gairidhara, kathmandu, nepal

Compiled by:

CSC & Co.

Chartered Accountants

Gairidhara, Kathmandu, Nepal

Nepal Budget Highlights

2077/78 (2020/21)

CSC & Co., Chartered Accountants.

Contents:

1. Budget Overview and key Notes ........................................................................................................ 1

2. Income tax ............................................................................................................................................ 7

3. VAT .................................................................................................................................................... 11

4. Excise .................................................................................................................................................. 14

5. Customs .............................................................................................................................................. 16

Tax and TDS Rates applicable for F.Y. 2020/21 .................................................................................... 17


2077/78 (2020/21)

CSC & Co., Chartered Accountants 1

1. BUDGET OVERVIEW AND KEY NOTES

1.1 Introduction

Amid outbreak of corona virus and disruption of economic activities, Honorable Finance Minister, Dr.

Yuba Raj Khatiwada presented budget for the fiscal year 2077/78 (2020/21) on 28 May 2020. The budget

has estimated 7% economic growth and also target to maintain the inflation rate at 7%.

1.2 Budget Summary: Source and Allocation

Fiscal year wise (amount in billion)

Source 2020-21 2019-20 Allocation 2020-21 2019-20

Revenue Mobilization 890 981 Capital Expenditure 353 408

Foreign Grants 61 58 Recurrent Expenditure 949 957

Domestic Borrowing 225 299 Financing Provision 173 168

Foreign Loans 299 195

Total 1,475 1,533 Total 1,475 1,533

1.3 Budget Summary: Income and Expenditure Statement

Source/Application Amount in billion

FY 2018-

19 (Actual)

FY 2019-20

(Revised

Estimates)

FY 2020-21

(Estimates)

Revenue available to Central Government 840 827 1,012

Tax 737 750 913

Non-Tax Revenue 93 77 99

Misc. Receipts 10 - -

Revenue sharing to Province/local 97 100 122

Revenue deposited into Sanghiya Sarwasanchit Kosh (A-B) 743 727 890

Grant 23 32 61

Grant 23 32 61

Total Revenue and Grant 766 759 9,51

Revenue

61%

Foreign

Grants

4%

Domestic

Borrowing

15%

Foreign

Loans

20%

SOURCE OF BUDGET (2020-21)

Capital

Expenditure

24%

Recurrent

Expenditure

64%

Financing

12%

ALLOCATION OF BUDGET (2020-21)


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Source/Application Amount in billion

FY 2018-

19 (Actual)

FY 2019-20

(Revised

Estimates)

FY 2020-21

(Estimates)

A. Recurrent Expenditure 716 702 949

Remuneration and Benefits 100 145 138

Use of goods and service 33 42 74

Interest, Service Fees and Bank Commission 21 30 32

Subsidies 1 1 2

Grants 443 379 500

Social Security 116 102 189

Other expenditure 2 3 14

B. Capital Expenditure 242 239 353

Capital Expenditure 242 239 353

Total of Expenditure (A+B) 958 941 1,302

Budget Surplus/(Deficit) (192) (182) (351)

Financing

Internal Financial Assets (98) (67) (104)

Foreign Financial Assets (0.2) (1) (0.3)

Internal Liability 62 155 179

Foreign Liability 104 95 276

Total 68 183 352

Surplus/(Deficit) (124) - -

There has been 4% reduction of overall budget size from the previous fiscal year. The budget deficit is planned

to be covered from domestic and foreign loans. Reduction of internal revenue has led to increased dependency

on financing the budget from foreign loans (53% increase from previous fiscal year).

353

949

173

408

957

168

Capital Expenditure Recurrent

Expenditure

Financing

Expenditure

2020-21 2019-20

-13%

-1% 3%

890

61

225 299

981

58

299

195

Revenue

Mobilization

Foreign

Grants

Domestic

Borrowing

Foreign Loans

Source of Budget

2020-21 2019-20

-9%

5%

-25%

53%


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1.4 Budget Objectives

To ensure a safe and smooth lifestyle of citizens by protecting them from all types of disease and

disaster.

To continue the speed of development by rapid financial resurrection through optimum utilization

of available resources and equipment, opportunities, and capabilities.

To increase the welfare role of the state through the fulfillment of necessities in the form of

fundamental rights of a citizen.

To develop an uplifted, advanced, independent, prosperous, and socialism-oriented economy

through social, financial, and physical infrastructure development.

1.5 Budget Priorities

Extension of health services, construction, and up-gradation of health infrastructure, development

of health manpower for access to quality health services and protection of citizens from al type of

health risks including coronavirus.

The resurrection of agriculture, tourism, industry, construction and other affected business whose

products and supplies are affected by the steps taken for the prevention and control of coronavirus

transmission.

Work and employment opportunities, food security, protected housing, social security and

protection of the citizen.

Implementation of projects having an immediate return of development and projects to be completed

within next year.

Development and construction of social, financial, and physical infrastructure in addition to

qualitative and practical education, expansion of information technology and basic drinking water;

and

Implementation of federalism, qualitative and accessible public services, and strengthening of

accountable & transparent governance.

1.6 Fiscal Federalism – Budget to Provincial and Local Governments

Amount for equalization, matching and special grant has not been changed. However, allocation for

conditional grant has been increased by 17%.

