Taxation in Nepal

  • by Ghimire S. Associates

The main objective of the tax system is to enhance revenue mobilization through effective revenue collection procedure for the economic development of the nation. Income is taxed in accordance with the provisions of Income Tax Act 2002 (ITA). The salient features of the ITA are: a. Various concessions and incentives allowed under different Acts have been repealed and provided under the single ITA b. The tax liability of residents and non-residents are clearly defined c. Worldwide income of a resident, whether individual or company is made taxable in Nepal d. Income with source in Nepal is taxable in Nepal irrespective of the place of payment e. Specific provision for taxing capital gains is introduced f. Procedures for granting credit for international tax are prescribed g. General provision for anti-avoidance and income splitting rules introduced and h. Clearly defined the tax administration and payment procedures are provided The tax is levied on income accrued or received from business, investment, employment and windfall gains. Both individual and companies are required to follow a uniform income year that runs from July 16 to the following July 15 corresponding to the Nepali Fiscal Year (NFY). All persons with assessable income are required to register with the Inland Revenue Office (IRO) and obtain a Permanent Account Number (PAN) and to file a tax return annually. Returns are filed under a self-assessment system under which the IRO considers returns final unless they are subject to a detailed audit of the taxpayer’s affairs. In practice, Assessing Officers make tax audit assessment and adjustments in the majority of the cases. Income tax payments are made in the year in which the income is earned in the form of withholding tax and advance tax. Companies are subject to a flat rate of tax, whereas individuals are taxed at progressive rates. The Director General (DG) of Inland Revenue Department (IRD) has responsibility for the general administration of the ITA.