VAT ACT

INCOME TAX ACT

BAFIA
INDUSTRIAL ENTERPRISE ACT
Submitted To: GROUP MEMBERS
Mr. Neeraj Gautam • Babita Ghimire
• Binita Chhetri
• Durga Dumre
• Nabina Aryal
• Pooja Pravakar
VALUE ADDED TAX
ACT, 2052
Presented By: Babita Ghimire
 INTRODUCTION

• VAT is an indirect tax imposed on the supply of goods or services or

both.

• Revenue of government.

• It is paid by one person but he/she recovers the same from another
person.

• Ultimate burden of tax is shifted to end consumer.

Process and flow of VAT Provision
 Whether G/S fall under

Schedule-I Schedule-II Other G/S

No VAT VAT @ 0% VAT @ 13%

Determine Taxable value (section 12) = Value added tax

1. Short title and commencement:

(1) This Act may be called as the “Value Added Tax Act, 2052 (1996)”.

4. Tax Officer may be appointed.

5. Jurisdiction of a Tax Officer.

(1) The jurisdiction of a Tax Officer shall be as determined by the Ministry of

Finance.

5A. Tax not to be levied on transfer of ownership of transaction.

6. Value Added Tax to be levied:

6. Place and time of supply:

The time of supply of any goods or services which occurs first out of the time
mentioned.

a) At the time in which the supplier issued the invoice,

b) In case of supply of goods, at the time in which the recipient received or

took the goods from the place of transaction of supplier,

c) In case of supply of services, at the time in which the service is rendered,

d) At the time in which the supplier received consideration for the goods or
service.
7. Rate of tax:

8. Assessment and recovery of tax

10. Registration: (1) A person who intends to be engaged in any transaction shall file an
application for registration.

11. Cancellation of Registration

14. Invoices to be issued:

(1) Every registered person is required to issue an invoice to the recipient, in supplying any
goods and services.

15. Unregistered person not to collect tax:

16. Accounts of transactions to be mentioned:

20. Tax Officer may assess tax:

(1) A Tax Officer may make an assessment in any of the following circumstances:

• If the tax return is not filed within the time limit;

• If an incomplete or erroneous tax return is filed;

• If a fraudulent tax return is filed;

• If the Tax Officer has a reason to believe that the amount of tax is understated or

otherwise incorrect.

• If the Tax Officer has a reason to believe that the price of supply is under-invoiced.
• If supply is made within the group company by under-invoicing,

• If a person with obligation to register, transacts without registration,

• If sale is made without issuing invoice,

• If tax is collected by unregistered person.

23. Powers of inspection and audit:

(1) If there is a reasonable ground to believe that a taxpayer required to be

registered under this Act has been involved in a taxable transaction
without being registered, Tax Officer may inspect.
25. Tax may be refunded:

25A. Refund of tax paid by foreign tourist on purchase.

25B. Refund of tax at customs point for re-export.

25C. Refund of tax for re-export.

25C1. Refund of tax paid in excess under a contract, And more..

25D. No refund of tax: the refund amount under this Act shall not be refunded if the
application for refund is not made within three years from the date of the end of the
tax period.

26. Interest: If any amount to be paid under this Act is not paid within the time period =
15%.
 Schedule-1
Relating to Sub-section (3) of Section 5 List of VAT Exempt Goods and Services
Group 1 Basic Agricultural Products
Group 2 Goods of Basic Needs
Group 3 Live Animals and Animal Products

Group 4 Agricultural Inputs

Group 5 Medicine, Medical and Similar Health Services

Group 6 Education
Group 7 Books, Newspapers and Printed Materials
Group 8 Artistic and carving Services
Group 9 Passengers and Goods Transportation Services
Group 10 Personal or Professional Services
Group 11 Other Goods or Services
Group 12 Buildings and Land
Group 13 Betting, Casino and Lotteries
 Schedule-2
Goods and Services subject to Zero Rate

