Value Added Tax (VAT) is an indirect tax on the value added at each stage of production and sale. It is governed by the VAT Act, 2052 and VAT Rules, 2053, administered by the Inland Revenue Department (IRD), and applied in Nepal since 2054 BS. The rates and limits are changed through the yearly Finance Act.
1. Rate and basic features
- Standard rate: 13%; zero rate (0%) for zero-rated supplies.
- The buyer pays VAT; the registered seller collects it and pays it to the government.
- A registered person can claim input credit (VAT paid on purchases) against output VAT (VAT charged on sales).
- VAT revenue is shared: 70% federal, 15% province, 15% local level.
2. Registration
| Business | Must register when annual turnover is above |
|---|---|
| Goods only | Rs 50 lakh |
| Services, or goods and services together | Rs 30 lakh (raised from Rs 20 lakh in FY 2081/82) |
- Apply within 30 days of crossing the limit.
- Some businesses must register from the start, whatever the turnover (for example hotels and restaurants, liquor, telecom, IT and certain professional services).
- Voluntary registration is allowed.
- Process: obtain a PAN → apply through the IRD portal or Inland Revenue Office with registration documents, ID and photo → receive the VAT registration certificate.
- Late registration fine: Rs 10,000 per tax period.
3. Deregistration
A registered person who closes the business or no longer needs to be registered can apply to the tax office to cancel registration, after clearing tax dues. The tax office decides according to the Act and Rules.
4. Return filing (कर विवरण दाखिला)
- VAT returns are filed and tax paid monthly within 25 days after the end of the month (some businesses may be allowed other periods).
- Records must be kept for 6 years.
- Invoices (tax invoices / bills) must be issued for every sale.
5. Exempt and zero-rated supplies
| Exempt (Schedule 1, अनुसूची-१) | Zero-rated (Schedule 2, अनुसूची-२) |
|---|---|
| No VAT charged; generally no input credit | 0% VAT; full input credit allowed |
| Basic agricultural products and inputs, basic necessities, live animals, medicines and health services, education, books and newspapers, passenger transport, land and buildings | Exports of goods and services, supplies to diplomatic missions and UN agencies (as specified), certain goods for special economic zones |
6. VAT withholding (कर कट्टी)
When government offices and partly state-owned bodies pay contractors or suppliers under contract, they deposit 50% of the VAT amount directly into the revenue account in the supplier’s name; the rest is paid to the supplier.
7. Worked examples
| Case | Working | VAT payable |
|---|---|---|
| Sales Rs 5,00,000 + VAT; purchases Rs 3,00,000 + VAT | Output 65,000 − input 39,000 | Rs 26,000 |
| Price before VAT Rs 2,000 | 13% of 2,000 | Rs 260 (total Rs 2,260) |
| Price including VAT Rs 1,130 | 1,130 × 13 ÷ 113 | Rs 130 VAT inside |
| Exporter with input VAT Rs 10,000 | Exports are zero-rated | Refund or credit of Rs 10,000 |
8. Key facts
- VAT Act, 2052; VAT came into force on 1 Mangsir 2054 BS at 10%; now 13%.
- Registration: goods sellers above Rs 50 lakh turnover; service and mixed businesses above Rs 30 lakh (from FY 2081/82).
- Monthly returns are due within 25 days of the end of the period.
- Records must be kept for 6 years.
- Government bodies withhold 50% of the VAT on contract payments.
9. How this topic is asked in the exam
Objective questions ask the VAT rate, thresholds, return dates and the difference between exempt and zero-rated supplies. Numerical questions ask VAT payable from input and output tax. Subjective questions ask about the advantages of VAT or the problems in VAT administration.
📌 Key points to remember
- VAT Act 2052, Rules 2053; IRD administers; 13% rate.
- Registration limit: goods Rs 50 lakh; services or mixed Rs 30 lakh.
- Register within 30 days of crossing the limit.
- Monthly return and payment within 25 days after month end.
- Exempt = no VAT, no input credit; zero-rated = 0% with input credit (exports).
- Government offices withhold 50% of VAT on contract payments.
- VAT sharing: 70% federal, 15% province, 15% local.
Test yourself: Value Added Tax (मूल्य अभिवृद्धि कर) in Nepal
15 questions check what you read about Rate and basic features, Return filing (कर विवरण दाखिला) and VAT withholding (कर कट्टी).