Nature Amount allocated in billion (NPR)

Provincial

Governments

Local

Governments

Total

Equalization Grant 55.19 90.05 145.24

Conditional Grant 36.35 161.08 197.43

Matching Grant 4.16 5.80 9.96

Special Grant 4.17 5.80 9.97

Total Grant 99.87 262.73 362.60

% of total fiscal transfer grant to total budget

(14,74.65)

6.77% 17.82% 24.59%

Revenue Sharing 97.03 100.19 122.14


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1.7 Other Key Notes

Health

❑ 32% increase in the budget: The budget for the health sector has been allocated as NPR 90.69

billion with a significant increase from the previous fiscal year. The budget has been increased to

develop health infrastructure and address an immediate need to fight with the COVID-19

pandemic.

❑ Immediate fight against COVID-19: NPR 6 billion has been allocated for the immediate

procurement of health products and equipment for the COVID-19 prevention and treatment.

❑ Plan to cover 40% population of all palikas in health insurance within three years. The budget

of NPR 7.5 billion has been provisioned.

❑ Provision of NPR 12 billion for health infrastructure in Kathmandu valley, capital of provinces

and other major cities.

❑ Establishment of 272 hospitals with capacity of 5-15 beds at palikas, budget of NPR 14 billion

has been allocated.

❑ Allocation of NPR 5 billion for one doctor to one health facility at palikas.

❑ Health insurance: NPR 500,000 to health workers working to fight COVID-19 and other

communicable diseases.

❑ FCHVs: Transportation allowance being provided to Female Community Health Volunteers

(FCHVs) has been doubled. (NPR 6,000 per year from NPR 3,000).

❑ Immunization: Nepal to be declared as a fully immunized country in the next fiscal year.

Relief, Concession and Economic Resurrection

❑ Relief to unorganized workers: Provision of food equivalent to one-fourth of minimum wages

to workers in unorganized sectors affected by COVID-19 who are not associated with

employment programs and food program being implemented in coordination with federal,

provincial and local level governments.

❑ Concessional Loan for the smooth operation of the business: Establishment of a fund to be

operationalized by Nepal Rastra Bank amounting to NPR 50 billion to provide concessional loan

at the interest rate of 5% to SMEs, cottage and tourism industries affected by COVID-19 for

payment of salary to employees and running business.

❑ Rebate in Electricity: Electricity will be provided free to the small household consumers

consuming less than 10 units, with 25% discount to consumers consuming up to 150 units and

15% discount to consumers consuming up to 250 units. Production-based industries affected by

COVID-19 will be provided a full discount on demand charge during the lockdown and 50%

discount during the low demand period.

❑ Refinancing Facility: Amount of NPR 100 billion for providing concessional loans at 5% interest

rate to the SMEs, cottage, agriculture, hotel, tourism, and production-based industries affected

by COVID-19.

❑ Corona Disease Insurance: 50% discount on the payment of annual premium for group insurance

up to NPR 100,000.


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❑ Social Security: Employer and employee's contribution to the Social Security Fund of workers in

organized sectors will be deposited by the Government during the period of lockdown. Such

amount can be borrowed for the payment of salary and it should be deposited to the Fund after

business resumes.

❑ Start-Ups: Budget of NPR 0.5 billion has been allocated for disbursing loan at 2% interest for

funding initial capital to encourage startup businesses with innovative ideas and utilizing

opportunities due to corona.

❑ Aviation: Arrangement for a concession on parking charges, renewal fees, flying license fees &

infrastructure tax on aviation fuel to the Nepalese aviation industry.

❑ Construction, Transport, Communication, and Cinema: Concession will be provided on license

& equipment renewal fee, loan for working capital. Further, arrangements will be made for the

extension of contracts and bank guarantees during the period of lockdown.

Financial Sector

❑ 50% subsidy in credit guarantee of concessional loan and business insurance premium.

❑ Arrangement for extension of insurance policy during the lockdown period of industrial enterprise

and vehicles which are not in operation due to COVID-19.

❑ Operationalization of stock dealers to enhance institutional investment in the capital market.

❑ The sovereign Credit rating of Nepal to be completed in the next 6 months.

Labor and Employment

❑ Creation of Employment: A target of creation of around 700,000 number of employments

through various interventions from Prime Minister Employment Program, Youth Self

Employment Program, Micro Finance for Poor Program, Small Farmers Loan Program, skills

development, training, access to technology, capacity building of training provider institutions,

subsidy to employers, etc.

❑ Prime Minister Employment Program: Allocation of budget amounting to NPR 11.60 billion

with an increase by two times than amount budgeted in the previous fiscal year.

❑ Concessional Loan from BFIs: Concessional loans should be provided to at least 10 persons by

each branch of commercial banks and 5 persons by each branch of development banks.

❑ Strict implementation of provisions on the restriction of employing foreign citizens without

approval.

Agriculture and Land Reforms

❑ Allocation of NPR 3 billion for establishing 250 production pocket areas in various palikas under

Prime Minister Agriculture Modernization Program.

❑ Budget of NPR 1 billion for establishment of 200 Food Storage Center to strengthen food security

and supply chain management and ensure price of agro products.

❑ An increase of NPR 5 billion on subsidy for chemical fertilizer with provision of budget for

current fiscal year amount to NPR 14 billion

❑ Kisan Credit Card will be started to ease out the agro financing.


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❑ Establishment of units of Land Bank in 300 palikas with joint financing of federal, provincial,

and local governments.

