Nepal Budget Statement Fiscal Year 2011-12

Highlights

On Friday, 15 July 2011, Honourable Finance Minister, Mr Bharat Mohan Adhikari presented the budget at the Constitution Assembly Hall for the fiscal year 2011-12.

BUDGET Rs 384.90 billion

SOURCE OF FINANCING TOTAL BUDGET OUTLAY

(Revenue and Grant) Rs 384.90 billion

Rs 317.83 billion

TAX REVENUE RECURRENT EXPENDITURE

241.77 billion Rs 266.61 billion

CAPITAL EXPENDITURE FOREIGN GRANT Rs 72.61 billion Rs 70.13 billion

LOAN AND SHARE INVESTMENT

Rs 25.38 billion PRINCIPAL REFUND

Rs 5.93 billion LOAN REPAYMENT

Rs 20.30 billion

BUDGET DEFICIT RS 67.06 BILLION Source of deficit financing Foreign Loan Rs 29.65 billion Domestic borrowing Rs 37.41 billion

This statement is prepared in summary form exclusively for the information of clients and staff of T R Upadhya & Co. It should not be relied upon as a substitute for detailed advice or a basis for formulating business decisions. Nepal Budget Statement Fiscal Year 2011-12 Highlights

share/debentures and vehicles to the Inland Revenue Revenue policy and program for FY 2011-12 Offices of the Government of Nepal after paying a certain With a view to build sustainable, private sector friendly, percentage of tax. Except for tax purpose, such information transparent and self-reliant economy through maximum will be kept confidential. This voluntary disclosure of utilization of domestic resources, and developing the equitable property will be treated as tax base effective from the Fiscal tax system, the following revenue policies have been proposed: Year 2012-13. Arrangement will be made to allocate the revenue generated from the Voluntary Disclosure of property  Mobilization of revenue through administrative reform and for the solution of energy crisis faced by the country. administrative capacity building without increasing revenue  An arrangement for declaring Maximum Retail Price of the rates. imported goods at the customs point in order to make the customs valuation realistic and discourage under-invoicing  Tax incentives to be provided to both domestic and foreign investors to attract investment in hydropower and has been made. infrastructure development sector through investment  Excise rates on alcohol, beer, cigarettes and tobacco friendly policy. products has been increased. In order to make the people involved in the registration process of land and house  Protecting and promoting production oriented, import substituting and export oriented industries, to gear national transactions more professional and respectful, arrangement economy towards industrialization. will be made so that only such transactions can be conducted only through persons having Permanent Account  Broadening revenue bases by bringing in new and Number (PAN). unidentified areas into the tax net.  Long outstanding arrears will be classified and tabulated on  Identification of new areas of non tax revenue, revision of the basis of the amount and due period and special existing rate to make non tax as a major source of revenue. campaign will be conducted to collect such arrears.  Revenue leakage control will be made effective through  To increase the contribution of non-tax revenue to revenue addressing revenue leakage, foreign exchange misuse and collection, the existing non-tax revenue rates will be identifying the areas of money laundering. reviewed through inter-agency coordination on the basis of cost of the service delivery, investment and principle of  Establishment of Central revenue information system within return. the Ministry of Finance and under its department to make revenue administration simple, transparent and efficient through electronic service delivery mechanism. Increased Tax Concessions and Facilities  Establishing and developing clean, transparent, professional and taxpayer friendly revenue administration  Arrangement to provide custom duty exemption, on the by timely improvement in the existing organization structure recommendation of the Ministry of Agriculture and and working system Cooperatives, to the Tomato Ketchup industries that are run through cooperatives has been made.

 The prevailing flat rate custom duty on LCD, Plasma or LED Following strategies and programs will be adopted brought in by the Nepalese passengers returning from foreign employment has been reduced. Broadening the Tax Base  VAT exemption to Jute industries on the import of materials  With the implementation of "Kar Karyanwayan Abhiyaan including spare parts has been proposed. Barsha" (Tax Enforcement Campaign Year) in the current Fiscal Year the tax base has broadened, awareness for the  An arrangement to exempt the vehicle tax and road compliance of tax laws has increased, collection and legal construction and maintenance fee on the scooters up to 150 enforcement of arrears has been effective making a positive CC designed for disabled persons has been made. impact on revenue mobilization. In view of this, implementation Likewise, a provision of 50 percent exemption in the road of "Kar Karyanwayan Abhiyaan Barsha" (Tax Enforcement construction and maintenance fee being imposed on Campaign Year) has been given continuity in the coming Fiscal electric, solar and battery vehicles has been made. Year 2011-12 as well.  Arrangement of exempting vehicle tax on Sabbahan  The habit of keeping records of the sources of property and its (ambulances) and fire brigades has been made. purpose has not yet developed among the Nepalese people.  A provision of reimbursement of existing income tax on the To address such problems, arrangement in Property Tax Act insurance premium for the workers who lost their lives while will be made whereby an individual, family or company can on foreign employment has been made. Such make a voluntary disclosure of all the fixed and movable reimbursement will be made through Foreign Employment properties including the land, ornaments, cash, deposits in Promotion Board. banks/financial institutions, lending, investment in

