Budget & Tax Look Final

This publication is compliled by KB Chitracar & co. (KBC) to provide information about
budget & tax look along with amendment by finance bill 2073 (2016).

This is solely intended for the information as a quick refrence guide. This Publication is not
intended as a comprehensive or exhaustive study. We would strongly recommend user to
seek expert and professional advice before making any decision based on this publication.

Maximum efforts have been provided to mitigate errors and mistakes on the publication.
Suggestions and corrections, if any for further improvement, are very welcome and may
be sent to [email protected].

This pulication can also be accessed on our website www.kbc-ca.com.np

CONTENTS

Budget Look

Tax Look
A. Income Tax Act, 2058
B. Value Added Tax Act, 2052
C. Excise Act, 2058

DTAA

BUDGET LOOK

The Honorable Deputy Prime Minister and domestic borrowing, Rs. 102.73 billion form
Finance Minister, Mr. Krishna Bahadur Mahara Cash balance of fiscal year 2073/74.
presented an expansionary budget of Rs
1278.99 billion on Friday 15 Jestha, 2074 (29 8.03%
May 2017) for fiscal year 2074/75 (2017/18). 11.34%

Major statistical highlights of Budget for Fiscal 16.74% 57.08%
year 2074/75 are as follows:

a) EXPENDITURE 5.64%

Out of total budget, the government has 1.17% Principal Repayment
expected to spend Rs. 803.53 billion for the Revenue Mobilization
recurrent expenditure; Rs. 335.17 billion for
capital expenditure and Rs. 140.28 billion for Foregin Grants Foreign Loan
financing provisions.
Domestic Borrowing Cash Balance of FY
The budget expenditure can be shown in Pie-
Chart as follow: 2073/74

10.96% PRIORITIES OF THE BUDGET

• Execution of Federalism,

• Reconstruction of infrastructures
damaged by the earthquake,

26.20% • Increase employment opportunities,

67.87% • Increase in production and productivity,

• Speedy implementation of national pride
projects,

Re-current Capital Financing • Agriculture modernization, commercialization
and mechanization,
b) SOURCES OF FUND
• Hydroelectric production, transmission and
The budget aims to collect Rs. 730.05 distribution,
billion from revenue mobilization, Rs. 15
billion from principal repayment, Rs. 72.16 • Construction and improvement of road,
billion from foreign grant, Rs. 214.03 billion railway and international airport, development
from foreign loan, Rs. 145.00 billion from and promotion of tourism infrastructure,

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• Investment on education, health, drinking • GoN have allocated budget for detailed
water and sanitation, feasibility study of Kerung-Kathmandu-
Pokhara-Lumbini Railway to link Lumbini:
• Enhance supply, storage and distribution of holy birthplace of Lord Gautam Buddha.
necessary consumable goods,
• National trading, food organization,
• Smooth operation of banek and agricultural equipment center etc. to be
merged and national suppliers is to be
financial institutions.E created.

KEY ANNOUNCEMENTSU • Marty’s family to be received Rs.5 Lakhs.

• Allocation of budget to Local level Rs. • Rs. 3 lakhs Interest free loan to Earthquake
225.05 Billion. Victim.

• Government aims to limit inflation to 6% in • National Health Insurance scheme will be
the coming fiscal year. accessed to all Nepalese people within 3
years.
• Government has targeted an economic
growth rate of 6.9% for the current fiscal • Both Life and Non-life Insurance Company
year. shall now re-Insure a major portion of their
policies with Nepal Reinsurance Company
• Earthquake Rehabilitation Budget Rs 146.18 Ltd.
Billion.
• At least one branch of commercial bank
• Programs for Energy sector got the budget needs to be established at each rural
of Rs. 62.47 billion. municipalities and municipalities’.

• Government has allocated Rs. 10.17 billion • Arrangement will be made to maintain a
to the Budhigandaki Hydropower Project local consolidated fund in the commercial
for the distribution of compensation and banks.
operational expenses of this project.
• Emphasis will be given to implement a
• Nijghad,Gautam Buddha and Pokhara program called Bank Account of all Nepali.
International airports jointly got Rs. 13.72
billion. • Individual going abroad needs to open
bank account compulsorily for remittance
• Dharan-Chatara-Gaighat-Katari-Sindhuli- purpose.
Hetauda road got the budget of 3.15 billion.
• Newly appointed government employee
• Kathamandu-Nijghad Fast Track garnered from 1st Shrawan, 2074 shall have to
Rs 10.14 Billion. contribute towards retirement while drawing
salary for each month. Government shall
• Melamchi water project got the budget of Rs. also contribute for the same fund.
6.57 billion and is targeted to be completed
by upcoming Dashain. • Digital meters have been mandatory for
taxies operating in Kathmandu valley.
• Rs 2.44 Billion is allocated to give continuity
to People’s Housing (Janata Aabas) • Embossed number plate will be executed to
program. all vehicles within 5 years.

