use IRD's own electronic billing system │ │ │ │ IRD is responsible for procedures protecting the security, │ │ reliability and integrity of e-invoicing software and equipment. │ ├──────────────────────────────────────────────────────────────────────┤ │ FROM THE BUDGET │ │ Businesses with transactions exceeding Rs 100 MILLION must │ │ connect to the CBMS. Smaller businesses are encouraged to │ │ accept electronic payments. │ └──────────────────────────────────────────────────────────────────────┘
And the penalties that back it up — Section 29:
┌──────────────────────────────────────────────────────────────────────┐ │ Using software that can ERASE OR ALTER transaction data, where │ │ you are required to issue electronic invoices under 14A(1) or (2) │ │ → Rs 500,000 │ │ │ │ Any other breach of those sub-sections → Rs 100,000 │ │ │ │ Clause (j) fine increased Rs 1,000 → Rs 10,000 │ │ │ │ Violating the IRD's directive on the INTERNAL MOVEMENT OF GOODS │ │ for commercial purposes → Rs 50,000 PER VIOLATION │ └──────────────────────────────────────────────────────────────────────┘
Changes to Schedule 1 — the exempt list
Schedule 1 is the exemption schedule. Items added to it become exempt; items removed become taxable.
┌──────────────────────────────────────────────────────────────────────┐ │ NOW EXEMPT (added to Schedule 1) │ │ │ │ • Jute (sunpati) and other flexible fibres — other (5303.90.00) │ │ • Wood briquettes (4401.32.00) │ │ • Traditional medicinal preparations — │ │ Bittisa, Drakshasava, Triphala, Kabjahar, │ │ Keshari Jeevan (3003.90.41) │ │ • Bandages (3005.90.20) │ │ • Opacifying preparations for X-ray examinations (3006.30.00) │ │ • Clinical trial kits (3006.93.00) │ │ • Diagnostic and laboratory reagents — other (3822.90.00) │ │ • Digital financial service fees │ │ • Services provided by insurance agents │ ├──────────────────────────────────────────────────────────────────────┤ │ NOW TAXABLE (removed from Schedule 1) │ │ │ │ • Coconut — other (0801.19.00) │ │ • Urea — technical grade, not in aqueous solution (3102.10.11) │ └──────────────────────────────────────────────────────────────────────┘
Two transitional rules you must not miss.
╔═══════════════════════════════════════════════════════════════════╗ ║ 1. INPUT VAT CLAW-BACK ║ ║ ║ ║ If you claimed input VAT on trading stock or capital goods ║ ║ that are NOW EXEMPT, the law treats those goods as ║ ║ SUPPLIED AT OPEN-MARKET VALUE ON 15 JESTHA 2083, and you ║ ║ must ADJUST THE INPUT VAT in your return. ║ ║ ║ ║ ⇒ Exemption is not free. You lose the input credit on ║ ║ stock you already hold. ║ ╠═══════════════════════════════════════════════════════════════════╣ ║ 2. NEW REGISTRATION OBLIGATION ║ ║ ║ ║ Anyone supplying goods or services REMOVED from Schedule 1 ║ ║ must obtain VAT REGISTRATION WITHIN 30 DAYS of 15 Jestha ║ ║ 2083, if turnover exceeds the registration threshold [R]. ║ ║ Tax invoices may be issued only AFTER registration. ║ ╚═══════════════════════════════════════════════════════════════════╝
Remission on cheese. Unpaid or outstanding VAT on past sales of cheese produced from milk is remitted.
Administration changes
| Change | Effect |
|---|---|
| **Fully automated VAT refund system** | Introduced |
| **Section 25C(1) removed** | The refund of VAT deducted and paid by public enterprises under contract is gone |
| **Section 16B** | "Natural disaster" added alongside "wear and tear" as a recognised ground |
| **Section 18 — filing relief** | Taxpayers in districts **without an Inland Revenue Office** may file and pay within **15 days after month end** through the Local Government or District Treasury and Accounts Controller Office, which must forward details to the relevant IRO within **7 days** |
| **Amended return** | Taxpayers who file on time may correct errors by submitting an amended return **within 7 days** of the original filing |
| **Public circulars** | The VAT Act already allowed IRD to issue interpretive circulars; the Finance Act 2083 makes those interpretations **FINAL unless a court rules otherwise** |
Common mistakes
MYTH "VAT in Nepal is 13%."
FACT Now 0%, 5%, 13% and any further rate by Gazette.
MYTH "The digital payment benefit is a 10% discount."
FACT 10% OF THE VAT = 1.3% of the invoice.
MYTH "Exemption is always good for my business."
FACT Exempt suppliers cannot recover input VAT. It becomes a cost.
MYTH "My goods became exempt, so nothing to do."
FACT You may have to CLAW BACK input VAT already claimed on stock
held at 15 Jestha 2083.
MYTH "My goods became taxable, I'll register when convenient."
FACT WITHIN 30 DAYS of 15 Jestha 2083 if above the threshold. And
no tax invoices before registration.
MYTH "Only using zapper software is an offence."
FACT Using software that CAN erase or alter data attracts the
Rs 500,000 penalty.
MYTH "The driver handles their own VAT."
FACT The PLATFORM assesses and collects it (Section 8(2b)).Part 8 — Revision table
| Item | FY 2083/84 position |
|---|---|
| VAT rates | **0%, 5%, 13%**, plus any additional rate by Gazette (Section 7, 7(1a)) |
| New 5% rate applies to | Ride-hailing passenger transport and cargo/delivery; end consumers using **>50 units** of electricity per month (B2B electricity trading exempt) |
| Reverse charge | Section 8(2b) — ride-hailing platform assesses and collects VAT from individual providers |
| Digital payment benefit | 10% of VAT now **exempted at billing**, not refunded — worth **1.3%** of the invoice |
| E-invoicing | Section 14(A); CBMS integration; budget threshold **Rs 100 million** of transactions |
| Penalty — erase/alter software | **Rs 500,000** |
| Penalty — other 14A breach | **Rs 100,000** |
| Penalty — clause (j) | Rs 1,000 → **Rs 10,000** |
| Penalty — internal movement directive | **Rs 50,000 per violation** |
| Newly exempt | Jute, wood briquettes, listed traditional medicines, bandages, X-ray opacifying preparations, clinical trial kits, diagnostic reagents, **digital financial service fees**, **insurance agent services** |
| Newly taxable | Coconut (other), technical-grade urea |
| Input VAT claw-back | Stock/capital goods now exempt treated as supplied at open-market value on **15 Jestha 2083** |
| New registration | Within **30 days** of 15 Jestha 2083 for newly taxable supplies above the threshold [R] |
| Amended return | Within **7 days** of original filing, for on-time filers |
| Filing without a local IRO | 15 days after month end via Local Government / DTCO; forwarded within 7 days |
| Public circulars | **Final unless a court rules otherwise** |
| Cheese | Past unpaid VAT remitted |
| Verify | ird.gov.np + Finance Act 2083 |
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