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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 (Revenue and Grant) Rs 317.83 billion

TOTAL BUDGET OUTLAY Rs 384.90 billion

TAX REVENUE 241.77 billion

RECURRENT EXPENDITURE Rs 266.61 billion

FOREIGN GRANT Rs 70.13 billion

CAPITAL EXPENDITURE Rs 72.61 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 Offices of the Government of Nepal after paying a certain percentage of tax. Except for tax purpose, such information will be kept confidential. This voluntary disclosure of property will be treated as tax base effective from the Fiscal Year 2012-13. Arrangement will be made to allocate the revenue generated from the Voluntary Disclosure of property for the solution of energy crisis faced by the country.

Revenue policy and program for FY 2011-12


With a view to build sustainable, private sector friendly, transparent and self-reliant economy through maximum utilization of domestic resources, and developing the equitable tax system, the following revenue policies have been proposed:

Mobilization of revenue through administrative reform and administrative capacity building without increasing revenue rates. Tax incentives to be provided to both domestic and foreign investors to attract investment in hydropower and infrastructure development sector through investment friendly policy. Protecting and promoting production oriented, import substituting and export oriented industries, to gear national economy towards industrialization. Broadening revenue bases by bringing in new and unidentified areas into the tax net. Identification of new areas of non tax revenue, revision of existing rate to make non tax as a major source of revenue. Revenue leakage control will be made effective through addressing revenue leakage, foreign exchange misuse and identifying the areas of money laundering. Establishment of Central revenue information system within the Ministry of Finance and under its department to make revenue administration simple, transparent and efficient through electronic service delivery mechanism. Establishing and developing clean, transparent, professional and taxpayer friendly revenue administration by timely improvement in the existing organization structure and working system

An arrangement for declaring Maximum Retail Price of the imported goods at the customs point in order to make the customs valuation realistic and discourage under-invoicing has been made. Excise rates on alcohol, beer, cigarettes and tobacco products has been increased. In order to make the people involved in the registration process of land and house transactions more professional and respectful, arrangement will be made so that only such transactions can be conducted only through persons having Permanent Account Number (PAN). Long outstanding arrears will be classified and tabulated on the basis of the amount and due period and special campaign will be conducted to collect such arrears. To increase the contribution of non-tax revenue to revenue collection, the existing non-tax revenue rates will be reviewed through inter-agency coordination on the basis of cost of the service delivery, investment and principle of return.

Increased Tax Concessions and Facilities

Arrangement to provide custom duty exemption, on the recommendation of the Ministry of Agriculture and 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 brought in by the Nepalese passengers returning from foreign employment has been reduced. VAT exemption to Jute industries on the import of materials including spare parts has been proposed. An arrangement to exempt the vehicle tax and road construction and maintenance fee on the scooters up to 150 CC designed for disabled persons has been made. Likewise, a provision of 50 percent exemption in the road construction and maintenance fee being imposed on electric, solar and battery vehicles has been made. Arrangement of exempting vehicle tax on Sabbahan (ambulances) and fire brigades has been made. A provision of reimbursement of existing income tax on the insurance premium for the workers who lost their lives while on foreign employment has been made. Such reimbursement will be made through Foreign Employment Promotion Board.

Following strategies and programs will be adopted


Broadening the Tax Base

With the implementation of "Kar Karyanwayan Abhiyaan Barsha" (Tax Enforcement Campaign Year) in the current Fiscal Year the tax base has broadened, awareness for the compliance of tax laws has increased, collection and legal enforcement of arrears has been effective making a positive impact on revenue mobilization. In view of this, implementation of "Kar Karyanwayan Abhiyaan Barsha" (Tax Enforcement Campaign Year) has been given continuity in the coming Fiscal Year 2011-12 as well. The habit of keeping records of the sources of property and its purpose has not yet developed among the Nepalese people. To address such problems, arrangement in Property Tax Act will be made whereby an individual, family or company can make a voluntary disclosure of all the fixed and movable properties including the land, ornaments, cash, deposits in banks/financial institutions, lending, investment in