Miscellaneous

❑ Virtual learning will be implemented in the education system

❑ Construction Integrated check post on the border of Bhairahawa and Nepalgunj will be started.

❑ 4G services will be expanded nationwide.

❑ The facility of concessional loans for construction of a residence and higher education of

children will be provided to government employees.


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2. INCOME TAX

❑ Drinking Water and Sanitation User Association: Income earned by Drinking Water and Sanitation

User Association established under Water Resources Act 2049 as per its objectives shall be exempted

from tax. [Sec 10(Ta)].

Section 22 of the Finance Bill has waived off outstanding tax, fee and interest payable out of total tax

applicable as per Income Tax Act, 2058 on the income of such association as per its objectives for

income year 2076/77 and prior income years. Further, it has also waived off outstanding tax, fine and

interest up to Fiscal year 2075/76 levied as per assessment made by Inland Revenue Office.

❑ Cooperatives: Tax shall not be imposed on the income of cooperative organization or institution

operated in Rural Municipality established pursuant to Cooperatives Act, 2074. This will provide

exemption to other types of cooperatives based in rural municipality instead of only those

cooperatives carrying out financial transactions. [Sec 11(2)]

❑ Special Industry operating in very undeveloped, undeveloped and least developed areas: Tax

shall be imposed at the rate of 10%, 20% and 30% of applicable tax rates in case any special industry

is operated in very undeveloped, undeveloped or least developed areas respectively for ten years from

the date of commercial production or commencement of transaction. [Sec 11(3)(Kha)]

❑ Special Industry and Tourism Industry: For special industry and tourism industry (except casino)

established with capital investment of 1 billion and providing direct employment to more than 500

persons throughout the year: [Sec 11(3)(Ga)]

a. For 5 years from date of commencement of transaction: Full tax exemption

b. For 3 years thereafter: 50% of applicable income tax

However, if special industry and tourism industry (except casino), currently in operation, increases

its capacity by at least twenty-five percent with capital investment increased to 2 billion and providing

direct employment to more than 300 persons throughout the year: [Proviso of Sec 11(3)(Ga)]

c. For 5 years from such increased capacity: Full tax exemption

d. For 3 years thereafter: 50% of applicable income tax.

❑ Special Industry in Industrial Area or Industrial Village: A new provision has been introduced to

exempt 25% tax up to 5 years after the date of commencement of transaction for special industry

established and operated in industrial area or industrial village. [Sec 11(3Da)]

❑ IT Industry: Tax shall be exempt on 50% of applicable tax on income of industry relating to software

development, data processing, cyber café, digital mapping established in zoological, geological,

biotech and information technology park as specified by Nepal Government shall be exempted. [Sec

11(3Ga)]

❑ Hydropower: Licensed person or entity commencing its commercial production, transmission, or

distribution of hydropower within Chaitra end 2080: [Sec 11(3Gha)]

a. For 10 years from date of commencement of production: Full tax exemption

b. For 5 years thereafter: 50% tax exemption

Such facility shall be available to electricity generated from solar, wind and bio-product.

2.1 Exemptions and Concessions


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❑ Physical Infrastructure: Exemption as follows on applicable tax for 10 years from the date of

commercial transaction on income earned by any entity that carries out following business: [Sec

11(3Cha)]

a. 40% if tram or trolley bus is operated

b. 40% if ropeway, cable car or overhead bridge is built and operated

c. 50% if road, bridge, tunnel, railway or airport is built and operated

❑ Liquor Industry: Tax rebate of 25% and 40% shall be granted up to 10 years after the date of

commencement of transaction to the industries established in undeveloped and very undeveloped

areas which produce fruit-based brandy, cider as well as wine respectively. [Sec 11(3Ja)]

❑ Airlines and Tourism Industry: The existing provision of exemption to tourism industry and airlines

industry operating international flights on taxes for first five years and 50% of taxes for next three

years on the condition that they increase 25% installed capacity with NPR 2 billion as capital

investment has been withdrawn and hence it will not be applicable for income year 2076/77.

❑ Micro Entrepreneurial Industry: Tax exemption for micro entrepreneurial industries: [Sec 3(Ta)]

a. Fully exempt for 7 years from date of commencement of business or transaction.

b. Fully exempt for 3 additional years (total 10 years) if operated by women.

❑ Presumptive Tax: 75% rebate shall be granted to resident natural person having annual transaction

of NPR 20 lakhs and having taxable income of NPR 2 lakh and whose income is taxed as per Section

4(4). (D-1 Return) Business operated in Revised Tax (NPR) Existing Tax (NPR)

Metro and Sub Metro-Politian City 1,875 7,500

Municipality 1,000 4,000

Oher Areas 625 2,500

❑ Turnover Based Tax: 50% rebate shall be granted to resident natural person paying turnover based

tax and having annual transaction of NPR 20 lakhs to NPR 50 lakhs and whose income is taxed as per

Section 4(4ka). (D-2 Return) Nature of transactions Revised Tax Existing

Gas, Cigarette, by adding commission or price up to 3% 0.125% of turnover 0.25% of turnover

Transactions other than above 0.375% of turnover 0.75% of turnover

Service business 1% of turnover 2% of turnover

❑ 25% rebate shall be granted to person having annual transaction up to NPR 1 Crore. (D-3 Return)

❑ 20% rebate shall be granted to hotel, travel, trekking, transport or aviation services having annual

transaction exceeding NPR 1 Crore. (D-3 Return)

❑ Contribution made to Corona Infection Prevention, Control and Treatment Fund established by

Federal or Provincial or Local Governments is allowed for deduction in the income year 2076/77.