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EDUCATION SERVICE FEE ROAD REPAIR AND IMPROVEMENT
FEE
• Education Service Fee 1% is levied on
Monthly fee and Admission Fee recovered For the purpose of road repair and improvement,
by all educational institutions operated fees per liter shall be charged and collected in
by Private sector within Nepal providing following imported items at custom point:
education above Higher Secondary Level
and all private sector educational institutions Items Name Fee Per Liter (RS)
within Kathmandu Valley, sub metropolitan Petrol 4
city, municipality, district headquarters and Diesel 2
area prescribed by IRD.
TELEPHONE OWNERSHIP FEE
• Recovered Tax by those educational
institutions shall be deposited to Inland • For fiscal year 2074/75, Rs. 1,000.00 as
Revenue Department or Tax Office or Office telephone ownership fee is to be recovered
of Audit Controller General along with the from customer installing Telephone.
details of tax collection on four monthly Provided, however, same fee shall be
basis within 25th of the end of each four recovered from person receiving ownership
month. of Telephone in case of change in ownership
of Telephone.
• 15 % Interest per annum is charged for not
depositing the tax amount and Rs.1,000 • In case of prepaid mobile phone, amount
fine for non-submission of details of tax equivalent to 2% of total value of SIM card
collection. and recharge card shall be recovered as
Telephone ownership fee.
HEALTH SERVICE TAX

• 5% of Health Service Tax is levied on Health
Services invoices of all entities providing
health services, except for those provided
by Government of Nepal and Community
Hospitals.

• Tax as per sub section (1) shall be recovered
by those entities by issuing Invoices.

• Details of Tax collected as per sub section
(2) shall be submitted four monthly to Inland
Revenue Department and deposit the total
tax within 25th of end of each four month.

• 15 % Interest per annum is charged for not
depositing the tax amount and Rs. 1,000
fine for non-submission of details of tax
collection.

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TAX LOOK

A. INCOME TAX ACT, 2058 the functions of an exempt organization
 Exempt amounts under Section 2(dha) which are made to
such organization without expecting any
a. Section 10 (Nga) [Changed] consideration,

New Provision 3. Amount earned by Nepal Rastra Bank
under its objectives, or
All kind of allowances for social security
provided by Government of Nepal (as 4. Amount earned by Securities Exchange
defined by Constitution of Nepal), Province Board of Nepal under its objectives
or local level.
c. Section 10(Jha) [Added]
Existing Provision
New Provision
Allowances provided by Government of
Nepal (as defined by Constitution of Nepal) Any income of Government of Nepal,
to the widow, aged (senior citizen) or Provinces or Local level
disabled.
Existing Provision
b. Section 10(Chha) [Partly deleted]
Any income of Government of Nepal
New Provision
d. Section 10(Yan) [Inserted]
Following Amounts received by an
organization entitled to exemption: Amount earned by Nepal Rastra Bank under
its objectives
1. Donation, gift,
e. Section 10(Ta) [Inserted]
2. Other contributions directly related to
the functions of an exempt organization Amount earned by Securities Exchange
under Section 2(dha) which are made to Board of Nepal under its objectives
such organization without expecting any
consideration.  Business Exemptions and
Concessions
Existing Provision
f. Section 11(2)
Following Amounts received by an
organization entitled to exemption: New Provision

1. Donation, gift, Cooperative societies or unions registered
and operated under the Cooperatives Act,
2. Other contributions directly related to 2048 (1991) which carries on agricultural
and forest based industries such as
sericulture and silk production, horticulture

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and fruits processing, livestock farming, Explanation:
dairy industry, poultry farming, fish
farming, cultivation and processing of tea, The term “rural community” means
coffee, and medicinal herbs, production of those areas excluding metropolis or sub-
vegetable seeds and saplings, bee keeping, metropolis including adjoining VDCs and
honey production, rubber cultivation, municipals for this subsection.
enterprises related to commercial forests,
such as leasehold forests, agro-forestry g. Section 11(2ka)
as well as cold storage for the storage of
vegetables, agricultural seeds, and saplings, New Provision
veterinary feeds, insecticides, fertilizers and
agricultural tools (except those operated No tax is levied in the interest up to Rs
with mechanical power) and saving and 25,000 from the deposit in Micro-finance
credit cooperative union operated in village institution, rural development bank, Postal
municipalities is not taxed. No tax shall also saving bank and Co-operatives operated in
be levied on the dividends distributed by village municipality areas.
such unions or societies.
Existing Provision
Existing Provision
No tax is levied in the interest up to Rs
Cooperative societies or unions registered 25,000 from the deposit in rural based
and operated under the Cooperatives Act, micro-bank, rural development bank,
2048 (1991) which carries on agricultural postal saving bank and co-operatives as
and forest based industries such as per sub section (2).
sericulture and silk production, horticulture
and fruits processing, livestock farming, h. Explanation of Section 11
dairy industry, poultry farming, fish
farming, cultivation and processing of tea, New Provision
coffee, and medicinal herbs, production of
vegetable seeds and saplings, bee keeping, For purposes of this Section:-
honey production, rubber cultivation,
enterprises related to commercial forests, “Agricultural business” means a business
such as leasehold forests, agro-forestry of producing crops from a public or private
as well as cold storage for the storage land or acquiring rent or crops from a
of vegetables, agricultural seeds, and tenant using the land.
saplings, veterinary feeds, insecticides,
fertilizers and agricultural tools (except “Very-undeveloped”,“undeveloped” and
those operated with mechanical power) “least developed area” means the areas
and rural community based saving and as referred to in Schedule 10 of Industrial
credit cooperative union or organization is Enterprises Act, 2073.
not taxed. No tax shall also be levied on
the dividends distributed by such unions or “Special industries” mean manufacturing
societies. industries, agro and forest based industries
and mineral industries as classified in
Section 15(2) of Industrial Enterprises Act,
2073 other than industries producing
Cigarettes, Bidi, Cigar, Chewing Tobacco,
Khaini, and similar other products with
tobacco as the basic raw materials, and
industries producing liquor, beer and
products of similar kind.