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

Capital Gain Tax on the income from the sales of house and land has been reduced by 50 percent. Likewise, the capital gain tax on the sale and purchase of shares of entities registered with Securities Board has been reduced from 15 percent to 10 percent in the case of entities and from 10 percent to 5 percent in the case of individuals. In order to increase the land ownership of women, a proposal to exempt 40 percent on the land registration fees for registration on the ownership of women in the VDCs of Hilly districts; Taplejung, Solukhumbu, Rasuwa, Manang, Mustang, Humla, Jumla, Mugu, Kalikot, Dolpa, Bajhang, and Darchula excluding the district headquarters of those districts has been made. This exemption also applies to some remote VDCs of Sankhuwasabha, Dolakha, Dhading, Sindhupalchowk and Gorkha districts. Provision of charging only Rs 100 for the change of ownership of land that is currently under the ownership of husband to the joint ownership of husband and wife has been made. Arrangement of 1 percent custom duty on sewing machines that contribute to self-employment has been made.

system. The existing legal provisions to take legal actions against both parties found to be involved and assisting each other in fraudulent activities has been revised. Investigation will be completed soon for those taxpayers who are under the process of investigation.

Investigations will be conducted and legal actions will be taken against those who are not in the tax net or are not complying with their duties as taxpayers. A provision of bail is proposed to discourage the tendency of not paying the tax on time ignoring several notices. Similarly, a provision of detention is also proposed if there is less or no possibility of recovering the tax from the taxpayer if tax is not collected immediately. Statements of local purchase and sales above Rs 100,000 will have to be produced when submitting VAT return by electronic means. This provision will be initiated from the Large Taxpayer Office. Qualitative and secured stickers designed and printed with highest security features, will be used in beer, alcohol and cigarettes from this Fiscal Year to effectively control the tax leakages in excise. A strict legal provision is adopted to discourage fake excise stickers. A provision that no industries and the distributors of liquor, beer and cigarettes are permitted to operate the gift scheme of any kind has been proposed. Similarly those industries will not be eligible to give discount to other sellers except those registered in VAT. Sufficient budget have been allocated to purchase under invoiced goods to discourage the under invoicing at the customs point has been allocated. For the purpose of selling such goods, an institutional arrangement will be set up and process will be simplified. Revenue leakage (Investigation and control) by law will be prepared and executed within this year to make revenue leakage investigation and interrogation process more systematic and transparent which would increase the revenue mobilization. The internal movement system with electronic surveillance for loaded vehicles will be prepared and implemented this year to make internal movement of goods more scientific in order to encourage fair business. Procedure related to import identity card will be prepared and implemented by mid December of next fiscal year to reduce the illegal and unfair trade practices.

Promotion of Private Sector and Reducing Cost of Doing Business

Income tax will be fully exempted for the first ten years for the hydro-power projects commencing their construction within 24 August 2014 and starting commercial production by mid-April 2018. Thereafter 50 percent income tax exemption for the next five years will be provided. It has been proposed to extend the deadline for submission of intention of merger among banks and financial institutions by mid-November 2012. Land registration fee to the merged financial institutions has been waived. To reform the tax collection procedures and making arrangements to pay the revenue from the nearest bank of taxpayer's location, Any Branch Banking System (ABBS) will be introduced among banks collecting government revenue. Selectivity module implemented in customs clearance based on risk management system will be expanded to additional customs offices. A controlling policy will be adopted by using post clearance audit system to expedite the clearance procedures. For the purpose of discouraging business fraud in customs area and recognizing the integrity and honesty in business sector, a policy will be adopted to honor the genuine business persons.

Reform in Revenue Administration Revenue Leakage and Controlling Illegal Imports


Tendencies of using fake and false bills and invoices to evade the tax are found to be increasing despite the fact that the value added tax system itself is scientific, transparent, broad based, investment friendly and based on self assessment

Central Revenue Board will be formed to make revenue administration more autonomous and effective. Performance based incentive system has been continued by making the indicators more scientific in the revenue administration.