❑ Wages up to NPR 3,000 at a time paid to the natural person without having Permanent Account

Number (PAN) is allowed for deduction from income of business or investment from the income year

2.2 Special Concessions for businesses affected from COVID-19 for the income year 2076/77

2.3 Deductible and Non-deductible Expenses


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2076/77. [Sec 21(1) (Gha1)] (Previously the PAN was compulsory for any type of payment of salary

and wages).

❑ Purchase of Agro items, forest items, animal products and any other domestic goods from natural

person not involved in business and expenses up to NPR 2,000 per invoice without PAN is allowed

for deduction from business or investment income from the income year 2076/77. [Sec 21(1)(Gha2)]

Entity operating as special industry or constructing and operating road, bridge, tunnel, ropeway, railway

or sky bridge or operation of tram or trolley bus for the whole year shall be entitled to additional 1/3rd of

depreciation on rates mentioned in Schedule 2. (This provision shall be applicable from Income Year

2076/77)

❑ TDS @ 2.5% shall be deducted for transportation (Dhuwani) services as well as providing

transportation vehicle on rent. [Sec 88(1)(8)]

However, TDS @ 1.5% shall be deducted if Dhuwani Service provider or provider of transportation

vehicle on rent is registered in VAT.

Previously, TDS @ 2.5% was deducted for all Dhuwani services irrespective of registration in VAT.

❑ TDS @ 10% shall be deducted on interest payment on loan taken in foreign currency from foreign

banks by Resident Banks and Financial Institutions to make investment in sectors prescribed by Nepal

Rastra Bank. [Sec 88(1)(9)]

❑ No TDS shall be deducted on incentive amounts paid to customers if a consumer pays for goods or

services using card, e-wallet, mobile banking and other digital payment systems.

Previously, no TDS was deducted on amount provided to consumer as encouragement pursuant to

VAT Act only [Sec 88(1) (10)]

❑ TDS @ 5% shall be deducted on any payment made to a non-resident person under a contract or

agreement [Sec 89(3)(Ka)].

❑ No TDS shall be deducted on retirement payment if a contributor transfers the amount deposited in

approved retirement fund to Social Security Fund within 2077 Chaitra end.

❑ Advance tax @ 15% shall be deducted on language examination fees by resident Banks and Financial

Institutions while providing foreign exchange facilities to students who are going abroad for studies.

[Sec 95Ka(6Ka)]

❑ Tax @ 1% shall not be applicable to natural person elected as couple if he/she makes contribution to a

pension fund or contribution based Social Security Fund. (This provision shall be applicable from Income

Year 2076/77)

2.4 Additional Depreciation

2.5 Tax Deduction at Source (TDS) and Advance Tax

2.6 Tax Rates


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❑ Cooperatives registered pursuant to Cooperatives Act 2074 (except cooperative carrying out exempted

transactions) shall be taxed at following rates:

a. 5%, if operating within Municipality area.

b. 7%, if operating within Sub-Metropolitan city.

c. 10%, if operating within Metropolitan city.

❑ The provision of reducing additional 25% of the basic exemption limit or actual pension whichever is

lower has been withdrawn in assessing the tax of resident natural person having pension income.

❑ If a person had earned any taxable income but failed to pay tax in the past, gets registered in PAN,

pays taxes and submits tax returns of the income year 2074/75 and 2075/76 within end of Falgun

2077,

a. Fees and interest of income year 2074/75 and 2075/76 shall be exempted.

b. Tax, fees and interest of prior income years shall be exempted.

❑ If a natural person who has been already registered in PAN, with annual transactions not exceeding

NPR 50 lakhs but has not submitted tax return if submits the tax return and pay taxes for income

year 2073/74, 2074/75 and 2075/76 along with 25% of chargeable interest within end of Falgun

2077,

a. Tax return of prior income years is not required to be submitted.

b. Tax, fees and interest of prior years are exempted.

❑ If a natural person or entity already registered in PAN, with annual transactions exceeding NPR 50

lakhs has not submitted tax return for income year 2073/74 and before, submits the return and pay

taxes along with 25% of chargeable interest within end of Falgun 2077,

a. Tax return of prior years is not required to be submitted.

b. Tax, fees, and interest of prior years are exempted.

If the taxpayer withdraws the appeals made to various levels (Administrative Review, Revenue Tribunal or

in the Courts) on account assessments made up to Ashadh 2075 and pays the applicable taxes and interest

as assessed by the tax officer in final assessment order within the end of Falgun 2077, the applicable fee,

additional charges and penalty shall be waived for all such cases filed under Income Tax Act 2058.

PAN shall be suspended in any of the following cases:

a. Person stops doing transaction.

b. In case of entity, if the entity is closed, sold or transferred or it ceases to exist

c. In case of individual ownership, the owner dies.

d. Registration by mistake.