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Existing Provision

For purposes of this Section:-

“Agricultural business” means a business of producing crops from a public or private land or
acquiring rent or crops from a tenant using the land.

“Very-undeveloped”,“undeveloped” and “under developed area” means the areas as referred
to in Schedule-3 of Industrial Enterprises Act, 2049.

“Special industries” mean manufacturing industries, agro and forestry and mineral industries
as classified in Section 3 of Industrial Enterprises Act, 2049 other than industries producing
cigarettes, Bidis, cigars, chewing tobacco, khaini, and similar other products with tobacco as the
basic raw materials, and industries producing liquor, beer and products of similar kind.

i. Repair and Improvement Expenses [Section 16(2) Kha] [Deleted]

Existing Provision

Repair and improvement expenses incurred for the damaged assets located in earthquake
affecting districts as specified by GON, Section 16(2) i.e. Actual or 7% of depreciation base
whichever is lower shall not be applicable up to fiscal year 2073/74.

 Schedule 1 and 2: Rates of Tax
1. Individual
Resident Individual (Section 1 (1) &1 ( 2) of Schedule 1)

Tax Rate Tax base FY 2073/74 in Rs. Tax base FY 2074/75 in Rs.

Individual Couple Individual Couple

1% Up to 350,000 Up to 400,000 Up to 350,000 Up to 400,000

15% Next 100,000 Next 100,000 Next 100,000 Next 100,000

25% Up to 2,500,000 Up to 2,500,000 Up to 2,500,000 Up to 2,500,000

+40% on > 2,500,000 > 2,500,000 > 2,500,000 > 2,500,000
highest Rate

Note 1: In case of taxpayer being a sole is entitled the deduction from taxable income
Proprietorship firm or resident natural person as follows: (Section 1(5) of Schedule 1).
deriving Pension Income, 1% Social Security
Tax is not applicable. (Section 1(1) & 1(2) of Remote Area Deducatible Amount in Rs.
Schedule 1)
A 50,000.00
Note 2: Couple also includes Resident widow/ B 40,000.00
widower who took care of dependent. (Section C 30,000.00
50) D 20,000.00
E 10,000.00
Note 3: Natural Person working at remote areas

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Note 4: Resident Natural Person with pension Note 11: In case a trust receives estate of a
income included in the taxable income shall deceased resident natural person or receives
be entitled the deduction from taxable income the property of an incapacitated resident
an additional 25% of amount prescribed under natural person, the income from the estate to
initial tax slab. (Section 1(9) of Schedule 1). the trust will be charged treating the trust as a
Single Individual. (Section 2(5) of Schedule 1)
Note 5: Incapacitated Resident Natural
Person shall be entitled the deduction from
taxable income an additional 50% of amount
prescribed under initial tax slab. (Section 1 (10)
of Schedule 1)

Note 6: In case a Resident Natural Person pays
insurance premium for investment insurance
company, the lower of the annual investment
insurance premium paid or Rs. 20,000can be
deducted from taxable income of that individual.
(Section 1(12) of Schedule 1)

Note 7: In case a resident natural person obtain
health insurance policy from resident insurance
company, the person is entitled to deduction
of lower of Rs. 20,000 or actual insurance
premium paid during the year from the taxable
income while calculating tax under this section.
(Section 1(16) of Schedule 1)

Note 8: In case of the employee employed
at the foreign diplomatic mission of Nepal
only 25% of the foreign allowances are to be
included in the income from salary. (Section 1
(6) of Schedule 1)

Note 9: In case of Resident Natural Person being
women having only remuneration income they
are allowed rebate of 10% on the tax liability.
(Section 1(11) of Schedule 1)

Note 10: In case of Resident natural person
engaged in special industry under section 11
and derives income, tax rate is 20% instead of
25%. (Refer section 1(14) of Schedule 1)

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Non-Resident entity and individual FY 2073-74 FY2074-75
(2016-17) (2017-18)
Particulars
25% 25%
Income earned by Non-resident natural person 5% 5%
and Entity
Repatriation by Foreign Permanent Establishment 5% 5%
(Section 2(6) of Schedule 1) 2% 2%
Tax rate for Non-resident entity engaged in
operation of air transport, water transport and 5% 5%
land transport
 If the passengers and goods’ first point of

departure is Nepal
 If a person books ticket from Nepal but the

departure is from any country. (Section 2(7) of
Schedule 1)
The taxable income of a non resident
telecommunication operator(who conducts a
business of transmitting messages by cable,
radio, optical fiber or satellite communication)
shall include any amount received by a person
in respect of the transmission of messages by
apparatus established in Nepal whether or not
such messages originate in Nepal.

2. Resident Entity FY 2073-74 FY 2074-75
(2016-17) (2017-18)
Types of Entity 25%
25%
1.Company/Firm/Industry 20%
1.1 Normal Tax Rate [Section 2(1) of Schedule 1] 20%
1.2 Other 90% of Applicable
a) Special Industries under section 11 [section 2(3) 90% of Applicable Rate
Rate
(Ka) of Schedule 1] 80 of Applicable Rate
b) Providing direct employment to Nepalese citizen 80% of Applicable 80% of Applicable
Rate Rate
i. For 300 or more by special industries and 70% of Applicable
information technology industries (Section 80% of Applicable Rate
11(2) (Ka)) Rate

ii. For 1200 or more by special industries (Section 70% of Applicable
11(3)(Ka)) Rate

iii. For more than 100 Nepalese including
33% Women, Dalit and Disabled by special
industries. (section 11(3)(ka))

iv. Special industry, agricultural industry and
tourism industries providing direct employment
to at least 100 Nepalese citizens.(Section
11(3)(Ka)(1)