 Capital Gain Tax on the income from the sales of house and system. The existing legal provisions to take legal actions land has been reduced by 50 percent. Likewise, the capital against both parties found to be involved and assisting each gain tax on the sale and purchase of shares of entities other in fraudulent activities has been revised. Investigation registered with Securities Board has been reduced from 15 will be completed soon for those taxpayers who are under percent to 10 percent in the case of entities and from 10 the process of investigation. percent to 5 percent in the case of individuals.  Investigations will be conducted and legal actions will be  In order to increase the land ownership of women, a proposal taken against those who are not in the tax net or are not to exempt 40 percent on the land registration fees for complying with their duties as taxpayers. registration on the ownership of women in the VDCs of Hilly  A provision of bail is proposed to discourage the tendency of districts; Taplejung, Solukhumbu, Rasuwa, Manang, Mustang, not paying the tax on time ignoring several notices. Similarly, Humla, Jumla, Mugu, Kalikot, Dolpa, Bajhang, and Darchula a provision of detention is also proposed if there is less or no excluding the district headquarters of those districts has been possibility of recovering the tax from the taxpayer if tax is not made. This exemption also applies to some remote VDCs of collected immediately. Sankhuwasabha, Dolakha, Dhading, Sindhupalchowk and Gorkha districts.  Statements of local purchase and sales above Rs 100,000 will have to be produced when submitting VAT return by  Provision of charging only Rs 100 for the change of ownership electronic means. This provision will be initiated from the of land that is currently under the ownership of husband to the Large Taxpayer Office. joint ownership of husband and wife has been made.  Qualitative and secured stickers designed and printed with  Arrangement of 1 percent custom duty on sewing machines highest security features, will be used in beer, alcohol and that contribute to self-employment has been made. cigarettes from this Fiscal Year to effectively control the tax leakages in excise. A strict legal provision is adopted to discourage fake excise stickers. Promotion of Private Sector and Reducing Cost of Doing Business  A provision that no industries and the distributors of liquor, beer and cigarettes are permitted to operate the gift scheme  Income tax will be fully exempted for the first ten years for the of any kind has been proposed. Similarly those industries hydro-power projects commencing their construction within 24 will not be eligible to give discount to other sellers except August 2014 and starting commercial production by mid-April those registered in VAT. 2018. Thereafter 50 percent income tax exemption for the next five years will be provided.  Sufficient budget have been allocated to purchase under invoiced goods to discourage the under invoicing at the  It has been proposed to extend the deadline for submission of customs point has been allocated. For the purpose of selling intention of merger among banks and financial institutions by such goods, an institutional arrangement will be set up and mid-November 2012. Land registration fee to the merged process will be simplified. financial institutions has been waived.  Revenue leakage (Investigation and control) by law will be  To reform the tax collection procedures and making prepared and executed within this year to make revenue arrangements to pay the revenue from the nearest bank of leakage investigation and interrogation process more taxpayer's location, Any Branch Banking System (ABBS) will systematic and transparent which would increase the be introduced among banks collecting government revenue. revenue mobilization.  Selectivity module implemented in customs clearance based  The internal movement system with electronic surveillance on risk management system will be expanded to additional for loaded vehicles will be prepared and implemented this customs offices. A controlling policy will be adopted by using year to make internal movement of goods more scientific in post clearance audit system to expedite the clearance order to encourage fair business. procedures.  Procedure related to import identity card will be prepared  For the purpose of discouraging business fraud in customs and implemented by mid December of next fiscal year to area and recognizing the integrity and honesty in business reduce the illegal and unfair trade practices. sector, a policy will be adopted to honor the genuine business persons. Reform in Revenue Administration Revenue Leakage and Controlling Illegal Imports  Central Revenue Board will be formed to make revenue administration more autonomous and effective.  Tendencies of using fake and false bills and invoices to evade the tax are found to be increasing despite the fact that the  Performance based incentive system has been continued by value added tax system itself is scientific, transparent, broad making the indicators more scientific in the revenue based, investment friendly and based on self assessment administration.

