Value Added Tax (VAT)
Value Added Tax Thresholds Revised Amid Steady VAT Rate in Nepal
The Government of Nepal has kept the Value Added Tax (VAT) rate unchanged at 13% for the fiscal year 2081/82, maintaining consistency in its indirect tax structure. However, it has revised the VAT registration thresholds across various business categories. Businesses dealing exclusively in goods will still require VAT registration upon exceeding NPR 5 million in annual turnover. Meanwhile, the threshold for service-only businesses and those dealing in both goods and services has been updated to NPR 3 million. For nonresident persons, the registration threshold has also been raised from NPR 2 million to NPR 3 million, making compliance easier for small foreign operators. To strengthen enforcement, the Inland Revenue Department has announced that businesses failing to submit tax returns within four months after the due date may face restrictions, including a halt on import and export activities. While the exact interpretation of thresholds for mixed transactions is pending formal regulation, the practical threshold is assumed to be NPR 3 million. These adjustments reflect a move to broaden the VAT base while keeping the system simple and enforceable.
Trading view
2 min read
In a recent fiscal policy update, the Government of Nepal has announced changes to the Value Added Tax (VAT) registration thresholds while keeping the VAT rate unchanged at 13%. The VAT rate, which is applied uniformly on the supply of goods and services, remains stable as the government aims to maintain consistency in its indirect tax regime.
A key development in this year’s VAT policy is the revision of threshold limits that determine mandatory VAT registration. For businesses dealing exclusively in goods, the threshold has been retained at NPR 5 million. However, significant changes have been introduced for other categories. Businesses dealing solely in services are now required to register for VAT if their annual turnover reaches NPR 3 million, a revision from the earlier NPR 2 million. Similarly, enterprises involved in both goods and services must register for VAT upon reaching an annual turnover of NPR 3 million.
Additionally, the threshold for VAT registration for non-resident persons has also been revised upward. Previously set at NPR 2 million, this limit has now been increased to NPR 3 million. This revision is expected to ease compliance requirements for smaller foreign entities operating within Nepal.
Further, the Inland Revenue Department has warned that if a registered taxpayer fails to submit their tax return within four months from the due date, the tax officer may take stern actions, including halting the import or export operations of such businesses. This measure is intended to improve tax compliance and streamline revenue collection.
It is important to note that while the government has communicated these changes, the final definition and interpretation of VAT thresholds for mixed transactions involving both goods and services will be clarified in upcoming VAT regulations. The note emphasizes that for cancellation purposes under VAT law, the threshold for all service-based, goods-based, and mixed enterprises is understood to be NPR 3 million.
These updates reflect the government's intent to broaden the VAT net and bring more service-oriented and mixed businesses under formal taxation, while also simplifying procedures for small-scale and foreign businesses operating within the country.
Written by
Trading view