1. Goods exported from Nepal.

2. Services to be supplied to persons outside Nepal.
3. And more..
Durga_Dumre
 History of Modern Tax
Great Britain is the first country in the world to introduce
the modern income tax in 1799 A.D. to finance the war
against France

USA – 1862 A.D. Business Profit and

Salary Tax Act 2017
India – Adopted in 1860 A.D.
but act enacted in 1886 A.D. Income Tax Act 2019

Italy – 1864 A.D. Income Tax Act 2031

Germany – 1891 A.D. Income Tax Act 2058

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 Objectives of the Income Tax Act 2058
 To bringing all income generating activities into tax net.
 To confining all the income tax related matters within the Act.
 To making a taxation system for revenue productive and elastic.

 To reducing scope of discretionary interpretation of the tax

authorities.
 To develop a tax payer friendly taxation system by making it clear
and transparent.
 To minimizing tax evasion and avoidance tendency.
 To harmonizing tax rates and concessions on equity grounds.
 To making taxpayers more responsible by enforcing self-
assessment system.
 To integrating Nepalese tax system with the system of foreign
countries. Durga_Dumre
 Chapter I
Preliminary
Short title and commencement:
(1) This Act may be cited as the "Income Tax Act, 2058 (2002)."
(2) This Act shall come into force throughout............ Nepal and shall
also apply to residents residing wherever outside ............ Nepal
(3)This Act shall come into force immediately.
Definitions of terminologies
 Person withholding advance tax
 Payment from which tax is withheld final
 Person  Tax
 Income
 Income year  Non-resident person
 Windfall gain  Company
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 Chapter II : Tax Bases

The Act has broaden the tax base. Tax rates are spelled out in the
Act. The tax rates and concessions are harmonized on equity
grounds.
Tax to be levied : who has taxable income in any income
year.
Heads of Income
 Employment
 Business
 Investment
 Windfall Gain

Company is taxed at 25% Flat tax rate

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 Chapter III
Computation of Income
Income from Employment Income From Investment
• Salary • Dividend
• Bonus • Interest Derived From That Investment
• Allowance • Payment For Natural Resources
• Reimbursement of personal expenses • Rent, Royalty,
• Other payments in respect of • Profit From Investment Insurance,
employment • Profit From Interest In a Retirement
Fund
• Net profits derived from the disposal of
non-business taxable assets of the
Income from Business
• Service Charge investment of that person
• Gift received by that person in respect
• Profit derived from business assets
• Gain on sales of depreciable assets of investment
• Investment Restriction Income
• Gift received in respect of business
• Other income in respect of business
• Amount obtained from disposal of trading stock
• Amount received from restriction of doing any
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 Chapter IV
Exemptible amount and other exemptions
 Amount received in a bilateral or multilateral treaty or agreement
concluded between the Government of Nepal and any foreign
country or international organization. For example salary and
allowances received by foreign diplomat in Nepal are exempt
from tax.
 Amount received in the public service of government of foreign
country.
 Amount received from public fund of foreign country.
 Social security allowances paid by government of Nepal For
example: elder citizenship allowance, widow allowance, disable
allowance, handicapped person allowance.
 Pension received by Nepali citizen retired from the army or police
service of a foreign country.

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Income from agriculture received by an individual is exempt from tax.

No tax shall be levied on the income of a cooperative organization and saving and
credit cooperative organization or institution, which has been registered and operated
under the Cooperatives Act, 2074 (2018) and which carries on professional forest
related business like forest and agricultural industry as agricultural or forest based
industries
No tax shall be levied in interest income up to twenty five thousand rupees per year if
it is generated from the deposits in a micro financial institution, rural development
bank, postal saving bank and cooperative
If a special industry has been operated in remote, undeveloped and less developed areas,
respectively ten, twenty and thirty percent of the tax livable on income of the years for up to
10 years after industry starts its business production or transaction.