 The revenue rebate policy will be updated to provide rebates laundering cases. An arrangement will be made to equip this only on the basis of fixed standards and norms after Department with the physical structures, technology and considering the use of such policy, its impact on the general manpower to match international standards. public and a sound monitoring mechanism to ensure that there  The UN Convention on Anti-money Laundering and Control is no misuse of rebate provisions while providing revenue of Terrorism will be approved and the remaining laws rebates. concerning this convention will be enacted immediately  With a view to expanding the services, 13 additional Tax including the preparation and implementation of a five year Payer's Service Centers will be established outside the strategy on anti-money laundering. Kathmandu Valley to make taxpayer's service more effective.

 The capacity of Revenue Investigation Department will be enhanced to control revenue leakages by establishing Economic Situation interdepartmental computer network through information and  Economic growth rate for the current Fiscal Year is communication networking. estimated to be 3.5 percent. Average economic growth rate  In addition to timely updating of the existing Income Tax over the last three years was below 4.0 percent. Inflation, Manual, manuals for excise duty and value added tax will also which persisted at double digit during the last two years, has be implemented. come to a single digit in this year.  By considering the contribution of excise duty in revenue  As of 15 June of the Fiscal Year, i.e. first 11 months, both mobilization, a separate Excise Department will be established imports and exports have increased approximately by 6.0 in the next Fiscal Year in order to increase revenue collection. percent. Despite an increase in the merchandise export compared to previous year, trade deficit continued to  The construction of an Integrated Check Posts has already increase during the last three years. Similarly, since last commenced in Alau, Birgunj with the assistance of the Fiscal Year, the Nepalese economy started recording a Government of India. Since the process of constructing balance of payment deficit. Despite this, foreign exchange Integrated Check Post in Biratnagar, Bhairahawa and reserves remains sufficient to meet 7 months equivalent Nepalgunj has already been initiated, an arrangement will be imports of goods and services. made to provide all services including customs, immigration, border security, and quarantine and banking service from the  Revised total expenditure of the current Fiscal Year is same Integrated Check Posts in the days ahead. estimated to be Rs 306.27 billion. Current expenditure is estimated to be Rs 180.14 billion, capital expenditure Rs  In order to systematize the ever increasing trade between 108.08 billion, and principal repayment Rs 18.04 billion. Nepal and Tibet of China, the construction of a Dry Port in Even though the size of the total budget has been increasing Larcha of Sindhupalchok will be commenced and work will be continuously, availability of budget for capital expenditure is initiated to construct all physical infrastructures including squeezing because of the rapid rise in current expenditure. building for Rasuwa Customs Office. At the same time, absorptive capacity of foreign aid has also  An arrangement will be made to increase the number of the been gradually eroding. customs agents in order to ensure adequacy of their services.  Revenue mobilization, hence collection, in this Fiscal Year  A comprehensive working manual on Custom Valuation will be was adversely affected due to delayed submission of the prepared and implemented within this Fiscal Year. current Fiscal Year budget, non expansion of economic activities and decreased imports. Revenue collection is  In order to further simplify the customs procedures and make it estimated to be Rs 206 billion- an increase by 14.4 percent more transparent, the process will be forwarded ahead to be a over the actual collection of the last Fiscal Year. signatory nation of the amended Kyoto Convention which is an international standard for customs reform.  The next Fiscal Year budget needs to be focused towards achieving a higher growth rate by improving macroeconomic  Until and unless there is a separate revenue police force in indicators, expanding capital market and enhancing place, the Armed Police Force will be mobilized under the confidence, promoting private sector investment by direction and control of Customs Department and Revenue expanding physical and economic infrastructures, and Investigation Department instead of the existing Armed Police focusing economic activities in the productive sectors. The Force which has been currently mobilized, on the seasonal budget will be able to accelerate economic growth and basis, for the security of the Customs Offices and Revenue ensure equitable development by increasing investment in Investigation Offices and for controlling illegal trade. the public, private and cooperative sectors and by bringing  An arrangement will be made to establish a client service desk in dynamism in the economy. in the Department of Customs to control revenue leakage and address the clients' grievances promptly.  Department of Anti-money Laundering has been established separately to ensure effective investigations on anti money