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c) In case a new special industry is established in 100% of income 100% of income
Nepal with capital investment of more than Rs. is exempted from is exempted from
1 billion providing direct employment to 500 tax for first 5 years tax for first 5 years
persons during the whole income year, such from the date of from the date of
industry is entitled to exemption: commencement of commencement of
production and 50% production and 50%
of income is exempt of income is exempt
from tax for next 3 from tax for next 3

years years

d) Industries established in highly undeveloped 10% of Applicable 10% of Applicable
area as defined in Industrial Enterprise Act. Rate (For 10 years Rate (For 10 years
(Section 11(3)(Kha) from the year of from the year of

establishment) establishment)

e) Industries established in undeveloped area 20% of Applicable 20% of Applicable
(refer section 11.3b), as defined in Industrial Rate (For 10 years Rate (For 10 years
Enterprise Act (Section (11)(3)(Kha)
from the yr of from the yr of
establishment) establishment)

f) Industries established in underdeveloped area 30% of Applicable 30% of Applicable
(refer section 11.3b), as defined in Industrial Rate (For 10 years Rate (For 10 years
Enterprises Act (Section (11)(3)(Kha)
from the yr of from the yr of
establishment) establishment)

g) Industries established in Special Economic Zone Up to 10 years 100% Up to 10 years 100%
in mountain or hill areas as specified by the exempt and 50% exempt and 50%
Government of Nepal (Section 11 (3Ka) (ka)
rebate in subsequent rebate in subsequent
years years

h) Industries established in Special Economic Zone 100% exempt up to 100% exempt up to
other than above locations (Section 11(3Ka) first 5 years and 50% first 5 years and 50%
(Kha) rebate in subsequent rebate in subsequent

years years

i) Dividend distributed by the industries established Dividend tax is 100% Dividend tax is 100%
in Special Economic Zone (Section 11(3Ka)(Ga) exempt for first 5 exempt for first 5
years and 50% years and 50%

rebate in subsequent rebate in subsequent
3 years 3 years

j) Income derived by the foreign investors
from investment in Special Economic Zone (
source of income - use of foreign technology, 50% of Applicable tax 50% of Applicable tax
management service fee and royalty) (Section rate rate

11(3Ka)(Gha)

k) Dividend Distribution Tax in case of special 100% exempt 100% exempt
industry, industry based in agriculture and
tourism sector capitalizing its profit for expansion
of capacity. (Section 11(3Ka) (Nga))

l) Income derived by entity engaged in research 100% exempt for 100% exempt for
and extraction of petroleum and natural gas 7 years and 50% 7 years and 50%
and starts its commercial production before end rebate in subsequent rebate in subsequent
of Chaitra, 2075. (Section 11(3Kha))
3 years 3 years

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m) Income derived by entity engaged in 50% of Applicable tax 50% of Applicable tax
 Software Development rate rate

 Data Processing

 Cyber Cafe

 Digital Mapping

And established either in Technology Park,
Biotech Park or Information Technology Park
(Section 11(3Ga))

n) Institution having license to generate, transmit 100% exempt up to 100% exempt up to
and distribute electricity shall be allowed if 10 years and 50% 10 years and 50%
the commercial generation, generation and rebate on subsequent rebate on subsequent
transmission, generation and distribution or 5 years. 5 years.
generation, transmission distribution before
end of Chaitra, 2080 and these exemption shall
available for solar, wind and other alternative
energy institutions

o) Income from export of manufacturing goods by 75% of Applicable tax 75% of Applicable tax
manufacturing Industries (Section 11(3Nga)) rate rate

p) Income from construction and operation of 60% of Applicable tax
Bridge, Airport and Tunnel and income from 60% of Applicable tax rate
investment in tram and trolley bus (Section rate
11(3Cha))

q) Income of manufacturing industry, tourism 85% of Applicable 85% of Applicable
service industry and hydropower generation, tax rate tax rate
distribution and transmission industries listed in
capital market (Section 11(3Chha))

r) Industries established in least developed areas 40% exempt for 10 40% exempt for 10
producing brandy, wine, cider from fruits years years
(Section 11(3Ja))

s) Royalty from export of intellectual property by a 25% exempt 25% exempt
person (Section 11(3Jha))

t) Income from sale of intellectual property by a 50% exempt 50% exempt
person through transfer (Section 11(3Na))

1.3 Industries for cigarettes, bidi, cigar, tobacco, 30% 30%
alcohol and Beer (Section 2(2) of Schedule 1)

1.4 Bank and Financial Institutions (Section 2(2) of 30% 30%
Schedule 1)

1.5 General Insurance Business (Section 2(2) of 30% 30%
Schedule 1)

1.6 Petroleum Industries (Section 2(2) of Schedule 30% 30%
1)

1.7 Other Business Entities

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a) Entity involved in construction of roads, bridges, 20% 20%
tunnels, rope-ways, and overhead bridges etc.
(Section 2(3)(Kha)1 of Schedule 1)

b) Entity involved in operation of trolley bus or
train (Section 2(3)(Kha) (2) of Schedule 1)

c) Co-operative Societies other than section 11(2)
(Section 2(3)(Kha) (3) of Schedule 1)

d) Income earned by entity relating to Export
Activities (Section 2(3Ka) of Schedule 1)

e) Entity engaged in construction and operating
public infrastructure, ultimately, to be
transferred to GON, and engaged in power
generation, transmission, or distribution.
(Section 2(4) of Schedule 1)

3. Presumptive Taxation

Particulars FY 2073-74 FY 2074-75
(2016-17) Rs (2017-18) Rs

1. Vehicle tax (Section 1(13) of Schedule 1)

a) Mini Bus, Mini Truck, Truck and Bus 3,000.00 3,000.00

b) Car, Jeep, Van, Micro Bus 2,400.00 2,400.00

c) Three Wheeler, Auto Rickshaw, Tempo 1,550.00 1,550.00

d) Tractor and Power Tiller 1,000.00 1,000.00

Note: Such tax shall be final if owner of vehicle is natural person i.e. no need to file income tax
return and no TDS is required on such payment.