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 Chapter V
Deductible Amounts
No deductions are allowed while calculating assessable income from
employment.
1. General Deductions (Sec 13)
2. Interest Deduction (Sec 14)
3. Cost of Trading Stock (Sec 15)
4. Repair and Improvement Cost (Sec 16) (7% of Depreciation Base or
Actual Repair , Whichever is lower)
5. Pollution Control Cost (Sec 17) ( 50% of adjusted taxable income for
PCC & R& D and actual whichever is lower)
6. Research and Development Cost (Sec 18) ( 50% of adjusted taxable
income for PCC & R& D and actual whichever is lower)
7. Depreciation Expenses
8. Loss from business or investment
9. Bad Debts
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 Expenses not allowed for deductions

 Expenses of domestic or personal nature

 Tax payable under this Act and a fine or similar other fee paid to
the government of any country or any local body thereof for a
violation of any law or regulation, byelaw framed thereunder
 Remuneration and wages expenses distributed to employees and
workers having no permanent accounts number
 Distribution of profits by any entity
 Cash payment of more than Rs. 50000

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 Tax Accounting and Timing
INCOME HEAD ACCOUNTING
METHOD
Individual Employment, Cash Basis
Sole trader/ Investment Cash or accrual basis
proprietor Business Cash or accrual basis
Partnership firm Business, Investment Accrual Basis
Company Business, Investment

Note: a person can change the method of accounting by taking approval from Inland Revenue
Department

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Quantification, Allocation and Characterization of Amounts
Characterization – Act of identification of a transaction or its head
Quantification – Converting into monetary items. For example A
loan of Rs. 1 crore fetches an interest of Rs. 10 Lakhs. Here Loan
and interest are characterization and Rs. 1 Crore and 10 lakhs are
quantification.

Allocation – it means distribution of quantification to one or

more characterizations. Say that the loan was used to construct a
building which was used on Magh 1. Then interest to be
allocated as a cost of building Rs. 5 lakhs and interest expenses is
5 lakhs.

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Transfer of Assets
Provision of Vehicle Facility
Provision of Accommodation facility
Interest Benefit
Fringe Benefit
Other Benefit

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Special Provisions Relating to Individual
One may choose single or couple for tax purpose

Medical Tax Credit

15% of Actual Medical Expenses
Or Maximum Rs. 750 Whichever is Lower

Foreign tax adjustment: Any resident person may claim for

adjustment of tax for the foreign income tax paid by that person
in any income year to the extent of the tax paid for assessable
foreign income of that person in that year

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 Offense and Punishment

Punishment to one who does not pay tax: A person who does not pay tax, without
any reasonable ground, by the due date for payment of tax shall be punished with a
fine of a sum from five thousand rupees to thirty thousand rupees or with
imprisonment for a term from one month to three months or with both
punishments.

Punishment to one who submits false or misleading statement: If any information

or statement submitted by any person to the Department is false or misleading
because of submission with intention or recklessness or that information becomes
misleading since such person has not mentioned information of any particular
matter or thing in the statement in respect of such subject, such person shall be
punished with a fine of a sum from forty thousand rupees to one hundred sixty
thousand rupees or with imprisonment for a term from six months to two years or
with both punishments.

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 However special
industry will allowed
additional 1/3rd of
depreciation than
the above specified
rate.

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Set off and carry forward of losses

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Source: Income Tax Act 2058

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BAFIA ACT, 2073

Presented by:

Nabina Aryal

Pooja Prabakar
 BAFIA ACT ,2073(2017)
• BAFIA is an umbrella banking act. It is an integrated banking law /regulating law.

• BAFIA is focused on financial and good governance and on maintain financial

stability in the country.

• Banks and Financial Institutions Act aims to improve the prevailing act
legislation relating to banks and financial institutions and to promote the trust
of the general public in the overall banking and financial system of the country.
 27 Major Highlights of BAFIA 2073

1. Banks and Financial Institutions (BFIs) can be registered only as a Public Limited Company.

2. A person desirous to establish BFIs must submit the application in NRB along with MOA, AOA,
Feasibility analysis report, Personal details of the applicant, Personal details of members of
management committee, promoter’s income sources for investment, and provide clear
information on whether or not involved in insolvency, declared convict by law, and blacklisted by
BFIs.