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

The revenue rebate policy will be updated to provide rebates only on the basis of fixed standards and norms after considering the use of such policy, its impact on the general public and a sound monitoring mechanism to ensure that there is no misuse of rebate provisions while providing revenue rebates. With a view to expanding the services, 13 additional Tax Payer's Service Centers will be established outside the Kathmandu Valley to make taxpayer's service more effective. The capacity of Revenue Investigation Department will be enhanced to control revenue leakages by establishing interdepartmental computer network through information and communication networking. In addition to timely updating of the existing Income Tax Manual, manuals for excise duty and value added tax will also be implemented. By considering the contribution of excise duty in revenue mobilization, a separate Excise Department will be established in the next Fiscal Year in order to increase revenue collection. The construction of an Integrated Check Posts has already commenced in Alau, Birgunj with the assistance of the Government of India. Since the process of constructing Integrated Check Post in Biratnagar, Bhairahawa and Nepalgunj has already been initiated, an arrangement will be made to provide all services including customs, immigration, border security, and quarantine and banking service from the same Integrated Check Posts in the days ahead. In order to systematize the ever increasing trade between Nepal and Tibet of China, the construction of a Dry Port in Larcha of Sindhupalchok will be commenced and work will be initiated to construct all physical infrastructures including building for Rasuwa Customs Office. An arrangement will be made to increase the number of the customs agents in order to ensure adequacy of their services. A comprehensive working manual on Custom Valuation will be prepared and implemented within this Fiscal Year. In order to further simplify the customs procedures and make it more transparent, the process will be forwarded ahead to be a signatory nation of the amended Kyoto Convention which is an international standard for customs reform. Until and unless there is a separate revenue police force in place, the Armed Police Force will be mobilized under the direction and control of Customs Department and Revenue Investigation Department instead of the existing Armed Police Force which has been currently mobilized, on the seasonal basis, for the security of the Customs Offices and Revenue Investigation Offices and for controlling illegal trade. An arrangement will be made to establish a client service desk 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

laundering cases. An arrangement will be made to equip this Department with the physical structures, technology and manpower to match international standards.

The UN Convention on Anti-money Laundering and Control of Terrorism will be approved and the remaining laws concerning this convention will be enacted immediately including the preparation and implementation of a five year strategy on anti-money laundering.

Economic Situation

Economic growth rate for the current Fiscal Year is estimated to be 3.5 percent. Average economic growth rate over the last three years was below 4.0 percent. Inflation, which persisted at double digit during the last two years, has come to a single digit in this year. As of 15 June of the Fiscal Year, i.e. first 11 months, both imports and exports have increased approximately by 6.0 percent. Despite an increase in the merchandise export compared to previous year, trade deficit continued to increase during the last three years. Similarly, since last Fiscal Year, the Nepalese economy started recording a balance of payment deficit. Despite this, foreign exchange reserves remains sufficient to meet 7 months equivalent imports of goods and services. Revised total expenditure of the current Fiscal Year is estimated to be Rs 306.27 billion. Current expenditure is estimated to be Rs 180.14 billion, capital expenditure Rs 108.08 billion, and principal repayment Rs 18.04 billion. Even though the size of the total budget has been increasing continuously, availability of budget for capital expenditure is squeezing because of the rapid rise in current expenditure. At the same time, absorptive capacity of foreign aid has also been gradually eroding. Revenue mobilization, hence collection, in this Fiscal Year was adversely affected due to delayed submission of the current Fiscal Year budget, non expansion of economic activities and decreased imports. Revenue collection is estimated to be Rs 206 billion- an increase by 14.4 percent over the actual collection of the last Fiscal Year. The next Fiscal Year budget needs to be focused towards achieving a higher growth rate by improving macroeconomic indicators, expanding capital market and enhancing confidence, promoting private sector investment by expanding physical and economic infrastructures, and focusing economic activities in the productive sectors. The budget will be able to accelerate economic growth and ensure equitable development by increasing investment in the public, private and cooperative sectors and by bringing in dynamism in the economy.

