1.What is tax exemption?
Tax exemption refers to such supply in which the seller does not collect VAT nor he can claim for tax exemption that has been filed while purchasing. One who transacts in relation to tax exemption is not required to register.
2. On what goods is VAT exempted?
You are exempted from VAT for the purchase and sale of following goods:
- Basic agricultural products
- Basic necessary goods
- Animals and its yielding
- Agricultural tools
- Medical treatments and
- Similar health services
- Educational books, newspaper and printed materials
- Cultural, artistic and kaligadhi services
- Transportation and shipping services
- Business and occupational services
- Building and land
- Other goods and services that has been enlisted under Schedule 1 of the VAT Act 2052.
3. Is tax exempted on the services relating to tax exempted goods?
Tax is not exempted for subordinate services regardless of tax exemption on goods. Tax is exempted only on those goods and services as provided under Schedule 1 of the Act.
4. What is Zero Rate?
Zero rate is levied on supply of goods and services when:
- It is necessary to provide financial encouragement to production, consumption and transaction of specific goods and services,
- A policy has been made to provide special privilege to specific class, region or community.
Zero rate is levied in form of subsidies in order to encourage exports and increase competitive capacity. Tax levied in supply of taxable goods can be deducted from the tax paid while purchasing.
5. Are zero rate and tax exemption similar?
They are different. Supply of zero rate is taxable supply. The tax paid while purchasing can be deducted from the tax collected for the supply of taxable goods. In zero rate, tax paid while purchasing is returnable although tax is not needed to be paid while selling. But in case of tax exemption, tax cannot be levied in supply if goods as well as tax paid while purchasing is also non-deductible.
6. Is zero rate applicable for export of tax free goods?
No, it is not applicable in case of exports of such goods.
7. On what goods is zero rate applicable?
Schedule 2 of the Act provides the list of goods and services on which zero rate is applicable and they are as follows:
- Goods exported outside Nepal,
- Services provided to person outside Nepal,
- Goods and services imported by the persons exercising diplomatic immunity on the recommendation of Ministry of Foreign Affairs,
- Raw materials and products to be sold to industries operated in special economic region as per the law,
- Deep cycle lead battery produced in domestic industries on the recommendation of Ministry of Forests and Environment,
- If, on the recommendation of the Alternative Energy Promotion Centre, the battery used in the equipment and mechanism generating energy from solar power is produced by any native industry and is to be supplied by that industry, the facility of zero rate shall be provided to that industry on that transaction on the recommendation of Alternative Energy Promotion Center and in accordance with the procedures specified by the Department.
- If any machinery, equipment, tools and their spare parts, penstock pipes or iron sheets used in making that are required for hydro power projects are produced by any native industry and are to be supplied by that industry, the facility of zero rate shall be provided to that industry on that transaction, on the recommendation of the Alternative Energy Promotion Centre, in the case of a project that is operated with the approval of that Centre, and on the recommendation of the Electricity Development Department, in the case of one other than that operated with the approval of the Alternative Energy Promotion Centre and in accordance with the procedures specified by the Department.
- If painting, handicrafts, carving and similar other handicrafts produced a cottage and small scale industry within Nepal are exported through an approved export trading house of Nepal, the value added tax paid on the raw materials used in the manufacture of such goods shall be refunded after fulfilling the procedures specified by the Inland Revenue Department.
- The value added tax paid on the import or local purchase of scooters used by persons with disabilities shall, if such scooters are registered in their name in the Office of Transport Management, be refunded on the recommendation of the Women, Children and Social Welfare or the Chief District Officer of the concerned district, and in accordance with the procedures as specified by the Department of Inland Revenue. If such goods are sold to any persons other than the persons with disabilities, the refunded value added tax shall be recovered.
8. Should VAT be levied while issuing invoice to persons exercising diplomatic immunity?
Yes, it should be levied upon issuance of invoices to diplomatic persons.