2.7 Waiver of tax, fees, and interest

2.8 Special provision on waiver of fees, additional charges and interest

2.9 Suspension of PAN


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3. VAT

3.1 Removal of compulsory registration

The following services are not compulsorily required to be registered under VAT:

- Scrap materials business

- Motor parts, legal & tailoring with shirting and suiting businesses

- Business specified under Section 10(2) (Kha) operating in Municipality

# Specified business: Hardware, sanitary, furniture, fixture, furnishing, automobiles, electronics, marble,

educational consultancy, accounting and auditing services, catering-party palace, parking, drycleaners using

machinery, restaurant with bar, ice cream industry, color lab, boutique, business of supplying uniform to

educational institution or health institution or other entities.

3.2 Tax Refund

❑ Refund to be provided for tax paid during purchase of goods and services in Nepal to conduct activities

as per its objectives by United Nations, its member organizations and specialized agencies.

Application for refund should be filed to the Inland Revenue Department in the form mentioned in

Annex 17ka of VAT Rules. [Sec 25(1)(Ka2)]

❑ Contractors or suppliers can adjust the VAT paid by the organizations (wholly or partially owned by

GON) or Public entity as per prevailing public procurement law in their VAT payments. If the VAT

amount remains in credit for continuous four months’ period even after adjusting such paid amounts,

the Contractor or supplier can claim for refund of additional amount.

Tax Officer should pay the approved refund amount within 60 days of application. Once claim for

refund has been made, such amount shall not be adjusted in next months’ collected taxes. {Section

25Ga1}

❑ VAT paid by pharmaceuticals on purchase of raw materials, auxiliary materials and packing materials

procured from local industry, Such VAT will be refunded on trimester basis. Tax Officer should pay

the approved refund amount within 60 days of application.

Application for refund should be filed to the Inland Revenue Department in the form mentioned in

Annex 18ka of VAT Rules. {Section 25Ga2}

3.3 Fines and Penalty

❑ If the person who should be registered in VAT or who has been ordered for registration by Tax Officer

does not register, fine at NPR 20,000 each time will be levied (previously NPR 10,000 per tax period).

{Section 29(1Ka)}

❑ If the person who should be registered in VAT does not register and operates their business, then fine

at rate of 50% of the tax amount will be levied. {Section 29(1Gha)}


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3.4 Waiver in additional charges, interest and penalty

The Finance Bill 2077 has introduced following waivers in respect to additional charges, interest and

penalty in order to bring taxpayers in the tax net and reduce judicial disputes:

❑ The Vat registered persons who haven't submitted the VAT return till Ashadh end 2075, if submits

VAT return, pays VAT amount as per the return and 50 % of interest on such amount within the Falgun

end of 2077 B.S, he/she will be exempted from fine, additional charges and remaining interest amount

of such VAT amount. (Sec 21 of Finance Bill)

❑ Among the taxpayers mentioned above, who haven’t submitted the VAT return till the Ashadh end

2073, if do not submit the VAT return within the mentioned time, they will be deregistered

automatically. Charges applicable for the late filing of returns shall be waived however, the remaining

due tax, interest and fee shall be recovered. (Sec 21 of Finance Bill)

❑ If the taxpayer withdraws the appeals made to various levels (Administrative Review, Revenue

Tribunal or in the Courts) on account of disputed taxes up to Ashadh 2075 and pays the applicable

taxes and interest as assessed by the tax officer in final assessment order within the end of Falgun

2077, the applicable fee, additional charges and penalty shall be waived for all such cases filed under

VAT Act 2052. However, this facility is not available in case of tax assessment related to fake and

duplicate invoicing. (Sec 24 of Finance Bill)

3.5 Relaxation in Tax Period and Biometric System

❑ Tax period of Hotel, Tourism Business, Cinema Hall, and Transportation Business has been changed

to 4 months. These businesses can file the VAT Return on trimester basis. (Rule 26)

❑ The timeline to update records in bio-metric system for registered persons has been deferred till the

end of Ashadh, 2078 from Ashadh, 2077. (Rule 7kha)

3.6 Key Changes to Schedules

Schedule 1: Exempted Goods and Services

Group 5: Medical Treatment and related health services Items used for medical and surgical works (PPE), Viral Transport Media, PCR Test kit, RDT test kit, PCR reagents,

Extraction kits, Surgical gloves, face masks, Autoclave machine, Digital infrared thermometer (Thermal gun), Portable

PCR machine and Protective Goggles.

Group 11: Other Goods and Services Micro Insurance, Sadi, Lungi, Dhoti (Earlier only of suti was exempted but now all fabric), Face mask making

machine, Dead body burning machine,

Exemption of VAT shall be given to construction equipment, plant and machinery and related

spares required for hydroelectricity generation, transmission, and distribution project on the

recommendation of

- Investment Board (For projects operated on approval of investment board);

- Alternative Energy Promotion center (For projects operated on approval of AEPC); and

- Department of Electricity Development (For other projects).


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If Vehicles imported on VAT exemption facility by community educational institutions, on the

recommendation of Ministry of education, science and technology, are sold or transferred within

10 years, VAT shall be applicable as per prevailing law.

Schedule 2: Zero VAT

Zero VAT facility provided to deep cycle lead acid battery used in electric vehicle produced by

domestic industries has been withdrawn.

Zero VAT facility shall be provided to projects undertaken in Nepal (Approved tax exemption

provided pursuant to bilateral or multilateral agreement with Ministry of Finance, Government

of Nepal) as per the procedure specified by the department. If for the purpose of such projects,

required machinery, equipment, and construction materials as per approved master list are

produced by domestic industries and such industries supplies directly to projects or through

project contractor.