Policies and Programs of the Budget Executive Summary The following areas have been given priority Corporate Tax  Establishment of Peace, Formulation of Constitution and No changes in the existing tax rate payable by domestic Sustainable Resolution of Conflict companies for the fiscal year 2011/12. The existing tax rates are as follows:  Reform in Public Service Delivery and Supply System to Provide Relief to General Public Companies Rate (%)  Social Justice and Inclusive Development Banks and financial institutions 30  Highly Remote and Backward Area Development Program General Insurance Business 30  Gender Equality and Empowerment Cigarettes, Bidi, Cigar, Chewing Tobacco, 30  Ownership and Access Enhancement of Poor and Khaini, Liquor, Beer Disadvantaged on Land Petroleum companies 30  Transforming Agriculture Sector and its Commercialization Special industries 20  Promotion and Expansion of Cooperatives as a Main Pillar Export industries 20 of the Economy Power generation, transmission, distribution, 20  Road, Bridge and other infrastructure development infrastructure projects etc  Energy Crisis Mitigation Campaign Other entities not covered above 25  Irrigation and River Training  Income tax will be fully exempted for the first ten years  Youth Self Employment Program for the hydro-power projects commencing their  Massive Employment Generation through Public, construction within 24 August 2014 and starting Cooperative and Private Sector commercial production by mid-April 2018. Thereafter 50 percent income tax exemption for the next five years will  Foreign Employment and Remittance Income be provided.  Clean Environment and Alternative energy General Interest rate  Rural Infrastructure and Model Village Has been maintained at 15%  Tourism Promotion Personal Tax  Forestry Development  1 percent tax is levied on the first slab of the personal tax  Private Sector Development Program of Rs 160,000 and Rs 200,000 for individuals and couple respectively. The amount withheld shall be deposited  Financial Sector and Capital Market into Social Security Fund in a different revenue account.  Export Promotion  If the total taxable income of an individual is more than  Education and Literacy Campaign Rs 25 lakhs, additional tax at the rate of 40% of the total tax computed under the last slab shall be levied.  Health Services  Insurance threshold for deduction against taxable  Housing, Drinking Water and Sanitation income is continued to be Rs 20,000.  Information and communication  A provision of reimbursement of existing Income tax on the  Science and Technology insurance premium for the workers who lost their lives while on foreign employment has been made. Such  Literatures, Arts and Cultures reimbursement will be made through Foreign Employment  Honor to National Figures Promotion Board.  Youth Mobilization and Sports Development Customs Duty  Plan, Budget System and Public Expenditure Management  Arrangement to provide custom duty exemption, on the recommendation of the Ministry of Agriculture and  Foreign Aid Cooperatives, to the Tomato Ketchup industries that are run through cooperatives has been made.  Public Enterprises Reforms