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 Policies and Programs of the Budget


The following areas have been given priority

Executive Summary
Corporate Tax No changes in the existing tax rate payable by domestic companies for the fiscal year 2011/12. The existing tax rates are as follows: Companies Banks and financial institutions General Insurance Business Cigarettes, Bidi, Cigar, Chewing Tobacco, Khaini, Liquor, Beer Petroleum companies Special industries Export industries Power generation, transmission, distribution, infrastructure projects etc Other entities not covered above

Establishment of Peace, Formulation of Constitution and Sustainable Resolution of Conflict Reform in Public Service Delivery and Supply System to Provide Relief to General Public Social Justice and Inclusive Development Highly Remote and Backward Area Development Program Gender Equality and Empowerment Ownership and Access Enhancement of Poor and Disadvantaged on Land Transforming Agriculture Sector and its Commercialization Promotion and Expansion of Cooperatives as a Main Pillar of the Economy Road, Bridge and other infrastructure development Energy Crisis Mitigation Campaign Irrigation and River Training Youth Self Employment Program Massive Employment Generation through Public, Cooperative and Private Sector Foreign Employment and Remittance Income Clean Environment and Alternative energy Rural Infrastructure and Model Village Tourism Promotion Forestry Development Private Sector Development Program Financial Sector and Capital Market Export Promotion Education and Literacy Campaign Health Services Housing, Drinking Water and Sanitation Information and communication Science and Technology Literatures, Arts and Cultures Honor to National Figures Youth Mobilization and Sports Development Plan, Budget System and Public Expenditure Management Foreign Aid Public Enterprises Reforms Promotion of Good Governance and Administrative Reform

Rate (%) 30 30 30 30 20 20 20 25

Income tax will be fully exempted for the first ten years for the hydro-power projects commencing their construction within 24 August 2014 and starting commercial production by mid-April 2018. Thereafter 50 percent income tax exemption for the next five years will be provided.

General Interest rate Has been maintained at 15% Personal Tax

1 percent tax is levied on the first slab of the personal tax of Rs 160,000 and Rs 200,000 for individuals and couple respectively. The amount withheld shall be deposited into Social Security Fund in a different revenue account. If the total taxable income of an individual is more than Rs 25 lakhs, additional tax at the rate of 40% of the total tax computed under the last slab shall be levied. Insurance threshold for deduction against taxable income is continued to be Rs 20,000. A provision of reimbursement of existing Income tax on the insurance premium for the workers who lost their lives while on foreign employment has been made. Such reimbursement will be made through Foreign Employment Promotion Board. Arrangement to provide custom duty exemption, on the recommendation of the Ministry of Agriculture and Cooperatives, to the Tomato Ketchup industries that are run through cooperatives has been made.

Customs Duty

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

The prevailing flat rate custom duty on LCD, Plasma or LED brought in by the Nepalese passengers returning from foreign employment has been reduced Full customs exemption in the scooters to be used by physically handicapped persons, continued from previous year. Custom duty and excise duty on alcohol, cigarette, and tobacco increased. An arrangement for declaring Maximum Retail Price of the imported goods at the customs point in order to make the customs valuation realistic and discourage under-invoicing has been made Arrangement of 1 percent custom duty on sewing machines that contribute to self-employment has been made. The excise duty slightly increased on items harmful to health like cigarettes, beer, alcohol, etc. No change in excise duty on vehicle No changes in the existing rate of 13 percent for the fiscal year 2011/12. VAT exemption to Jute industries on the import of materials including spare parts has been proposed No changes in the existing threshold limit for compulsory registration under VAT Act that is a turnover of Rs 2,000,000 over last 12 months or turnover of Rs 200,000 in any month must be registered Compulsory VAT registration for a person importing taxable items exceeding the value of Rs 10,000 at a time for commercial purposes. The claim of refund has to be made within 3 years from the end of tax period otherwise will not be entertained.

institutions, rural development banks, postal saving bank, and cooperatives in the rural area.

Tax on dividend income Tax at the rate of 5% shall be charged on the dividend paid by the resident entity to resident or non-resident person.

TDS on the insurance premium paid to Resident insurance companies The existing TDS of 1.5% on the premium paid to resident insurance companies has been abolished from previous Fiscal year. However, TDS @ 1.5% is levied on premium paid to non-resident insurance companies.