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4. EXCISE

4.1 Major Amendments

❑ Excise Ticket: Excise Ticket has been defined as a ticket attached on excisable goods by Department

ticket issued electronically or any other means by the Department. [(Sec 2(Ka1)]

❑ Gift or Rebate: The liquor, Beer or Cigarette industry and importer of such goods or their sellers shall

not operate any type of gift program or such industry shall not provide any rebate to distributor while

selling such products. If such an act is carried it shall be deemed to be breach of the condition of the

license. [(Sec 4(Nga)] Earlier, liquor and tobacco industry could provide discount or operate any gift

program to distributor registered under VAT.

❑ Renewal of License: Industries, in which self-removal system is implemented, are not required to

renew their license obtained to manufacture products except for products related to tobacco. [(Sec

9(5Ga)]

❑ Penalty: In case of production, bottle seal, and sales of alcohol contrary to the Act, Regulations formed

under the Act or conditions set by department, such person shall be punished with imprisonment for a

term not exceeding one year or with a fine equivalent to the amount in controversy or both. [(Sec

16(1) (Gha)]

In case of use of spirit or ethanol in excess to the quantity authorized as per the law, penalty at the

highest rate of excise duty on production of alcohol from such spirit and ethanol shall be levied. [(Sec

16(4) (Dha1)]

❑ Waiver of Fee, Additional Charges, Penalty: If the taxpayer withdraws the appeals made to various

levels (Administrative Review, Revenue Tribunal or in the Courts) on account of disputed taxes up to

Ashadh 2075 and pays the applicable taxes and interest as assessed by the tax officer in final

assessment order within the end of Falgun 2077, the applicable fee, additional charges and penalty

shall be waived for all such cases filed under Excise Act 2058.

4.2 Key changes in Schedule

A. Excise Duty has been imposed on following:

@5% on Almonds. (802.11.00, 802.12.00)

@ 5% on Leafs to roll Beedi (1404.90.30)

@ 10% on Extracts, essences, and concentrates, of tea or mate, and preparations with a basis of

these extracts, essences or concentrates or with a basis of tea or mate. (2101.20.00)

@10% on Ice cream and other edible ice, whether containing cocoa (2105.00.00)

@ 1000/ Kg on Hukka Flavor (2403.99.91)

@30% on Electric cigarette (8543.70.10)

Electric car, jeep, van is brought into excise net in the range of 30 to 80 percent depending upon

capacity (KW) of such vehicle.


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B. Excise Duty has been increased on following:

Duty shall be levied at the rate of NPR 650 /Kg (Previous 610/Kg) in Pan masala without tobacco

(2106.90.20)

Duty shall be levied at the rate of NPR 650 /Kg (Previous 610/Kg) in Jarda, Khaini, Snuff, Ghutka

and similar preparations containing chewing tobacco (2403.99.10)

C. Excise Duty has been removed on following:

@10% on Machines which perform two or more of the functions of printing, copying or facsimile

transmission, capable of connecting to an automatic data processing machine or to a network

(8443.31.00).

@10% on Other, capable, or connecting to an automatic data processing machine or to a network

(8443.32.00)


2077/78 (2020/21)


5. CUSTOMS

❑ 1% duty in case of Ambulance and Dead Body Carrying Vehicle imported by private hospital and

community hospital, on recommendation of Ministry of Health and Population of Nepal,

Importer Limit

Hospital < 100 Beds 1 ambulance & 1 dead body carrying vehicle

Hospital > 100 Beds 2 ambulances & 1 dead body carrying vehicle

Metro and Sub Metropolitan City 4 ambulances

Municipality 3 ambulances

Rural Municipality 2 ambulances

❑ 75% duty exemption on import of bus with capacity of more than 30 seats falling under sub headings

8702.10.10, 8702.20.10, 8702.30.10, 8702.40.10, 8702.90.10 by community educational institution on

recommendation of Ministry of Education, Science and Technology of Nepal.

❑ Duty increased in petroleum products

Harmonic Code Product Revised Duty Existing Duty

HS 2710.12.10 Motor Spirits (Petrol) NPR 25,200 per kl NPR 15,200 per kl

HS 2710.12.20 Hexane (Food Grade) NPR 25,200 per kl NPR 15,200 per kl

HS 2710.19.10 Kerosene Oil NPR 12,000 per kl NPR 2,000 per kl

HS 2710.19.30 High speed Diesel NPR 12,000 per kl NPR 2,000 per kl

❑ Duty increased in gold and silver:

Harmonic Code Product Revised Duty Existing Duty

HS 7106 Sliver NPR 85 per 10 gms. NPR 75 per 10 gms.

HS 7108 Gold NPR 8500 per 10 gms. NPR 6500 per 10 gms.

❑ Duty imposed on electric vehicles up to 80% based on various capacities.

❑ Decrease in duty in power bank (15% to 10%), soap noodles & pickle (20% to 15%) and chocolate

and other food preparation containing cocoa (40% to 30%).