 Promotion of Good Governance and Administrative Reform

 The prevailing flat rate custom duty on LCD, Plasma or LED institutions, rural development banks, postal saving brought in by the Nepalese passengers returning from foreign bank, and cooperatives in the rural area. employment has been reduced  Tax on dividend income  Full customs exemption in the scooters to be used by Tax at the rate of 5% shall be charged on the dividend physically handicapped persons, continued from previous paid by the resident entity to resident or non-resident year. person.  Custom duty and excise duty on alcohol, cigarette, and  TDS on the insurance premium paid to Resident tobacco increased. insurance companies  An arrangement for declaring Maximum Retail Price of the The existing TDS of 1.5% on the premium paid to imported goods at the customs point in order to make the resident insurance companies has been abolished from customs valuation realistic and discourage under-invoicing has previous Fiscal year. However, TDS @ 1.5% is levied on been made premium paid to non-resident insurance companies.  Arrangement of 1 percent custom duty on sewing machines  TDS on contract amount paid to Non-resident person that contribute to self-employment has been made. by resident person Excise Duty - In case of service contract 15% tax (TDS) shall be  The excise duty slightly increased on items harmful to withheld (general clause attracted) health like cigarettes, beer, alcohol, etc. - In repair of aeroplane & other cases @ 5%  No change in excise duty on vehicle  TDS on capital gains Value Added Taxes Capital Gain Tax on the income from the sales of house and  No changes in the existing rate of 13 percent for the fiscal land has been reduced by 50 percent. Likewise, the capital year 2011/12. gain tax on the sale and purchase of shares of entities registered with Securities Board has been reduced from 15  VAT exemption to Jute industries on the import of materials percent to percent in the case of entities and from 10 including spare parts has been proposed percent to 5 percent in the case of individuals.  No changes in the existing threshold limit for compulsory  Tax exemption to special industries registration under VAT Act that is a turnover of Rs 2,000,000 over last 12 months or turnover of 10% percent income tax exemption on income to be Rs 200,000 in any month must be registered earned from special industries and information and communication technology industries which provide  Compulsory VAT registration for a person importing taxable direct employment to 300 Nepali throughout the year has items exceeding the value of Rs 10,000 at a time for been provided continuation commercial purposes. Similarly, 20% income tax exemption on income to be  The claim of refund has to be made within 3 years from the earned from special industries provides 1200 or more end of tax period otherwise will not be entertained. Nepali citizen and to special industries providing employment to 100 Nepali citizens including employment to dalit women & disabled person has also been Tax withholding at source continued. The major changes made in the Income Tax Act, 2058 by the  Presumptive tax Finance Bill 2068 and other rates continued from previous years are as follows: There has been comprehensive increases in presumptive taxation in the current fiscal year for small  Deposit of withholding tax (TDS) tax payers as follows: (Note: Small tax-payer means Tax withheld during the month shall be deposited into IRO natural person whose annual turnover is less than Rs within 25 days of next Nepali month. 2,000,000 and income not exceeding Rs 200,000).

 House rent tax Particulars FY FY 2010/11 2011/12 House rent tax shall be continued to be levied on the rental income at the rate of 10 percent Metropolitan, Sub-Metropolitan Rs 3,500 Rs 3,500 Municipal Areas Rs 2,000 Rs 2,000  Tax exemption on interest income Other than municipal areas Rs 1,250 Rs 1,250 Tax exemption has been given on annual interest income of Rs 10,000 in the amount deposited to the micro credit

The major changes made in the Income Tax Act, 2058 by Tax Individual Couple the Finance Act in the previous years and continuity given rates Rs Rs by Finance Act 2068 are as follows: a 1% 160,000 200,000 b 15% 160,000 to 260,000 200,000 to 300,000  Tax Exemption to Industries in SEZ c 25% 260,001 to 300,001 to 100 percent tax exemption will be granted to industries 2,500,000 2,500,000 established in SEZ for the first five years from the date of d 25% Above 2,500,001 Above 2,500,001 operation and thereafter 50% rebate will be granted on the e 40% Additional tax on tax computed as per applicable tax rates for subsequent years continued. (d) above where taxable income of an individual exceeds Rs 2.5 million  Tax Exemption for Industries in Rural Areas  Remote Area benefit 100 percent tax exemption granted to industries established in rural areas for ten years from the date of Natural person working at remote areas are entitled to operation has been discontinued. get maximum deduction of Rs 50,000 (PY 30,000) from taxable income.  Tax Exemption for Industries in IT Parks  Individual having Income from export IT industries established in the specified IT Park shall be granted a 50 (PY 25%) percent tax rebate on applicable tax In case of individual having income from export, tax rate rate. of 15% is applicable in place of 25%

 Carry Forward of Losses  Exemption to Women Loss from investment or business during the year in which A ten per cent tax rebate in income tax from such incomes were fully (previously full and partial) remunerations to the women being resident natural exempted are now onwards not allowed to be carried person having no other income except Income from forward and set off against such incomes of subsequent Employment is continued. years. (Section 20 Subsection 8)  Taxable Income of Person employed in Nepalese  Repatriation Income of FPE Diplomatic Mission Income repatriated of Foreign Permanent Establishment of There has been no changes in the existing provision of non -resident person is subject to tax @ of 5 percent, an amount equal to 75% of the amount earned as continued from previous years. foreign allowance by an employee working in Nepalese Diplomatic Missions stated in foreign country shall be PERSONAL TAX deducted and tax shall be calculated on the balance The provisions of the Income Tax Act 2058, which came into amount. effect from 19 Chaitra 2058, will be the basis of computation of  Deduction of Life Insurance Premium personal taxes for the fiscal year 2010-11. Insurance threshold of Rs 20,000 has been continued.  Tax rates Accordingly, amount paid as premium for investment The existing tax rates for personal income taxes are as insurance policy taken on the life of a natural person is follows: allowed to be deducted from Taxable Income of such person, to the extent of minimum of:  Salary, Allowances and Perquisites are taxable (certain exceptions are granted). - Actual Amount paid, or  Deductions continued for donations paid (up to 5% of - Rs 20,000 Adjusted Taxable Income or Rs 100,000 whichever is  Exemption to handicapped lower) and contribution to retirement benefits (actual contribution not exceeding Rs 300,000 or one third of Income tax exemption limit for the blind and assessable income whichever is lower). handicapped people continues to be 50 percent above the normal exemption limit.  Tax on income of non residents continued at 25 percent.  The taxable income computed as above is taxed as follows:

OTHER TAX PROVISIONS  Road Construction and rehabilitation duty The provisions of other applicable taxes are as follows: The duty will be collected as follows:

 Depreciation Types of Vehicles Duty Production industry purchasing energy generating capital Car, Jeep, Van, 5% of the value inclusive of asset for its industrial requirement can claim depreciation Micro bus, truck, all other taxes and duties at the rate of 50% in the first year. tipper, truck mixture, mini bus and mini Any person purchasing printer and cash machine for the truck purpose of printing and issuing invoices can claim depreciation at the rate of 100% in the same year. Motor cycle Rs 6,000 (Annexure 2 section 3 subsection 4) Not applicable to ambulances, diplomatic missions and  Custom Service Charge individuals having diplomatic immunity. Rs 600 and Rs 500 shall be recovered per pragyanpan  Road Maintenance and Improvement duty patra on export and import of goods to/from Nepal. Road maintenance and improvement duty is levied on  Agriculture Reform Fees petrol Rs 4 (PY Rs 4) per liter and in diesel Rs 2 (PY Agriculture reform fee has been maintained at 5% (P Y 5%) Rs 2) per liter at the custom point. for items mentioned clause 16 of Annex 1. However, this  Registration Fees, Service duty fee will not be levied in cases where customs duty is applicable on import of such products. In financial year 2068/69 registration fee and service fee and property lien fee shall be levied according to  Health Service Fees annexure -4 of Finance Act 2068. Health services provided by private institutions attract  Film Development Fees health service fee of 5 percent on the value of services provided. Health service providers can register in VAT 15% fees on the entrance fees on all classes for voluntarily and collect VAT instead of health service fees. screening foreign films. 20% fees on the entrance fees for operation of cabin on screening foreign films.  Education Service Tax  Pollution Control Fees 1 percent levied on admission and monthly tuition fee collected by private educational institution operating in To be collected by NOC at the rate of Rs 0.50 per liter of Kathmandu Valley; sub metro municipality, municipality petrol and diesel sold within Nepal and deposited within and district headquarters. 25 of next month, continued from previous years.  Tax to be collected shall be deposited within 25 days  Telephone Ownership Fees of next month on tri semester basis along with details. No changes with that of previous year. Telephone ownership fees will be collected at the rate of Rs 1,000  Penalty at the rate of 15% shall be levied on failure to per. This fee will be collected at the time of transfer of deposit tax and Rs 1,000 on failure to submit detail. ownership also. The fees levied on prepaid sim card and  1 percent tax to be levied on the student going aboard recharge card will be 2 percent of the cost of the sim for studies at the time of providing permission for card and recharge card. foreign exchange has been continued. Such fee has  Telecommunications Service Charge shall be collected by banks and financial institution. The existing provision has been continued for service  Vehicle Tax charge is to be recovered at 10%. No such charge is There have been changes in Vehicle taxes and the detail is in applicable for ISP, pager providers and on schedule 3 of Finance Act 2012. An arrangement to exempt interconnection charges except for VOIP operators. the vehicle tax and road construction and maintenance fee on  Casino Royalty the scooters up to 150 CC designed for disabled persons has been made. Likewise, a provision of 50 percent exemption in The royalty payable by casinos is Rs 20 million per the road construction and maintenance fee being imposed on annum. This amount has to be paid within 2 months from electric, solar and battery vehicles has been made. the commencement of fiscal year. Failure to deposit the amount within three months shall empower the tax officer to issue a notice to close the

casino.

 Windfall Gain Tax  VAT on Apartment or Shopping Complex No changes with that of previous year. 25 percent of the VAT is to be collected from the owner of the building of cash benefits or equivalent to market value if paid in kind the apartment or shopping complex worth Rs 5 million or will be withheld as windfall gain tax. Such withholdings has more and constructed for business purpose, even to be deposited within 25 days of payment or will attract though same has been constructed from the penalty @ 10 percent p.a. unregistered person.

