VAT threshold expanded, turnover tax introduced


Almost two decades after the enforcement of value added tax (VAT), turnover tax, annual transaction, Revenue Division, Ministry of Finance, small and medium enterprises (SMEs), earthquake affected districts, the government has expanded the threshold of VAT to Rs five million from Rs two million on supply of goods.

This means from next fiscal 2015-16, goods suppliers whose annual turnover doesn’t exceed Rs five million need not be registered in VAT net. In other words, they will not be obliged to keep records of their transactions. However, the budget has not changed the threshold of Rs one million for suppliers of services.

Along with this relaxation, the government has introduced turnover tax. Those who prefer bookkeeping of over Rs two million worth of annual transaction would not be liable to pay turnover tax.

“The government has expanded the threshold considering the lack of capacity of bookkeeping of small firms, but their annual transaction easily exceeds Rs two to three million,” said Laxman Aryal, joint secretary at the Revenue Division of Ministry of Finance, adding, “Those who don’t have capacity of bookkeeping should declare turnover tax based on self-assessment.”

Under the turnover tax, commission-earners will have to submit 0.5 per cent of their income, and small businesses will have to submit 1.5 per cent of their income and service suppliers will have to submit two per cent of their income. It is mandatory for goods suppliers whose turnover exceeds Rs five million and Rs one million in supply of services to be registered in the VAT net.

VAT is the major source of revenue that contributes around 30 per cent of the total tax collection. Currently, there are 141,000 taxpayers under VAT net, but 92 per cent of the VAT amount is being collected from the 30,000 taxpayers whose annual turnover is over Rs 10 million.

The fiscal budget has not made any changes on income tax slab of Rs 250,000 for individuals and Rs 300,000 for couples. Fiscal budget 2015-16, however, has exempted excise renewal tax, rent tax and income tax of small and medium enterprises (SMEs) — whose annual turnover is less than Rs two million — of the 14 earthquake affected districts.

Also, budget has introduced a mandatory provision of submitting the income statement of a person who earns more than Rs four million in a year from fiscal 2015-16.

Tax discounts and waiver

  • Tourism and special industries to be exempt from dividend tax if they use accumulated profit to replenish capital stock and expand capacity of their facilities
  • Small taxpayers who have lost properties to earthquakes to get income tax, excise duty, licence fee and house rental tax waiver
  • Tourism and special industries that have employed over 100 Nepalis to get 30 per cent rebate on income tax
  • Customs duty on imports of construction and raw materials for reconstruction to be reduced
  • Process of importing machinery and equipment to enhance agricultural productivity or for reconstruction purpose to be simplified
  • Customs duty on imports of buses with seating capacity of 40 or more to stand at five per cent; cooperatives and companies operating such buses to get discount on excise duty and road maintenance and improvement tax
  • Productive industries, except those producing tobacco and alcohol related products, to get 50 per cent discount on land registration fee
  • Farmers rearing fish in over one hectare of land to get 50 per cent rebate on customs duty while importing vehicles containing oxygen plant to transport fishes and fishlings
  • Green house and irrigation equipment imported by agricultural and horticulture firms to be exempt from value added tax
  • VAT waiver on crop and livestock insurance premium
  • No tax to be levied on life insurance payment and compensation extended to the bereaved family
  • Social security tax waiver on pension fund extended from government coffers