Nepal: Tax Amendments made by Nepal Budget 2077 (2020 AD)

1. Tax Rebates (Applicable from 2076/77 (2019)) 

a. Tax concession for micro, cottage & small industries has been provided based on their annual turnover.

‍2. Major Amnesty announced in Finance Bill 2077 (2020)

3. Changes in Income Tax Rate of Co-Operative Entity:

4. Amendments in provisions related to Tax Deducted at Source (TDS)

5. Other Major Amendments in Income Tax [Effective from Shrawan 1, 2077 (16 July 2020)] 

a. Deduction is allowed on any sum of amount contributed to corona infection, prevention, control, and treatment fund established at all three levels of government. 

b. Deduction is allowed on payment to casual labor upto NPR 3,000 per instance even without PAN 

c. Deduction is allowed for purchase of agricultural, animal-related, and other domestic product made from natural person not doing business and who is not having PAN. 

d. The limit of NPR 1000 has been increased to NPR 2000 for eligibility of deduction of expenses without Tax Invoice. 

e. The claim of 1/3rd additional depreciation by special industries has been included in Annexure 2 of the Income Tax Act. For claiming this additional depreciation, the special industry has to be in operation for the entire year. Additionally, entities operating roads, bridges, tunnel, ropeway, tram and trolley bus shall also be entitled to the same. 

f. Where a person opting couple status makes a contribution to Contribution-based Social Security Fund, 1% tax on basic exemption limit (NPR 450,000) is not applicable. 

g. Starting Period of Tax Holiday for Special Industry operating in “Highly Undeveloped”, “Undeveloped” and “Less Developed” area u/s 11(3)(a) is changed to date of commercial production/operation. 

h. For the exemption of 100% for 5 years and 50% for next 3 years u/s 11(3)(c), capital investment is increased to NPR 2 billion from 1 billion and number of direct employments is decreased to 300 from 500. Also, tourism industry (except casino) is added to this list of special industry for such exemption. 

i. For the exemption u/s 11(3b), fuel is added after natural gases. 

j. 100% Concession on Income Tax for first 10 years from the date of commercial production and 50% concession on next 5 years is available to Hydropower Company. Earlier it was Production, Transmission and Distribution of hydropower. 

k. Concession on income tax for business u/s 11(3f): 

• Operating trolley or tram – increased to 40% from 20% 

• Building and operating ropeway, cable car, or overhead bridge - increased to 40% from 20% 

• Building and operating road, bridge or tunnel way – decreased to 50% from 52% 

l. 25% Concession on Income Tax is introduced on industry manufacturing fruit-based brandy, cider and wine that are operating in “Undeveloped” area u/s 11(3h). 

m. U/s 11(3k), concession for existing industries who increases its capacity by minimum 25% and investment to 2 billion are withdrawn. However, such concession for new industry is unchanged. 

n. 100% tax exemption being provided to Micro Industries u/s 11(3p) for first 5 years of commencement of business has been extended to 7 years. Similarly, additional 2 years tax holidays if such micro industries are operated by female is extended to 3 years. 

o. Tax Concession of 25% for first 5 years of start of operation to special industry established in industrial area or industrial village is introduced under new provision section 11(3r). 

p. The due date for giving letter of intent for merger u/s 47A(6) is extended from Ashadh 2077 (July 15, 2020) to Ashadh 2078 (July 15, 2021). 

q. The due date for completing the merger process u/s 47A(7) is extended from Ashadh 2078 (July 15, 2021) to Ashadh 2079 (July 16, 2022). 

6. Other Amendments in VAT Act, 2052 (1995 AD) 

a. The registration of registered person who has not submitted return until 2073 Ashadh end shall be cancelled automatically with waiver of penalty applicable for failure to file VAT return. 

b. Compulsory registration of business of motor parts u/s 10(2)(a) and waste management, legal service, tailoring with shirting suiting u/s 10(2)(b) is removed. 

c. Amount of VAT paid by United Nations Organization, its member organization and specialized agencies on purchase of goods and service shall be refunded under new section 25(1) (a2). 

d. Newly introduced provision – Section 25 (C1): Refund of excess VAT under Contract with government entity 

• The registered person has to make application for refund of VAT after continuous credit of 4months. 

• The Tax Officer shall refund such VAT within 60 days from date of application. 

• The registered person shall not carry forward such VAT after making application for refund. 

e. Refund of VAT paid on local purchases of raw materials, auxiliary and packing materials for pharmaceutical industry: 

• If it applies for refund of tax on trimester basis.

• The tax officer shall refund such tax within 60 days of application. 

f. Penalty of NPR 10,000 is increased to NPR 20,000 for breaching the order of registration of tax officer u/s 5B or 10(1) or 10(2) or fails to get registered u/s10(1) or 10B(1). 

g. In case a person requiring VAT registration, operates without a registration, the person may be penalized with 50% of payable tax amount.