 Forest Product Fee  VAT on Imports The amount to be deposited in the government treasury as Facilities to manufacturing industries which export 60% forest product fee out of the receipt from sale of timbers of of their produce with a minimum of 10% value addition Sal and Khayar disposed as per work plan prescribed in can release the raw material imported by providing bank the regulation and sold beyond consumer group for guarantee in lieu of the applicable VAT amount at commercial purpose from community forest has been custom. continued at 15 percent.  Refund of claim  Tax exemption on mergers of FIs and Insurance The claim of refund has to be made within 3 years from In order to encourage the merger of banks, finance and the end of tax period otherwise will not be entertained. insurance companies, changes in the provision of taxing  Refund of VAT assets and liabilities as disposal after merger has been introduced to make it non-taxable. 60% of VAT paid on import of raw material or finished goods for cellular mobile by the local will be refunded. It is proposed to extend the deadline to submit intention of merger among banks and financial institutions by mid-  Advance Ruling November 2012. Land registration fee to the merged financial institutions has been waived. Provision of issuing advance ruling to avoid ambiguity in VAT continued.  Stamp duty  Filing of VAT return Stamp duty has been increased to Rs10 from existing VAT return filing has to be done monthly, bi-monthly and Rs 5. quarterly basis according to the nature of the business.

 Refund of VAT to tourist VALUE ADDED TAXES Arrangement is made for refund of VAT paid by foreigners on the purchases exceeding Rs 15,000 made The Finance Act can only make changes to the provisions of the in Nepal at the time of the departure. However, 3 VAT Act 2052; no other Acts can supersede the provisions of percent of amount refundable shall be collected as VAT Act 2052. service fee.

 VAT deposit refund for re-exports  Ceiling for purchases In case of re-exports, the deposit paid during import will be Made mandatory to purchase goods costing more than refunded from the Custom point. Rs 5,000 only from suppliers that are registered under  Tax Rate VAT. There are no changes in the existing rate of 13%.  VAT Refund on Damaged Goods

 Threshold VAT Refund can be claimed on goods damaged by fire, theft, accident, wear and tear. From now onwards, VAT No change in existing threshold for compulsory registration refund cannot be claimed if goods are damaged due to under VAT Act is a turnover of Rs 2,000,000 over last 12 lapse of time of its use as prescribed. months or turnover of Rs 200,000 in any month.  Purchase of Under Valued Goods However, persons dealing in hardware, sanitary, furniture & fixture, furnishing, automobiles, motor parts electronics & The IRD may purchase goods at the undervalued rate if marble and color lab within Metropolitan City, Sub- it considers that the goods have been undervalued. metropolitan City or Municipality areas must register under  VAT Refund on Purchase of Capital Goods under VAT within 30 days from the date of transaction. Loan or Mortgage There have been no major changes in VAT however certain VAT refund can be claimed on the capital goods provisions have been inserted as follows: purchased under hire purchase loan or mortgaged in the name of financial institutions.