3. BFIs should take approval from Securities Board of Nepal and must register its prospectus in NRB
before publishing and distributing it to the general public.

4. BFIs should aside at least 30% of its total issued capital for subscription by the general public.
5. BFIs must take approval from NRB before issuing debentures or any other
financial instruments.

6. Maximum 0.5% of total share can be allotted to employees of that BFIs.

7. Promoters can’t sell their shares at least for 10 years from the date of
commencement of the bank.

8. Promoters share can be converted into common equity shares after 10 years
of establishment of BFIs.
9. Prohibition to engage in share trading of the company by a person who is
appointed as CEO, Accountant, and member of the Board of directors of that
company. They are not allowed to engage in share trading for one year from
the date of resignation from the post of that BFI.

10. BFIs must have a board of director with at least five and at most seven
members.

11. The tenure of the director shall not exceed four years. The directors except
for independent director can be reappointed or renominated for next tenure.

12. Board Meeting: at least 12 times a year (gap maximum of 2 months between
13. The promoter, director or shareholder possessing more than 0.1 percent share of that bank and
the financial institution or his/her members of the undivided family shall not be allowed to become
a Professional Director.

14. No person or entity other than those licensed banks and financial institutions shall carry on
financial transactions.

15. No person shall use the name of a bank or financial institution for the purpose of carrying on the
financial transactions, without obtaining the approval of the Nepal Rastra Bank.

16. No person or entity shall use terms such as a bank, finance company, banking or any other term
that reflects the meaning of the same kind with their name.

17. Banks and Financial Institutions are classified as Class A, Class B, Class C, Class D, and Infrastructure
Development Bank .
18. Class B, Class C, and Class D licensed institutions are not allowed to use other
than Development Bank, Finance Company, and Micro Finance Institutions .

19. Banks and financial institutions must maintain paid-up capital as per the
directive of NRB.

20. BFIs must maintain the general reserve and must contribute 20 percent of
net profit each year until the reserve is equivalent to double of capital and
must contribute 10 percent of net profit each year thereafter.

21. BFIs must grant a loan to an individual or entity only after acknowledging the
purpose of the loan.
22. The appointment of board members is made by founders until the first annual general meeting is held.

23. Dividends can only be distributed after: (i) recovering all preliminary expenses and previous losses, (ii)
maintaining minimum paid-up capital and capital reserves, (iii) allocating a pre-specified percent of net
profit to General Reserve, and (iv) distribution of shares that have been allocated to public.

24. Merger and acquisition: NRB can direct banks to merge in the following circumstances:

• If the paid-up capital is not sufficient or worsening of financial condition since last three years.

• If BFIs conducted any activities that have an adverse impact on depositors.

• If NRB thinks that merger and acquisition of a BFI would contribute to the competitiveness of bank and
financial institution as a whole

• Any bank or financial institutions declared as problem banks or financial institutions are not eligible for
the merger.
25. Prohibition to conduct activities by licensed BFIs:
• Prohibition to build the building or purchase an immovable property which is not necessary for
conducting banking and financial activities.
• Prohibition to purchase goods with an intention to conduct business.

• Prohibition to grant loan against its own shares as collateral

• Prohibition to act as a guarantor by founder, member of BOD, or any employee of the concerned
BFI while granting a loan
• Prohibition to purchase shares of its own

• Prohibition to invest in shares of class ‘A’, class ‘B’, and class ‘C’ category of BFIs

• Prohibition to form a joint collaboration among BFIs with an intention to create a monopoly

• Prohibition to engage in creating artificial hindrances in a competitive environment with an

intention to take undue advantage.
26. Banking Offence and Punishment
27. Power, functions, and duties of Chief Executive:
• To implement the decision of the board and supervise and
control the activates and transaction of the bank or financial
institution
•
To prepare an annual budget and action plans for the bank or
financial institutions and present them before the board for
approval
•
To manage necessary human resource
•
To implement the decision of the board and the general meeting
and the directives of Nepal Rastra Bank
•
To present all the necessary particulars, documents, decisions
and so on as required to be submitted by the bank or financial
institution to the Nepal Rastra Bank or any other bodies on time.
 27. Power, functions, and duties of Chief Executive:

• To implement the decision of the board and supervise and control the activates and transaction of the
bank or financial institution

• To prepare an annual budget and action plans for the bank or financial institutions and present them
before the board for approval

• To manage necessary human resource

• To implement the decision of the board and the general meeting and the directives of Nepal Rastra
Bank

• To present all the necessary particulars, documents, decisions and so on as required to be submitted
by the bank or financial institution to the Nepal Rastra Bank or any other bodies on time.
 Industrial Enterprises Act
2078

Presented by : Binita Chhetri

 Effective Date:

Industrial Enterprise Rules 2078 was enacted by GON under section 67 of the
Industrial Enterprise Act 2076 (IEA). These Rules have become effective from 21 Chaitra
2078 (4 April 2022).

 Background:

The IEA was enacted to develop a healthy, competitive and production oriented
economy with a focus on export promotion and import management to increase domestic
production and employment opportunities, facilitate industries and create investment
friendly environment by optimum utilization of natural, physical and human resource.
1. Registration of Industries:
Any person willing to set up an industry can do so by registering under the IEA. For
registration, an application in the format as prescribed in Annexure 1 along with the details: project report (in
the prescribed format of Annexure 2) and documents mentioned in Rule 3(1) shall be submitted to DOI .

2. Issuance of Registration Certificate:

DOI, after examination of submitted application/ documents and if satisfied, shall issue a
registration certificate in the format as specified in Annexure 3 mentioning the time limit for commencement of
business or commercial production or transaction.

3. Permission to be obtained from the Board:

For the registration of specific industries prescribed in section 8(1) of the IEA, permission
from the Board (i.e. Industry and Investment Promotion Board as per section 20 of the IEA) is required
after an application (as prescribed in Annexure 7) has been submitted along with documents
mentioned in Rule 3. Permission shall be given in the format specified in Annexure 8 if the board
decides to give the permission upon receipt of the application and documents required.
4. Extension of commercial production:
Where an industry cannot commence commercial production or operation or
transaction within the period prescribed in the registration certificate, an application for extension with justification
shall be submitted with the prescribed fee (ranging from NPR 15,000 to 150,000 depending on Industry type) and
DOI may grant an extension up to a maximum period of one year at a time.

5. Submission of Annual Return

• Audit report
• Tax clearance certificate of the latest fiscal year.
• Updated return prepared as per Annexure 13.

6. Cancellation of Registration:
Similarly, where an industry wants to cancel its registration. DOI shall give order to
applicant industry to publish a notice in national daily newspaper for a written claim, if any along with
supporting evidence within 35 days. The registration is cancelled and struck off from record within 7 days.
7. Facility of Export Loan to Women Entrepreneurs:
• For micro industries up to NPR 500,000.
• For domestic industries up to NPR 1.5 million.
• For Small Industries up to NPR 2 million.

• For Medium Industries up to NPR 3 million.

• For Large Industries up to NPR 5 million.

8. Security to be provided
• For industrial fair, exhibition and other industrial programs.
• To protect industries from property damage, fire and burglary during the period of strike and lock
out.
• To protect industrial areas from possible security threats.
9. Contract Manufacturing:
• Cash incentives on the basis of quantity of export
• Export loan at concessional interest rate
• Duty Drawback facility
• Priority in loan facility and
• Benefit on taxes, duties, fees and facilities on import of raw material from time to time as
specified by GON.

10. Corporate Social Responsibility:

• Natural disaster prevention and rescue related activities.
• Providing medicine and health equipment to community health organizations, conducting
health related activities.
• Preservation and conservation of Nepali art, cultural heritage and monuments.
• Skill development and income generating programs for people with low income, from
backward areas.
• Pollution control, waste management and other environment conservation activities.
• Construction of drinking water, road, and repair & maintenance of other physical