VAT and its applicability in businesses. A brief summary.

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Contents

  • Background
  • Definitions
  • Transactions attracting VAT
  • Place of supply
  • Time of supply
  • Tax Invoice
  • Electronic tax invoice
  • Special case of carrying tax invoice

Background

In Nepal, VAT is governed by VAT Act, VAT Rules, VAT Directives and circulars issued by Tax Department1.

Definitions

The following terms used in the context of VAT shall have the following meaning2:

  • Transaction = the act of supply of goods or services
  • Goods = moveable or immovable assets
  • Service = anything other than goods
  • Supply = the act of sale, exchange or handover of goods or services, with or without receiving any consideration. It also includes the act of doing any contract or the act of granting permission for the same.
  • Consideration = anything received in return against the value of goods or services while supplying

1Tax Department is formally termed as the Inland Revenue Department.

2Section 2 of VAT Act – Definitions

Transactions attracting VAT

VAT shall be applicable on the following 3:

  1. Goods or services supplied within the country of Nepal
  2. Goods or services imported into Nepal
  3. Goods or services exported from Nepal
  4.  

However, no VAT shall be levied on those items classified as exempted items (i.e. items not attracting VAT4).

It is to be noted that VAT shall be levied only when the place of supply is in Nepal.

Place of supply5

VAT is based on Destination principle. When the supply of VAT attractive goods is done in Nepal, then only VAT Act is applicable. During import, the VAT is levied at the custom point of Nepal along with custom duty. The place of production of such goods is not relevant.

For determining whether the place is in Nepal or not, the following things are to be considered 6:

  1. For supply of goods:
    • In case of moveable goods, the place shall be where such goods are sold or delivered
    • In case of immoveable goods, the place where such asset is located
    • In case of imported goods, the place of custom point from which goods enter into Nepal
    • In case of self-consumption, the place shall be the location of such producer or seller
  2. For supply of services:
    • The place where the benefit of such service is received

3Section 5 of VAT Act

4The exempted items are listed in Schedule 1 of VAT Act.

5 Section 6 of VAT Act

6 Rule 15 and 16 of VAT Rules

Time of supply

The time for supply of goods or services shall be the earliest among the following 7:

  1. Time of issuance of invoice by supplier
  2. Time of receipt of consideration for goods or services by the supplier
  3. In case of goods – time when the receiver takes the goods from the place of transaction of supplier In case of services – time of rendering of service

In the event of partial payments under a contract, the time of supply shall be the earlier of the following:

  1. actual payment
  2. time of payment specified in such contract

Tax Invoice

The supplier should issue tax invoice at the time of supply of goods or services.8

In case of violation of this provision, the supplier shall be liable of penalty of Rs. 10,000 each time and the receiver shall be liable of penalty of Rs. 1,000 each time.9

While issuing such invoice, the type, sixe, model and brand of the goods should be mentioned.10

Electronic tax invoice

The Department has issued notice11 regarding issuance of electronic bill compulsorily for the tax payers whose transaction is above Rs. 35 crore.

Special case of carrying tax invoice

The person delivering the VAT attractive goods of more than Rs. 10,000, in the areas prescribed by The Department, has to carry the tax invoice with him/her.12

In case of violation of this provision, the person shall be liable of penalty of Rs. 10,000 each time.13

A notice has also been issued by the Department for the same case. In the notice, the Department has requested all to compulsorily carry the tax invoice along with them while transporting the goods from one place to another.

7 Section 6 of VAT Act

8 Section 14 of VAT Act

9 Section 29 of VAT Act

10 Rule 17 of VAT Rules

11 The notice was issued under Section 14A(2) of VAT Act

12 Section 14(4) of VAT Act

13 Section 29 of VAT Act

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