What Is VAT?
VAT(Value Added Tax) is a type of tax that is levied on the price of a product or service at each stage of production, distribution, or sale to the end consumer. It is also known as the goods and services tax (GST) in some countries. Value Added Tax is an indirect tax as the person who pays tax is not necessarily the one who pays the tax to the concerned authority. Basically, there are two methods of calculating VAT, i.e. the credit invoice and the subtraction or account-based method. Sales transactions are taxed in the credit-invoice method. A business at the end of a reporting period calculates the value of all taxable sales, subtracts the sum of all taxable purchases, and applies the VAT rate to the difference in the subtraction method or accounts-based method.
What Is The Effect Of VAT In My Business?
Basically, the normal VAT rate in Nepal is referred to be 13%. However, the VAT rates are different for different goods and services. Talking about the cases, for the goods and services which are listed in Schedule 1 of the VAT Act 2058 the tax rate is 0%. The businesses include animal products, medicine, agriculture products, health services, education, etc.
At the same time, the goods and services which are listed in schedule no 2 is 13%. Matter the fact is when a business gets registered for VAT, it symbolizes that the business must charge an additional 13% on the sale of its goods or services. But the case here is different as the businesses are not the one who bears the VAT as consumers are the bearer of VAT in the form of indirect tax.
Is It Necessary To Register My Business To VAT?
In the context of Nepal, VAT registration is not compulsory for every business. For eg those businesses which are running their business not registered in Schedule 1 of the VAT Act 2058, are not compelled to register for VAT. The businesses include agriculture products, animal products, medicine, health services, education, etc. Moroever it also includes newspapers, books, transportation services, artistic goods, etc. These businesses are exempted from the requirement to register for VAT.
But at the same time, the person/entity with an annual turnover above Rs 50 lakhs dealing with goods must register to VAT. So you might be wondering Is It Necessary for registering VAT who has a turnover of less than Rs 50 lakh? Well, it is not compulsory for a person with a turnover of less than Rs 50 lakh to register for VAT, though they can voluntarily register for VAT.
Talking about the people rendering services, they need to compulsorily register for VAT if their turnover exceeds over Rs 20 lakh. Likewise, it is compulsory for a business to register for VAT in case their commercial loans exceed Rs 1 million. Also, a business should get its VAT registered when its stock holdings are worth more than the limit set by the IRD.
How To Register a Business In VAT?
There are various steps to be followed while registering VAT In Nepal. But before registering for VAT make sure that your business is registered for PAN which stands for Permanent Account Number. Business owners can register both PAN and VAT via the Inland Revenue Office and the Inland Revenue Revenue Department. As of now, it has been easy for business owners as they can register for VAT online. The VAT registration process in Nepal can be summarized in simple steps.They are:-
- Go to the official site of the Inland Revenue Department and select Taxpayer Portal. After that enter a username, password, and other details required.
- Select VAT in the options also you can expand registration for PAN, VAT, and Excise, and click on Application for Registration. But as of now we are registering for VAT so select VAT and click Ok.
- After that enter your PAN number and then move forward clicking Next.
- There comes the new tab where you need to fill in the details of the contact person for sales tax.
- Also, you can receive a copy of the submitted application by clicking the Print button. Further, you need to visit the Inland Revenue Department and send the printed application. All the list of the applications submitted by the taxpayer can be seen on IRO’s official website.
Documents Required To Register VAT
Here is the list of some documents that you need to have before planning to register VAT In Nepal. They are:-
- Copy of your citizenship certificate for national and foreigners their real identity documents are required.
- If applicable a copy of the business enterprise registration certificate.
- For sole trading, identical passport size photos are required, and for partnership firms, identical size photographs of every partner.
- For Foreigners: If asked for the proof of deposit with the aid of using your IRO.
- Location: Sketched map of the location of your primary office or head office. Application documents must consist of the business enterprise’s seak.
- Besides that rental settlement (including receipt of TDS on rental payment for three months) is required.
FAQ – Frequently Asked Questions
Who should register in VAT in Nepal?
Businesses with transactions above Rs 20 lakh for services and Rs 50 lakhs for goods should be registered in VAT.
Can an individual register in VAT in Nepal?
Yes, an individual can register for VAT in Nepal. But at the same time, he must fulfill the condition of the threshold set by the government.
What are the requirements for registering VAT?
To register for VAT, the business must be registered to PAN. However, you can register for VAT via Inland Revenue Department (IRD) in Nepal.
Who pays VAT in Nepal?
Generally, VAT is taken from the consumer by the businesses in the form of indirect tax in Nepal.
How Does VAT Work In Nepal?
VAT is basically divided into two categories, taxable and tax-exempt. For the goods and services which are listed in Schedule 1 of the VAT Act 2058, the tax rate is 0% and for the goods and services which are listed in the schedule, no 2 is 13%.