2. Small tax payer (Section 1(7) of Schedule 1) 5,000.00 5,000.00
a) Metropolitan, Sub-Metropolitan 2,500.00 2,500.00
b) Municipal Areas 1,500.00 1,500.00
c) Other than Municipal Area

Note: Small tax payer means natural person whose annual turnover is less than Rs.2 million and income
not exceeding Rs. 2 lacs but such person will not be entitled to claim Medical Tax Credit or
Advance Tax for TDS deposited.

4. Turnover based (Transaction based) tax

The following tax rates shall be applicable for the turnover tax amount under Section 4 (4Ka):

Clause Particulars FY 2073-74 FY 2074-75
Ka For persons dealing in goods, which are sold (2016-17) (2017-18)

based on commission that does not exceed 0.25% 0.25%
3% of purchase price or sold with value
addition up to 3% including cigarette, gas.

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Kha For a person dealing in business except of 0.75% 0.75%
business under clause (Ka) 2% 2%

Ga For a person dealing on service business FY 2074-75
(2017-18)
5. Tax Collection on Disposal of Land & Building FY 2073-74
(2016-17) 2.5%
SN Particulars 5%
2.5% 10%
1. Individual 5%
Tax withhoding on capital gain for natural 10%
persan on transaction exceeding Rs.3 million
on Non Business Chargable assets (to be
made by land revenue office at the time of
registration)
• Disposal of land or land & building owned
for more than 5 years
• Disposal of land or land & building owned
for less than 5 years

2. Person other than natural person
Provided, however, withholding tax need not
be collected at the time of sale of land and
building by companies with objective of
purchasing, constructing and selling land and
building and treating same as trading stock.

6. Withholding Tax (TDS)

Sec. Nature of payment TDS Rate Final/Advance
(FY2074/75) Advance
87 Resident Employer is required to deduct As per schedule-1 of
88.1 tax on the payment for employment to Income Tax Act,2058 Advance
its employees. (Refer Note 1) (Refer Note 2) Advance
Resident Person is required to deduct
tax on: 15%
a) Payment of interest having source in Nepal
b) Payment for natural resources having 15%

source in Nepal (Refer Note 2)

c) Payment for Rent having source in
Nepal. (Refer Note 3)

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- Payment to natural person not 10% Final
operating rental business 10% Advance
15% Advance
- Payment to person other than (1) above
1.5% Advance
d) Payment for Royalty having source in 15% Advance
Nepal 15% Advance
15%
e) Payment for Services Charges having 10% Final
source in Nepal : (Refer note 4) Advance
5%
1. When service provider is VAT Final
registered or Resident exempted as 5%
per Schedule 1 of VAT Act 2052 10% Final
Advance
2. Others 5%
5% Final
88.1 f) Payment for Commission or Sales 5% Final
Bonus having source in Nepal Final

g) Payment for Retirement benefits
h) Payment made by resident person

for use of earth satellite, bandwidth,
optical fiber, equipment’s relating
to telecommunication or electricity
transmission line.
• The following rate is applicable in
case of following:
1) Gain from retirement fund payment
from Government of Nepal or
approved retirement fund as per
section 65(1)

• For this purpose gain means total
payment less :

- Rs. 500,000.00 or

88.2 - 50% of total payment. Whichever is
higher

2) Paymentofcommissiontonon-resident
person by resident employment
agency

3) Payment of Aircraft Lease
The following rate is applicable for
payment having source in Nepal by
Resident person:

a) Payment on dividend by Company
and partnership firm

b) Payment on benefits of Investment
Insurance

c) Payment on gain from unapproved
retirement fund.

18 KB Chitracar & Co., Chartered Accountants

88.3 Notwithstanding anything contained in 5% Final
88.4 section 88(1) Resident Bank, Financial
Institution or entity issuing bond or _ _
88A listed company as law in force makes _ _
89 the payment of Interest or any amount _ _
as an Interest to Natural Person _ _
against the deposit, bond, debenture _ _
or government bond which has a _ _
source in Nepal and does not relate to 25% Final
the operation of the business of such
person. 1.5% Advance
Whatever mentioned in section 88(1),
(2) and (3), withholding tax is not
applied in following payments:
a) Any payment to natural person

(except for payment related to an
operation of business )
b) Payment for an article published
in a newspaper and for preparing
question papers and examining
answer books.
c) Payment of Interest to Resident
Bank or other Resident Financial
Institution
d) Tax exempted payment or payment
in which tax is to be deducted as per
section 87.
e) Payment of interregional interchange
charge to bank issuing credit card.
f) Dividend and interest paid to mutual
fund
Payment of windfall gain (Not related
to income from employment, business
or investment) (Refer Note 5)
1) Payment exceeding Fifty Thousand
Rupees for payment of contraction
or contract to a resident person
(Refer note 6)

2) To calculate above amount, last
ten days’ transactions of payment
with the same person or his related
persons are considered.