❑ On the recommendation of Ministry of Health and population, Customs duty exemption shall be

provided on import of following items required for prevention, control and treatment of COVID-19

on the condition that the items shall be handed over to ministry or health facilities/ entities specified

by the ministry as assistance:

Medicines covered under chapter 30, PPE to be used in medical and surgical works, Viral transport media,

PCR, Test kit, RDT test kit, PCR reagent, Extraction kits, Surgical gloves, Face mask, Autoclave machine, Digital

infrared thermometer, Ventilator, Portable PCR machine, Protective goggles


2077/78 (2020/21)


TAX AND TDS RATES APPLICABLE FOR F.Y. 2020/21

Tax Rates (Schedule 1)

Schedule 1 Particulars Tax Rates / Amount

For Natural Person

(1)(1)

Resident natural person: up to 400,000 (employment income except pension)

up to 400,000 (business and investment income)

next 100,000

next 200,000

next 1,300,000

balance above 20 lakhs

1% tax shall not be imposed on natural person contributing to pension fund

and contribution based Social Security Fund.

1%

0%

10%

20%

30%

36%

(1)(2)

Resident natural person (elected as couple): up to 450,000 (employment income except pension)

up to 450,000 (business and investment income)

next 100,000

next 200,000

next 1,250,000

balance above 20 lakhs

1% tax shall not be imposed on natural person contributing to pension fund

and contribution based Social Security Fund.

1%

0%

10%

20%

30%

36%

(1)(4)

Gain on disposal of NBCA Step 1: slab rate on higher of (taxable income - gain on Non Business

Chargeable Assets) or (400,000 or 450,000)

Step 2: flat rate on (taxable income - higher of step 1)

Flat rates Land and building owned less than 5 yrs.

Land and building owned more than or equal to 5 yrs.

Gain on disposal of listed shares

Others

5%

2.5%

5%

10%

(1)(7)

Presumptive Taxation for business u/s 4(4)

Metropolitan and Sub-Metropolitan City

Municipality area

Others

Rs 7,500

Rs 4,000

Rs 2,500

Provision of Section 4(4) Resident Natural person who has met all the following conditions shall pay

tax as per Schedule 1(1)(7):

a) Income from business only having source in Nepal

b) Not claimed medical tax credit u/s 51 and adjustment of withholding tax

u/s 93

c) Income from business does not exceed Rs 2 lakhs

d) Turnover from business does not exceed Rs 20 lakhs

e) Opted for application for this provision in an income year.

f) Not registered in VAT

(1)(8) Nonresident natural person

(if withholding tax u/s 88, 88Ka, 89 are not applicable) 25%


2077/78 (2020/21)



(1)(13)

Presumptive tax to owners of vehicles on hire: 1) Car, jeep, van, micro bus

Ka) up to 1300 C.C

Kha) 1301 to 2000 C.C

Ga) 2001 to 2900 C.C

Gha) 2901 to 4000 C.C

Nga) 4001 and above C.C

2) Mini truck, mini bus, water tanker

3) Mini tipper

4) Truck, Bus

5) Dozer, Excavator, Loader, Roller, Crane, similar machinery equipment

6) Oil Tanker, Gas Bullet, Tipper

7) Tractor

8) Power Tiller

9) Auto Rickshaw, Three wheeler, Tempo

Note: Collected at the time of registration or renewal of vehicles through

Office of Transport Management.

Rs 4,000

Rs 4,500

Rs 5,000

Rs 6,000

Rs 7,000

Rs 6,000

Rs 7,000

Rs 8,000

Rs 12,000

Rs 12,000

Rs 2,000

Rs 1,500

Rs 2,000

(1)(17)

Transaction based tax to business u/s 4(4ka)

Turnover up to Rs 20 lakhs

Turnover above Rs 20 lakhs

Transaction of gas, cigarette with up to 3% commission or value addition

Transactions other than mentioned above

Service

As per Schedule

1(1)(7)

0.5%

0.75%

2%

of transaction

Provision of Section 4(4Ka)

Resident Natural person who has met all the following conditions shall pay

tax as per Schedule 1(1)(17):

a) Income from business only having source in Nepal

b) Annual turnover above Rs 20 lakhs but less than Rs 50 lakhs

c) Not registered in VAT

d) Income doesn't include income from consultancy and expert services

For Entity

(2)(1) Normal Rate 25%

(2)(2)

Increased Rate Bank and Financial Institutions

General Insurance

Telecommunication and Internet Service provider

Money Transfer

Capital Market Business

Securities Business

Merchant Banking Business

Commodity Future Market

Securities and Commodity Broker Business

Entities engaged in business of cigarette, bidi, cigar, surti, khaini,

panmasala, alcohol

Entities engaged in petroleum operations under Nepal Petroleum Act 2040

30%

(2)(3)

Reduced Rate

Cooperative registered as per Cooperatives Act 2074 operated in following

areas except cooperative carrying out exempt transactions:

In Municipality area

In Sub Metropolitan cities area

In Metropolitan cities area

5%

7%

10%


2077/78 (2020/21)



(2)(5)

Trust taking care of the property of a deceased natural person or an

incapacitated natural person (such trust shall be considered a resident natural

person)

Taxed as per

Schedule 1(1)(4)

(2)(6) Repatriated income of a Foreign Permanent Establishment of a non-resident

person situated in Nepal 5%

(2)(7) Income of a nonresident person u/s 70 embark from Nepal 5%

(2)(7) Nonresident person providing telecommunication, water transport or air

transport service which do not embark from Nepal 2%

TDS Rates

Section Particulars TDS rate

Final

withholding or

not

Section 87: TDS on Income from Employment

87(1) Income From employment having source in Nepal As per Schedule

1

Normally yes

87(2) Employer's liability to deduct TDS not reduced by:

