Introduction of Income Tax

1. Concept of Tax
The basic framework of tax is designed to collect tax from the haves to provide direct or indirect
benefits to have-nots. Tax is a compulsory contribution from a person to the government to pay for
the expenses incurred in the common interest of all without reference to any special person.

2. Structure of Tax office

Ministry of
Finance
(MOF)

Inland
Revenue
Department
(IRD)

Inland
Revenue
Office (IRO)

Tax Payer
Service
Office (TSO)

3. Objective of Taxation
a) Raising Revenues to meet administrative and development expenses
b) Prevention of concentration of wealth in few hands
c) Redistribution of wealth for the common good – person earning more in comparison to the
persons earning less have to contribute more
d) To encourage national needs based industries – charges high tax for imported goods and provide
subsidies to the business earning foreign currencies.
e) Increasing saving and investment – Provides exemption on PF, CIT, Insurance premium deposits.
f) Maintenance of welfare state – government will be able to expend money for education, health,
and creation of employment.

4. History of Income Tax in Nepal

History of Income tax is divided in four eras which are defined under following period.
1. Period before 2019 BS
 Formal income tax act enforced by parliament was not in existence though the tax was
collected as per finance act, 2016 & Business Income & Employment act, 2017.
 Income tax was charged on income from employment and income from a business.
 Tax rates vary from 5% to 25%

2. Period after 2019 BS and up to 2031 BS

 Nepal Income tax, 2019 was enforced from Shrawan 9, 2019 which was the first income tax
act.

Prepared by: CA Rabindra Shahi Page 1