3) Whatever mentioned in section 89
(1), however while making payment
by resident person to non-resident
person under any contraction and
contract the following tax rate is
applicable:

kbKcB-cCa.hciotrma.cnapr & Co., Chartered Accountants 19

a) Payment against maintenance of 5% Final
Aircraft and for other contraction or Final
contract. May be both

b) Payment of premium to Non- 1.5% _
resident Insurance company
(Reinsurance premium) Advance

c) When Department gives notice in Rate mentioned in such Advance
writing to such resident person written notice Advance

4) Notwithstanding anything contained Advance
in Section 89(1), this section does Advance
not apply on:

a) Any other payment, except the _
rent for renting a land or building
or fixtures therewith, source in
Nepal which was made to any
other natural person except who is
operating business.

b) Payments enjoying tax exemption or 10%
payments liable to tax withholding
pursuant to Section 87 or 88

95A 1) Payment of profits and gains earned
by a person trading under commodities
future market.
2) A) Payment of gain from disposal
of listed securities by person other than
person operating securities business
being registered under prevailing Act :

a. when such person is resident natural 5%
person

b. person other than resident natural 10%
person
B) Payment of gain from disposal of non-
listed securities by person other than
person operating securities business
being registered under prevailing Act :

a. when such person is resident natural
person

b. when such person is other than 10%
natural person

15%

20 KB Chitracar & Co., Chartered Accountants

3) Payment on capital gain made for the 2.5% Advance
disposal of non- business chargeable 5% Advance
assets of natural person exceeding 3 5%
million (to be made by land revenue 10% FINAL WITHHOLDING
office at the time or registration ) (Refer 5%
Note 7) 5%
a) Whose ownership is 5 years or more
of such property 5%
b) Whose ownership is less than 5 year
of such property 15%
92 Following payments are final 15%
withholding : 15% or 5%
a) Dividend paid by resident company 15%
25%
or partnership firm.
b) Rent paid to natural person (other

than operating rental business)
c) Gain of resident from investment

insurance
d) Gain from unapproved retirement

fund
e) Interest paid to natural person

against the deposit, bond, debenture
or government bond which has a
source in Nepal and does not relate
to the operation of the business
by Bank/ FIs, Bond issuer, listed
companies or Co-operatives.
f) Interest paid by Bank/ FIs to tax
exempt entities as per section 2 (dha)
of this Act
g) Payment u/s 87, 88 and 89 of this
Act to non- resident
h) Retirement payments made by
approved or unapproved funds
(except regular pensions)
i) Meeting allowances, part-time
teaching allowance
j) Windfall gains

kbKcB-cCa.hciotrma.cnapr & Co., Chartered Accountants 21

Notes:

1. Resident: means the following person in respect of any income year:
a) In respect of a natural person satisfying any one of the following conditions:

• Whose normal place of abode is in Nepal,
• Who has resided in Nepal for 183 days or more during a continuous period of 365 days
of any income year, or
• Who is deputed by Government of Nepal to a foreign country in any time of the income year
b) A partnership firm,
c) In respect of a trust satisfying any one of the following conditions:
• Which is established in Nepal,
• The trustee of which is a resident person in an income year,
• Which is controlled by a resident person or by a group of persons comprising such a
person, directly or through one or more interposed entities,
d) In respect of a company, such company,
• Which is incorporated under the law of Nepal ,or,
• Management of which has been effective in Nepal in any income year.
e) Village Development Committee, Municipality, or District Development Committee,
f) In respect of an entity of any foreign government or provincial and local government under that

government, such entity,
1. Which is established under the laws of Nepal, or,
2. Management of which is effective in Nepal in any income year.
g) An organization or entity established under any treaty or agreement, and
h) A foreign permanent establishment of a nonresident person situated in Nepal.

2. Payment for Natural Resources: means an amount of any of the following payments:
• Amounts received for having extracted water, minerals or other living and non-living resources
from the earth, or
• Amounts calculated in full or in part on the basis of the quantity or value of living or nonliving
resources from the earth, or
• sources and minerals extracted from the earth.

22 KB Chitracar & Co., Chartered Accountants

3. Rent: means all payments including a premium received for house rent as well as for the
lease of a tangible property.

• Provided, this term does not include any payment made for natural resources.

4. Service Charge: means any charge paid to any person, according to the market value, for the
service rendered by such a person, and this term includes any commission, meeting allowance,
management fee or technical service charge.

5. Wind fall Gains: Windfall gain” means lottery, gift, prize, baksis, award for wining (jitauri) and
any other type’s windfall gains.

6. Contract: means a contract or agreement concluded to supply goods or labor or construction,
fixation or establishment of tangible property or structure and any Act prescribed by the Department
as a contraction or contract as well as it shall include the payment made for a service rendered
in case such service is being included by the contraction or contract in the course of construction
or taxation or establishment. (For the purpose of Section 89)

7. Non-business chargeable assets: means any land, building and interest or security in any entity
except the following properties:

a) Business assets, depreciable assets or stock-in-trade,

b) A private building owned by a natural person in the following situation,

• Being under ownership for a continuous period of Ten years or more, and

• Where that person has resided for a total period of Ten years or more continuously or at
several times.

c) An interest of a beneficiary in a retirement fund,

d) A private land and building belonging to and disposed of by any natural person for a value
less than three million rupees, or

e) An asset disposed of by way of transfer in any manner other than the purchase and sale
within three generations.