Excise Duty

TDS on contract amount paid to Non-resident person by resident person In case of service contract 15% tax (TDS) shall be withheld (general clause attracted) In repair of aeroplane & other cases @ 5%

Value Added Taxes


TDS on capital gains Capital Gain Tax on the income from the sales of house and land has been reduced by 50 percent. Likewise, the capital gain tax on the sale and purchase of shares of entities registered with Securities Board has been reduced from 15 percent to percent in the case of entities and from 10 percent to 5 percent in the case of individuals.

Tax exemption to special industries 10% percent income tax exemption on income to be earned from special industries and information and communication technology industries which provide direct employment to 300 Nepali throughout the year has been provided continuation Similarly, 20% income tax exemption on income to be earned from special industries provides 1200 or more Nepali citizen and to special industries providing employment to 100 Nepali citizens including employment to dalit women & disabled person has also been continued.

Tax withholding at source The major changes made in the Income Tax Act, 2058 by the Finance Bill 2068 and other rates continued from previous years are as follows:

Presumptive tax There has been comprehensive increases in presumptive taxation in the current fiscal year for small tax payers as follows: (Note: Small tax-payer means natural person whose annual turnover is less than Rs 2,000,000 and income not exceeding Rs 200,000).
Particulars Metropolitan, Sub-Metropolitan Municipal Areas Other than municipal areas FY 2010/11 Rs 3,500 Rs 2,000 Rs 1,250 FY 2011/12 Rs 3,500 Rs 2,000 Rs 1,250

Deposit of withholding tax (TDS) Tax withheld during the month shall be deposited into IRO within 25 days of next Nepali month.

House rent tax House rent tax shall be continued to be levied on the rental income at the rate of 10 percent

Tax exemption on interest income Tax exemption has been given on annual interest income of Rs 10,000 in the amount deposited to the micro credit

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
The major changes made in the Income Tax Act, 2058 by the Finance Act in the previous years and continuity given by Finance Act 2068 are as follows:

a
b c d e

Tax rates 1%
15% 25% 25% 40%

Individual Rs
160,000 160,000 to 260,000 260,001 to 2,500,000 Above 2,500,001

Couple Rs
200,000 200,000 to 300,000 300,001 to 2,500,000 Above 2,500,001

Tax Exemption to Industries in SEZ 100 percent tax exemption will be granted to industries established in SEZ for the first five years from the date of operation and thereafter 50% rebate will be granted on the applicable tax rates for subsequent years continued.

Tax Exemption for Industries in Rural Areas 100 percent tax exemption granted to industries established in rural areas for ten years from the date of operation has been discontinued.

Additional tax on tax computed as per (d) above where taxable income of an individual exceeds Rs 2.5 million

Remote Area benefit Natural person working at remote areas are entitled to get maximum deduction of Rs 50,000 (PY 30,000) from taxable income.

Tax Exemption for Industries in IT Parks IT industries established in the specified IT Park shall be granted a 50 (PY 25%) percent tax rebate on applicable tax rate.

Individual having Income from export In case of individual having income from export, tax rate of 15% is applicable in place of 25%

Carry Forward of Losses Loss from investment or business during the year in which such incomes were fully (previously full and partial) exempted are now onwards not allowed to be carried forward and set off against such incomes of subsequent years. (Section 20 Subsection 8)

Exemption to Women A ten per cent tax rebate in income tax from remunerations to the women being resident natural person having no other income except Income from Employment is continued.

Repatriation Income of FPE Income repatriated of Foreign Permanent Establishment of non -resident person is subject to tax @ of 5 percent, continued from previous years.

Taxable Income of Person employed in Nepalese Diplomatic Mission There has been no changes in the existing provision of an amount equal to 75% of the amount earned as foreign allowance by an employee working in Nepalese Diplomatic Missions stated in foreign country shall be deducted and tax shall be calculated on the balance amount.

PERSONAL TAX
The provisions of the Income Tax Act 2058, which came into effect from 19 Chaitra 2058, will be the basis of computation of personal taxes for the fiscal year 2010-11.