1. Right or obligation of the employer to deduct any amount

2. Any law requires reduction of income from employment

Rule 31 Tax to be paid by an employee in an income year shall be

deducted proportionately on monthly basis

Section 88: TDS on Payments of Investment Returns or Service Fees

88(1) Normal interest payment having source in Nepal 15% No

88(1) royalty, service fee, commission, sales bonus, natural

resource payments having source in Nepal

15% No

88(1)

92(1)(Ja)

meeting allowances, payment for occasional teaching having

source in Nepal

15% Yes

(meeting fee up

to 20000 per

meeting)

88(1)(1)

92(1)(Chha)

Payment made by GON or Approved Retirement Fund after

deducting higher of 5,00,000 or 50%

5% Yes

(if paid lumsum)

88(1)(2)

92(1)(Cha)

Commission paid by resident employment company to non-

resident

5% Yes

88(1)(3) Payment for aircraft lease 10% No

88(1)(4) Payment of service fee to service provider registered in VAT

or person carrying out VAT exempt transaction

1.50% No

88(1)(5) Rent paid by a resident person having source in Nepal 10% No

88(1)(5) Rent paid to person conducting business of vehicle leasing

registered in VAT

1.50% No

88(1)(5) House Rent paid to a natural person no TDS

88(1)(6)

92(1)(yah)

Dividend by mutual fund to:

natural person

others

5%

15%

Yes

No

88(1)(7) Payment for use of satellite, bandwidth, optical fiber,

equipment relating to telecommunications or electric

transmission cable by a resident person

10% No

88(1)(8) Dhuwani services and Rent paid for means used in Dhuwani

services

2.50% No

88(1)(8) If Dhuwani service provider or person providing means used

in Dhuwani services on rent is registered in VAT

1.50% No


2077/78 (2020/21)


Section Particulars TDS rate

Final

withholding or

not

88(1)(9)

92(1)(Chha)

Interest payment on loan taken in foreign currency from

foreign banks by Resident Banks and Financial Institution to

make investment in sectors prescribed by Nepal Rastra Bank.

10%

88(1)(10) Encouragement amount paid to customers if a consumer pays

for goods or services using card, e-wallet, mobile banking and

other digital payment systems.

no TDS

88(2)(Ka)

92(1)(Ka)

Dividend paid by Resident Company or Partnership 5% Yes

88(2)(Kha)

92(1)(Ga)

Gain on investment insurance paid by a Resident Insurance

Company

5% Yes

88(2)(Ga)

92(1)(Gha)

Gain from payment from resident Unapproved Retirement

Fund.

5% Yes

88(3)

92(1)(Nga)

Interest from BFI, entity issuing dividend, cooperatives or

listed company to:

natural person other than in conducting business

tax exempt entity

Other Entity

5%

15%

15%

Yes

Yes

No

88(4)(Ka) Payment by natural person other than in conducting business no TDS

88(4)(Ka1) Payment for articles in newspaper no TDS

88(4)(Kha) Payment of interest to BFI no TDS

88(4)(Ga) Exempted payments no TDS

88(4)(Gha) Payment of interchange charge by banks issuing credit cards no TDS

88(4)(Nga) Payment of dividend and interest to mutual fund no TDS

Section 88Ka: TDS on Windfall Gains

88Ka(1)

92(1)(Jha)

Windfall gain 25% Yes

88Ka(2)

92(1)(Jha)

national and international prize up to 5,00,000 for

contribution in literature, arts, culture, sports, journalism,

science, technology

no TDS (if

government

declare)

Section 89: TDS on Payment of Contracts and Agreements

89(1) Contract for 50,000 or more 1.50% No

89(3)(Ka) payment to nonresident person for any agreement or contract 5% Yes

89(3)(Kha) payment of premium to nonresident insurance company 1.50% Yes

89(3)(Ga) other payments to nonresident prescribed by department as prescribed Yes

89(3Ka) Payment made for work to be done through User Committee

(Upabhokta Samitee) above Rs 50 lakh

1.50% No


2077/78 (2020/21)


CSC & Co. is a partnership firm registered under the laws of Nepal as a Chartered Accountant firm to

provide accounting, audit, assurance, taxation and advisory services. Over the years, the firm has

broadened its services to the areas that help promote good governance, transparency, better results and

overall market confidence on the management and reporting of the business enterprises and the

development sector initiatives.

The firm and its professionals have a proven track record of delivering high quality professional services

to national and international agencies on its own and together with international professional services firms.

Contact us at: -

Mahamati Bhawan

175, Gairidhara Marg, Gairidhara

PO Box: 4861, Kathmandu, Nepal

Tel: +977-1-4004580, 4004581, 4004582

Fax: +977-1-4004578

E-Mail: [email protected]

This publication does not constitute professional advice. The information in this publication has been

obtained or derived from sources believed by CSC & Co. to be reliable but CSC & Co. does not represent

that this information is accurate or complete. Readers of this publication are advised to seek their own

professional advice before taking any course of action or decision, for which they are entirely responsible,

based on the contents of this publication. CSC & Co. neither accepts nor assumes any responsibility or

liability to any reader of this publication in respect of the information contained within it or for any decision

readers may take or decide not to or fail to take.

All amendments made by Finance Bill are subject to approval by the Parliament of Nepal.

gairidhara, kathmandu, nepal

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