kbKcB-cCa.hciotrma.cnapr & Co., Chartered Accountants 23

B. VALUE ADDED TAX ACT, 2052

• Reverse Charging Section 8(2)[Changed]
New Provision:
Any person registered or not, receiving service from any person outside in Nepal shall determine
and collect tax in accordance with this Act and Rules framed under this Act at taxable value at the
time of payment or at the time of receiving service whichever comes earlier.
Existing Provision:
Any person registered or not, receiving service from any person outside in Nepal, shall determine
and collect tax in accordance with this act and rules framed under this act at taxable value at the
time of payment.
• Tax Returns to be filed Section 18(1) [Changed]
New Provision:
Every taxpayer shall self assess the amount of tax that is required to pay every month and shall
file, or service through register post, or through electronic medium, tax return to a tax officer as
prescribed within twenty five days after the close of that month. Such return shall have to be filed
whether or not a taxable transaction was carried out in that month.
Existing Provision:
Every taxpayer shall self assess the amount of tax that is required to pay every month and shall file,
or service through register post, tax return to a tax officer as prescribed within twenty five days after
the close of that month. Such return shall have to be filed whether or not a taxable transaction was
carried out in that month.
• Schedule 1[(Set 11(aa) 2Ga] [Deleted]
Existing provision:
Services provided by Government of Nepal.
• Schedule 1[(Set 11(aa) 3] [Added]
Added Provision:
Services provided by Government of Nepal, Province or local level.

24 KB Chitracar & Co., Chartered Accountants

C. EXCISE DUTY

The Budget 2074 has proposed higher Excise Duties on Tobacco and Liquor Items. Apart from such
Items there have not been any major changes in Excise Regime this Year. The rates being applicable
are prescribed below:

Materials Unit FY 2073-74 FY 2074-75
(2016-2017) (2017-2018)
Beer made up of barley Per Ltr
Rs. Rs.
Wine up to 12 % alcohol (Local Per Ltr 106 115
Ingredients)
74 80
Cider made up of local ingredients Per Ltr
108 119
ENA( Extra Neutral Alcohol) Per Ltr 50 58

Raw material and Cardials (Spirit also) Per Ltr 115 127
used for wine, brandy, whisky and vodka
912 1003
Liquor with 48.5% alcohol Per Ltr 680 748
634 697
Liquor with 42.79% alcohol Per Ltr 321 350
132 144
Liquor with 39.94% alcohol Per Ltr 26 28
420 462
Liquor with 34.23% alcohol Per Ltr 155 171
346 374
Liquor with 28.53% alcohol Per Ltr 795 859
1024 1116
Liquor with 17% alcohol Per Ltr 1336 1456
1868 2055
Paan masala without tobacco Per kg 5%
0
Flavored supari without tobacco Per kg 5%
0
Cigarette without filter Per M

Cigarette up to 70 mm with filter Per M

Cigarette 70-75 mm with filter Per M

Cigarette 75-85 mm with filter Per M

Cigarette above 85 mm with filter Per M

Container truck attached with chassis Per M

Specially prepared Bullet for liquidities Per M
petroleum transportation

kbKcB-cCa.hciotrma.cnapr & Co., Chartered Accountants 25

DTAA

(Double Taxation Avoidance Agreement)

SUMMARY

Name Date of TDS rates
S.N of signing Royalty
Country Agreement Interest Dividend

1 Austria 15th  If the recipient is the beneficial  Up to  Up to 5% of the
December owner of interest: Up to 15% of 15% of gross amount of
gross amount. the gross dividend if the
2000 amount beneficial owner is
received. the company (other
 Up to 10% in case in case paid than partnership
to a bank carrying on banking firm) which directly
transaction.

holds at least 25%
of the capital of the
company paying
dividends.

 Up to 10% of the
gross amount of
dividend if the
beneficial owner is
a company which
holds directly at
least 10% share of
the company (Other
than partnership)
paying dividend.

 In all other cases:
15%

2 Norway 13th May,  If the recipient is the beneficial  Up to  Up to 10% of the
1996 owner of interest: Up to 15% of 15% of gross amount of
gross amount. the gross dividend if the
amount beneficial owner is
 If paid to a bank carrying on received. the company which
bonafide banking business: up holds at least 10%
to 10% of gross amount. of the capital of the

company paying
dividends.

 Up to 5% of the
gross amount of
dividend if the
beneficial owner is
a company which
holds at least
25% share of the
company paying
dividend.

 In all other cases:
15%

26 KB Chitracar & Co., Chartered Accountants

3 Thailand 2nd February  15% in case it is received by  Up to15%  Up to 15% of gross
1998 financial institution including of the amount of dividend
insurance company. g r o s s received.
amount
 In other cases: 10% of the gross received.
amount.

4 Sri lanka 6th July 1999  Up to 15% of gross amount in  Up to  Up to 15% of gross
case recipient is the beneficial 15% of amount of dividend
owner of the interest. the gross received.
amount
 If paid to a bank and financial received.
institutions: up to 10%.

5 Mauritius 3rd August  Up to 10% in case it is received  Up to  Up to 5% of the
1999 by financial institution including 15% of gross amount of
insurance company or the gross dividend if the
Investment Company receiving a m o u n t beneficial owner
interest from FI. received. is the company
which directly holds
 In other cases: Up to 15% of the at least 15% of
gross amount. the capital of the

company paying
dividends.

 Up to 10% of the
gross amount of
dividend if the
beneficial owner is
a company which
holds directly at
least 10% share
of the company
paying dividend.