Deduction of Life Insurance Premium Insurance threshold of Rs 20,000 has been continued. Accordingly, amount paid as premium for investment insurance policy taken on the life of a natural person is allowed to be deducted from Taxable Income of such person, to the extent of minimum of: - Actual Amount paid, or - Rs 20,000 Exemption to handicapped Income tax exemption limit for the blind and handicapped people continues to be 50 percent above the normal exemption limit.

Tax rates The existing tax rates for personal income taxes are as follows: Salary, Allowances and Perquisites are taxable (certain exceptions are granted). Deductions continued for donations paid (up to 5% of Adjusted Taxable Income or Rs 100,000 whichever is lower) and contribution to retirement benefits (actual contribution not exceeding Rs 300,000 or one third of assessable income whichever is lower). Tax on income of non residents continued at 25 percent. The taxable income computed as above is taxed as follows:

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
OTHER TAX PROVISIONS
The provisions of other applicable taxes are as follows:

Road Construction and rehabilitation duty The duty will be collected as follows: Types of Vehicles Car, Jeep, Van, Micro bus, truck, tipper, truck mixture, mini bus and mini truck Motor cycle Duty 5% of the value inclusive of all other taxes and duties

Depreciation Production industry purchasing energy generating capital asset for its industrial requirement can claim depreciation at the rate of 50% in the first year. Any person purchasing printer and cash machine for the purpose of printing and issuing invoices can claim depreciation at the rate of 100% in the same year. (Annexure 2 section 3 subsection 4)

Rs 6,000

Custom Service Charge Rs 600 and Rs 500 shall be recovered per pragyanpan patra on export and import of goods to/from Nepal.

Not applicable to ambulances, diplomatic missions and individuals having diplomatic immunity. Road Maintenance and Improvement duty Road maintenance and improvement duty is levied on petrol Rs 4 (PY Rs 4) per liter and in diesel Rs 2 (PY Rs 2) per liter at the custom point.

Agriculture Reform Fees Agriculture reform fee has been maintained at 5% (P Y 5%) for items mentioned clause 16 of Annex 1. However, this fee will not be levied in cases where customs duty is applicable on import of such products.

Registration Fees, Service duty In financial year 2068/69 registration fee and service fee and property lien fee shall be levied according to annexure -4 of Finance Act 2068.

Health Service Fees Health services provided by private institutions attract health service fee of 5 percent on the value of services provided. Health service providers can register in VAT voluntarily and collect VAT instead of health service fees.

Film Development Fees 15% fees on the entrance fees on all classes for screening foreign films. 20% fees on the entrance fees for operation of cabin on screening foreign films.

Education Service Tax 1 percent levied on admission and monthly tuition fee collected by private educational institution operating in Kathmandu Valley; sub metro municipality, municipality and district headquarters. Tax to be collected shall be deposited within 25 days of next month on tri semester basis along with details. Penalty at the rate of 15% shall be levied on failure to deposit tax and Rs 1,000 on failure to submit detail. 1 percent tax to be levied on the student going aboard for studies at the time of providing permission for foreign exchange has been continued. Such fee has shall be collected by banks and financial institution.

Pollution Control Fees To be collected by NOC at the rate of Rs 0.50 per liter of petrol and diesel sold within Nepal and deposited within 25 of next month, continued from previous years.

Telephone Ownership Fees No changes with that of previous year. Telephone ownership fees will be collected at the rate of Rs 1,000 per. This fee will be collected at the time of transfer of ownership also. The fees levied on prepaid sim card and recharge card will be 2 percent of the cost of the sim card and recharge card.

Telecommunications Service Charge The existing provision has been continued for service charge is to be recovered at 10%. No such charge is applicable for ISP, pager providers and on interconnection charges except for VOIP operators.

Vehicle Tax There have been changes in Vehicle taxes and the detail is in schedule 3 of Finance Act 2012. An arrangement to exempt the vehicle tax and road construction and maintenance fee on the scooters up to 150 CC designed for disabled persons has been made. Likewise, a provision of 50 percent exemption in the road construction and maintenance fee being imposed on electric, solar and battery vehicles has been made.

