1. What is Value Added Tax (VAT)?
VAT is a form of indirect tax levied on the consumption of goods and services. VAT is placed on taxable goods and services whenever value is added at each stage of supply chain, from production to point of sale.
VAT has been imposed in Nepal since 1st Mangsir, 2054 B.S.
The rate of VAT is 13%.
2. How do you calculate VAT?
VAT is levied on every stage of supply chain like production, import and distribution for every value added in each stage. It has been demonstrated in the following table:
|Stage||Selling Price||Output Tax||Purchase Price||Input Tax||VAT
(Output Tax – Input Tax )
|Producer||Rs. 200/-||Rs. 26/-||Rs. 0/-||Rs. 0/-||Rs. 26/-|
|Whole saler||Rs.300/-||Rs. 39/-||Rs. 200/-||Rs. 26/-||Rs. 13/-|
|Retailer||Rs. 400/-||Rs. 52/-||Rs. 300/-||Rs. 300/-||Rs. 13/-|
|VAT paid by Consumer/VAT collected by the government||Rs. 52/-|
3. Why does the government levy VAT?
- To increase revenue collection by increasing tax boundaries.
- To decrease tax rates by facilitating basis of taxes.
- To repeal all other taxes imposed on goods and services and make VAT as main basis of revenue.
- To encourage self-tax assessment.
- To establish transactions of taxpayer.
- To minimize administrative complexities.
- To maintain legal proceedings simple and transparent.
- To increase contribution of indirect taxes in tax system.
4. Does VAT increases price of goods and services?
VAT does not increase price of goods and services. VAT is the tax to be paid for consumption of goods and services. Although it seems to increase the price, it is the tax imposed on value added to the goods and services.
5. Who administers VAT?
Inland Revenue Department (IRD) and its offices administers VAT.
6. What are the advantages of VAT registration?
The first advantage is that you will follow the law and be compliant to it. Secondly, you can claim for tax deduction that avails you to compete with others. Thirdly, you can transact with government bodies that widens your business. Similarly, you can easily deal with registered enterprises as such registered one may ask for VAT bills.