 In all other cases:
15%

6 Pakistan 25th January  Up to 10% in case it is received  Up to  Up to 10% of the
2001 by financial institution including 15% of gross amount of
general insurance or Investment the gross dividend if the
Company receiving interest a m o u n t beneficial owner is
from FI. received. the company which
holds at least 10%
 In other cases: Up to 15% of the of the capital of the
gross amount.
company paying
dividends.

 In all other cases:
15%

7 China 14th May  If the recipient is the beneficial  Up to  Up to 10% of
2001 owner of interest: Up to 10% of 15% of gross amount of
gross amount. the gross dividend.
amount
received.

kbKcB-cCa.hciotrma.cnapr & Co., Chartered Accountants 27

8 Republic 5th October  If the recipient is the beneficial  Up to15%  Up to 5% of the
Korea 2001 owner of interest: Up to 10% of of the gross amount of
gross amount. g r o s s dividend if the
a m o u n t beneficial owner
received. is the company
which directly holds
at least 25% of
the capital of the
company paying
dividends.

 Up to 10% of the
gross amount of
dividend if the
beneficial owner is
a company which
holds directly at
least 10% share
of the company
paying dividend.

 In all other cases:
15%

9 Qatar 15th October  If the recipient is the beneficial  Up to  Up to 10% of
10 India 2007 owner of interest: Up to 10% of 15% of gross amount of
27th gross amount. the gross dividend.
amount
November received.
2001
 If the recipient is the beneficial  Up to  Up to 5% of the
owner of interest: Up to 10% of 15% of gross amount of
gross amount. the gross dividend if the
a m o u n t beneficial owner
received. is the company
which directly holds
at least 10% of
the capital of the
company paying
dividend.

 In all other cases:
10%

28 KB Chitracar & Co., Chartered Accountants

The Firm Tax Planning and Consultancy Services
KBC’s International Tax Planning division con-
KB Chitracar & Co (KBC) is a firm of long sists of qualified team of in-house experts who
standing in public accounting practice in Ne- associates closely with independent profes-
pal. Establishedin in 1970, it has long and wide sionals specializing in various field of tax and
experience of providing professional services in- business. The division’s task includes consulta-
cluding accounting, audit & assurance, taxation tion and assistance with sourcing tax-effective
as well as advisory services to a large number solutions using International Agreement for the
of clients engaged in the various economic ac- Avoidance of Double Taxation and other leg-
tivities in public, private as well as in social sec- islation, Tax Planning for Domestic & Interna-
tors. KBC's client profile includes financial and tional Companies, Permanent Establishments,
commercial institutions and the various types of Transfer Pricing, Income Tax preparation and
for profit and not - for profit organizations. assisting and representing clients in Income Tax
KBC was associated with the international ac- Appeal.
counting firm Coopers & Lybrand since 1990 till Business Advisory Services
its international merger with PriceWaterhouse. KBC’s Business Advisory Service division has
Those associations gave KBC ample opportu- highly trained and experienced individuals in
nities to raise its service quality to international providing services like; Business Valuation,
level. Financial Due Diligence, Business Feasibili-
KBC is a full member of Alliott Group which is a ty Study, Valuation Advisory Services, Actuary
worldwide alliance of independent accounting, Services, Business Process Mapping, Diagnostic
law and consulting firms. With more than 170 Review & GAP Analysis, Development of Stand-
member firms in more than 70 countries, the ard Operating Procedure & Training, etc.
group meets the local and cross-border needs Information Technology Services
of its members and their clients. Information Technology division specializes in
Recently, KBC has expanded strategically with the E-Governance & Information System Au-
its recent acquisition of Kreston ABMS. The dit, Risk Assessment of Information Technology,
Kreston ABMS was relatively young firm in Ne- VAPT, System Analysis and more.
pal but had grown dramatically over 6-7 years
of its history. Today KBC has 5 Partners under The Clients
Audit and Assurance division and 3 partners
under Consulting division. KBC specializes in serving Banking and Fi-
nancial Institutions, Insurance, Manufacturing,
The Services Trading, Power generation, Infrastructure de-
velopment, Mining and Exploration, Aviation,
Audit & Assurance Services Transportation, Telecom, Educational Institu-
The assurance service division of KBC consists tion, Multilateral Agencies, Bilateral Agencies,
of an experienced team of in-house experts International and National Not for Profit Entities
who closely associate with independent profes- with a broad range of missions and funding re-
sionals specializing in various fields of business sources. Clients come from all over the world.
and taxation. The division’s task includes Finan-
cial Audit, Agreed Upon Procedure, Corporate The Network
Governance Review, Internal Audit & Risk As-
surance Tax Audit, Forensic Audit and Investi- KBC has long-established contact in all ma-
gation, Cost Audit,Limited Review etc. jor international financial centers with selected
NFRS/IFRS Services professionals who are considered among the
The IFRS and NFRS Service division of KBC con- best in their respective field. Being the member
sist with national & international experts with of Alliott Group , we have access to the resourc-
first-hand knowledge of implementing IFRS es and knowledge of more than 170 member
conversion process and this includes Impact firms from more than 70 countries around the
Assessment, First Time Adoption Service, Post world. Business and Management Consultants.
conversion audit, Valuation Service etc.

CONTACT US

KB Chitracar & co.
Jwagal, Lalitpur
PO Box 2043, Kathmandu
Phone +977-01- 5261011, 5261013
Fax +977-01- 5011312
Email : [email protected]