Casino Royalty The royalty payable by casinos is Rs 20 million per annum. This amount has to be paid within 2 months from 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.

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

Windfall Gain Tax No changes with that of previous year. 25 percent of the cash benefits or equivalent to market value if paid in kind will be withheld as windfall gain tax. Such withholdings has to be deposited within 25 days of payment or will attract penalty @ 10 percent p.a.

VAT on Apartment or Shopping Complex VAT is to be collected from the owner of the building of the apartment or shopping complex worth Rs 5 million or more and constructed for business purpose, even though same has been constructed from the unregistered person.

Forest Product Fee The amount to be deposited in the government treasury as forest product fee out of the receipt from sale of timbers of Sal and Khayar disposed as per work plan prescribed in the regulation and sold beyond consumer group for commercial purpose from community forest has been continued at 15 percent.

VAT on Imports Facilities to manufacturing industries which export 60% of their produce with a minimum of 10% value addition can release the raw material imported by providing bank guarantee in lieu of the applicable VAT amount at custom.

Tax exemption on mergers of FIs and Insurance In order to encourage the merger of banks, finance and insurance companies, changes in the provision of taxing assets and liabilities as disposal after merger has been introduced to make it non-taxable. It is proposed to extend the deadline to submit intention of merger among banks and financial institutions by midNovember 2012. Land registration fee to the merged financial institutions has been waived.

Refund of claim The claim of refund has to be made within 3 years from the end of tax period otherwise will not be entertained.

Refund of VAT 60% of VAT paid on import of raw material or finished goods for cellular mobile by the local will be refunded.

Advance Ruling Provision of issuing advance ruling to avoid ambiguity in VAT continued.

Stamp duty Stamp duty has been increased to Rs10 from existing Rs 5.

Filing of VAT return VAT return filing has to be done monthly, bi-monthly and quarterly basis according to the nature of the business.

Refund of VAT to tourist Arrangement is made for refund of VAT paid by foreigners on the purchases exceeding Rs 15,000 made in Nepal at the time of the departure. However, 3 percent of amount refundable shall be collected as service fee.

VALUE ADDED TAXES


The Finance Act can only make changes to the provisions of the VAT Act 2052; no other Acts can supersede the provisions of VAT Act 2052.

VAT deposit refund for re-exports In case of re-exports, the deposit paid during import will be refunded from the Custom point.

Ceiling for purchases Made mandatory to purchase goods costing more than Rs 5,000 only from suppliers that are registered under VAT.

Tax Rate There are no changes in the existing rate of 13%.

VAT Refund on Damaged Goods VAT Refund can be claimed on goods damaged by fire, theft, accident, wear and tear. From now onwards, VAT refund cannot be claimed if goods are damaged due to lapse of time of its use as prescribed.

Threshold No change in existing threshold for compulsory registration under VAT Act is a turnover of Rs 2,000,000 over last 12 months or turnover of Rs 200,000 in any month. However, persons dealing in hardware, sanitary, furniture & fixture, furnishing, automobiles, motor parts electronics & marble and color lab within Metropolitan City, Submetropolitan City or Municipality areas must register under VAT within 30 days from the date of transaction.

Purchase of Under Valued Goods The IRD may purchase goods at the undervalued rate if it considers that the goods have been undervalued.

VAT Refund on Purchase of Capital Goods under Loan or Mortgage VAT refund can be claimed on the capital goods purchased under hire purchase loan or mortgaged in the name of financial institutions.

There have been no major changes in VAT however certain provisions have been inserted as follows:

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

Penalty Provision has been made to adjust additional fee and penalty resulting due to late payments of VAT.