 Penalty  50% rebate on import of tin containers to be used for the packing products of dairy industry. Provision has been made to adjust additional fee and penalty resulting due to late payments of VAT.  Concessions on customs tariff on the import of tanker for dairy industries have been maintained at 80 percent CUSTOMS DUTY  Custom duty on import of gold and silver shall be The customs duty for import of goods and materials into Nepal Rs 1,000 and Rs 24 per 10 gms respectively. Gold will be levied in accordance with the rates provided in Annexure jewellery to attract only 10% duty 1 of the Finance Act 2068. Customs duty on certain imported goods and materials have been proposed to be realigned with  50% concession on the custom duty on vehicles to be the revision in the applicable rates. operated by battery and electricity. The following changes have been made in the customs duty:  50 percent exemptions in the import duties and 68% on agriculture reform fee have been provided to the import  Goods being imported from India of Indian origin can be of soybean and sunflower seeds to be used by domestic imported on concession of 7 percent on custom duty up to oil industries as their raw materials. 30 percent. But 5 percent concession can be obtained on goods for which customs duty is above 30% (where custom  5% custom duty shall be levied on the import of LP Gas. duty is levied on value).  1 percent Custom Duty levied on  For goods of Chinese origin imported by letter of credit - Import of generator of 10kw or more capacity. (LC) from Tibet, a concession of 4 percent of custom duty (where custom duty is levied on value) has been continued. - On import of aircrafts, helicopter, its gear box, engines, tyre, battery, nut, bolt and spares.  Concession on Custom duty on goods specified under However, customs duty collected shall be refunded SAFTA agreement being imported from SAARC countries for lease of aircrafts, helicopter and its spares and through shipment and billing from the same country and returned within 3 years. imported through Letter of Credit shall be provided as prescribed. - Import of equipment, machinery, tools and spares by industries and equipments imported by  Only authorized dealers in Nepal can import vehicles from pharmaceutical industry for research. the manufacturer or its authorized dealers. - Import of Raw Material, Auxiliary Raw Material,  Reconditioned, used and those vehicles not meeting the Chemicals by tyre manufacturing Industries. pollution index 2056 cannot be imported - Equipment used for conversion of tempos run by  Customs on Accompanied and Unaccompanied personal diesel/petrol into battery operated by existing effects (Niji Gunta Jhiti) shall be levied at a flat rate as registered tempo operators. follows. (separate excise duty, custom duty and VAT shall not be levied when charged with such applicable flat rates) - Import of catalytic converter and magnetizer used for reducing pollution on vehicles. Custom rate Applicable rate - Import of equipment by industries to reduce Duty exempted 15% pollution 5% 20% - Cloth weaving machine under HSN 84.52. 10% 25% - Import of construction equipments, Machinery and 15% 30% its spares and steel sheet needed to build such equipments which are not produced in Nepal for the 20% 35% generation, transmission, distribution, operation or 30% 50% maintenance of electricity. For the same recommendation of Electricity development  The excise duty paid in India on import of materials from department is needed. India shall be deducted from the applicable customs duty. However, the excise shall not be deducted on the customs - Import of generating parts by VAT registered duty on freight, insurance, difference in value and other industries manufacturing generators expenses. - Import of pashmina thread as mentioned in part 51  Industries importing raw materials through bank guarantee - On the recommendation of Agricultural and Co- or pass book record facility have been given the facility to operative Ministry the machinery and equipments make imports by providing deposits (such deposits shall be imported by industry established by co-operative refunded if certain conditions have been fulfilled), if they society for the production of tomato ketchup and raise the value by 10 percent during export. sauce.

 5% custom duty shall be levied on import of air condition exceeding 4 ton for industrial purpose has been continued.  On import of LPG cylinder 15% custom duty shall be levied after certification of quality standard and the recommendation of Nepal Bureau of Standards and Metrology.  There has been slightly increased the customs duty on cement, play cards and pesticides. EXCISE DUTY  An application (including reasons) is to be submitted to Excise Officer within 15 days by the licence holder for the cancellation of licence if the licence holder stops the transactions of excise duty attractable goods. CONTACT FOR FURTHER CONSULTATION  Excise duty receivable from a person can be recovered by the Excise Officer by way of auctioning the stocks of the T R Upadhya & Co. T R Upadhyay concerned person. Chartered Accountants Partner  Excise duty has been exempted on Scooter made for the House No. 61, Anamika Galli [email protected] use of handicapped persons, ambulance, dead body P. O. Box 4414, Baluwatar, carrying vehicle and chassis of tempo operated by battery. Kathmandu, Nepal Shashi Satyal  A discount of 50% on the excise duty payable shall be www.trunco.com.np Partner available for locally manufactured motorcycles and in case [email protected] of locally manufactured other vehicles; the discount rate Phone: +977 1 4410927, shall be 25%. +977 1 4414695 Sanjeev Kumar Mishra  A discount at the rate of 80% on excise duty payable shall Fax: +977 1 4413307 Partner be available on brandy manufactured from fruits produced Email: [email protected] [email protected] in least developed regions specified in schedule 9 of Industrial Policy 2067.  The excise duty has been slightly increased on the items which are harmful to health like cigarettes, beer, alcohol, pan parag and kattha.  No excise duty on vehicles runs on electricity.  Excise duty on light commercial vehicles and cars, jeeps etc ranges from 30 to 60% of the value. The excise duty on bus and trucks is 5% of the value. Excise duty on motorcycle is 40%.  The existing provision to allow set off of excise duty paid on purchase or import of excisable goods or services for trading purposes against the excise duty collected on sale of such goods or services is discontinued.  Any discount offered in terms of gifts or cash discounts by the industries involved in alcohol, beer, or cigarettes or by their dealers are not allowed and will consider violation of terms of license.