50% rebate on import of tin containers to be used for the packing products of dairy industry. Concessions on customs tariff on the import of tanker for dairy industries have been maintained at 80 percent Custom duty on import of gold and silver shall be Rs 1,000 and Rs 24 per 10 gms respectively. Gold jewellery to attract only 10% duty 50% concession on the custom duty on vehicles to be operated by battery and electricity. 50 percent exemptions in the import duties and 68% on agriculture reform fee have been provided to the import of soybean and sunflower seeds to be used by domestic oil industries as their raw materials. 5% custom duty shall be levied on the import of LP Gas. 1 percent Custom Duty levied on Import of generator of 10kw or more capacity. On import of aircrafts, helicopter, its gear box, engines, tyre, battery, nut, bolt and spares. However, customs duty collected shall be refunded for lease of aircrafts, helicopter and its spares and returned within 3 years. Import of equipment, machinery, tools and spares by industries and equipments imported by pharmaceutical industry for research. Import of Raw Material, Auxiliary Raw Material, Chemicals by tyre manufacturing Industries. Equipment used for conversion of tempos run by diesel/petrol into battery operated by existing registered tempo operators. Import of catalytic converter and magnetizer used for reducing pollution on vehicles. Import of equipment by industries to reduce pollution Cloth weaving machine under HSN 84.52. Import of construction equipments, Machinery and its spares and steel sheet needed to build such equipments which are not produced in Nepal for the generation, transmission, distribution, operation or maintenance of electricity. For the same recommendation of Electricity development department is needed. Import of generating parts by VAT registered industries manufacturing generators Import of pashmina thread as mentioned in part 51 On the recommendation of Agricultural and Cooperative Ministry the machinery and equipments imported by industry established by co-operative society for the production of tomato ketchup and sauce.

CUSTOMS DUTY
The customs duty for import of goods and materials into Nepal will be levied in accordance with the rates provided in Annexure 1 of the Finance Act 2068. Customs duty on certain imported goods and materials have been proposed to be realigned with the revision in the applicable rates. The following changes have been made in the customs duty:

Goods being imported from India of Indian origin can be imported on concession of 7 percent on custom duty up to 30 percent. But 5 percent concession can be obtained on goods for which customs duty is above 30% (where custom duty is levied on value). For goods of Chinese origin imported by letter of credit (LC) from Tibet, a concession of 4 percent of custom duty (where custom duty is levied on value) has been continued. Concession on Custom duty on goods specified under SAFTA agreement being imported from SAARC countries through shipment and billing from the same country and imported through Letter of Credit shall be provided as prescribed. Only authorized dealers in Nepal can import vehicles from the manufacturer or its authorized dealers. Reconditioned, used and those vehicles not meeting the pollution index 2056 cannot be imported Customs on Accompanied and Unaccompanied personal effects (Niji Gunta Jhiti) shall be levied at a flat rate as follows. (separate excise duty, custom duty and VAT shall not be levied when charged with such applicable flat rates)
Custom rate Duty exempted 5% 10% 15% 20% 30% Applicable rate 15% 20% 25% 30% 35% 50%

The excise duty paid in India on import of materials from India shall be deducted from the applicable customs duty. However, the excise shall not be deducted on the customs duty on freight, insurance, difference in value and other expenses. Industries importing raw materials through bank guarantee or pass book record facility have been given the facility to make imports by providing deposits (such deposits shall be refunded if certain conditions have been fulfilled), if they raise the value by 10 percent during export.

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

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. Excise duty receivable from a person can be recovered by the Excise Officer by way of auctioning the stocks of the concerned person. Excise duty has been exempted on Scooter made for the use of handicapped persons, ambulance, dead body carrying vehicle and chassis of tempo operated by battery. A discount of 50% on the excise duty payable shall be available for locally manufactured motorcycles and in case of locally manufactured other vehicles; the discount rate shall be 25%. A discount at the rate of 80% on excise duty payable shall be available on brandy manufactured from fruits produced 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.

CONTACT FOR FURTHER CONSULTATION


T R Upadhya & Co. Chartered Accountants House No. 61, Anamika Galli P. O. Box 4414, Baluwatar, Kathmandu, Nepal www.trunco.com.np Phone: +977 1 4410927, +977 1 4414695 Fax: +977 1 4413307 Email: trunco@ntc.net.np Sanjeev Kumar Mishra Partner smishra@trunco.com.np Shashi Satyal Partner ssatyal@trunco.com.np T R Upadhyay Partner trupadhya@trunco.com.np

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.

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.