Nepal Federal Budget FY 2076-77: Income Tax Slabs, Rates and Concessions

Nepal Budget 2076-77 has unveiled some important tax slab rates for citizens, businesses, corporate entities and overseas players willing to business in Nepal, and more
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Nepal Federal Budget FY 2076-77: Income Tax Slabs, Rates and Concessions

Hello, esteemed Nepali taxpayers! Here is an important update for you.

The Nepal Government is back with its new tax rates and slabs for the new fiscal 2076-77 (2019-20) that began in April 2019.

The Finance minister Yubaraj Khatiwada presented Nepal’s Annual Budget for FY 2076-77 on May 29, 2019.

The NPR 1.53 trillion budget covered all the sectors with key focus on developmental reforms that will improve living standards through effective implementation and safeguarding of citizens’ fundamental rights.

Besides sector-wise spending, the new budget displayed a 14 percent rise over the previous year’s budget and dedicated NPR 957 billion (62%) to the recurrent expenditure, followed by NPR 408 billion (27%) to capital expenditure and NPR 167 billion (12%) for provisioning finance for principal payment of loans.

Towards adding to the government’s treasury, the new budget is looking at NPR 981 billion (64%) revenue collection, NPR 58 billion from foreign grants, NPR 298 billion from foreign loans, NPR 195 billion from domestic loans.

Overall, the government announces an estimated GDP of 8.5 percent and inflation rate of 6.5 percent.

Given the role that taxpayers play in government’s revenue earnings, Nepal Budget 2076-77 has some important announcements for its citizens, businesses, corporate entities and overseas players willing to business in Nepal, and more.

Income Tax Rates in Nepal FY 2076/77 (Video)

Highlights of Key Tax Announcements from the Federal Budget 2076-77 (2019-20):

1) Tax Rates: Direct Tax

 1.1 Individual/Natural Person

Income Slab

Tax Rate

Up to NPR 400,000

1%

Next NPR 100,000

10%

Above NPR 200,000

20%

Beyond NPR 600,000

30%

Taxable income > NPR 2,000,000

36% (20% additional tax on the calculation made under 30% slab)

 1.2 Couple

Income Slab

Tax Rate

Up to NPR 450,000

1%

Next NPR 100,000

10%

Above NPR 200,000

20%

Above NPR 550,000

30%

Taxable income > NPR 2,000,000

36%

 

  • Payments of salaries and wages to workers/employees without PAN is inadmissible expense
  • Provision of revised return has been introduced within 30 days of submission of tax return
  • Expenses booked on invoices without PAN Invoice above RS 1000 is inadmissible expense
  • Strict implementation of ‘One man One PAN’ policy
  • Investment in share is encouraged by cutting down applicable tax rate (for individual/natural person) from 7.5% to 5%, and the calculation of gain will depend on weighted average cost
  • Letter of Intent to be submitted before 2077 Ashad end to get income tax facility and exemption on merger of bank and financial institution and insurance companies
  • Tax benefits and exemptions available under section 11 has been synchronized with rebates and concessions available under other laws
  • Husband and Wife with separate income sources can prefer the assessment as joint (as married family) or separately.

2) Tax Rates: Indirect Tax

  • Goods transportation has been brought under ambit of VAT w.e.f from 15th Jestha 2076 (May 29, 2019)
  • VAT refund can be claimed in case of continuous VAT credit/ receivable for 4months (Previously 6 months)
  • Bonded warehouse facility extended for import of all types of raw materials for producers exporting more than 20% (Earlier 50%)
  • Exemption of 50% customs on import of vehicle by agro-based co-operative 1% custom rate for import of Mill machinery, spare parts and chemicals for self-utilization by textile industries.
  • Import of water transport vehicle, vessel etc. is subject to 5% custom rate instead of 15%
  • Nepalese national are allowed to bring upto100gms of gold while returning from foreign countries by paying applicable custom.
  • 10% of the VAT of the related invoice will be deposited directly into bank account of buyer on purchase of goods or services through card or online mechanism.
  • VAT refund to person and entity enjoying diplomatic facilities can immediately be provided if they purchase goods and services from listed firms.
  • VAT not applicable for accidental and health insurance

3) Tax Rates: Non-resident Person

Particulars of Business

Tax Rate

Income earned from normal transactions

25% Flat

Income earned from providing shipping, air transport or telecommunication services, postage, satellite, optical fiber project.

5%

Income earned providing shipping, air transport of telecommunication services through the territory of Nepal.

2%

Repatriation by Foreign Permanent Establishment

5%

Capital Gain tax on sale of shares (Withholding tax 25% subject to tax treaties

25%

 

  • Nepal Government has a special tax treaty called Double Taxation Avoidance Agreement (DTDA) with 11 countries namely: India, Sri Lanka, Mauritius, Thailand, Qatar, Pakistan, Norway, Korea, Austria, China & Bangladesh, to avoid double taxation. This makes every Nepali taxpayer to enjoy the right to opt the provisions contained in either Nepal Income Tax Act, 2002 or Treaty, whichever is beneficial to them.

4) Tax Rates: Entities

Business Entities

Tax Rate

Bank & Finance Company, General Insurance Company, Petroleum entities; Cigarette, Beer, Liquor, Khaini, Guthka and Pan Masala Manufacturing Company

 30%

Company operating in the following areas Telecom, Internet, Money Transfer, Capital Market, Stock Exchange, Merchant Banking, Commodity future market, stockbroker

30%

Special Industries (Manufacturing, Forest, Agriculture and Mining Industries; except Liquor, Cigarette, Khaini Guthaka and panparag as defined in Sec. 11) & IT Industries

20%

Entities constructing & operating road, bridges, tunnel, ropeway, trolley bus and tram

20%

Entity wholly engaged in the projects conducted so as to build public infrastructure, own, operate and transfer (BOOT) it to the GON & in power generation, transmission, or distribution

20%

Non-resident person Providing Shipping, Air Transport or Telecommunications Services in Nepal (sec 70)

5%

Private Ltd., Limited, Partnership Firm not specifically mentioned above

25%

Airline Services having office in and business in Nepal but not operating flights to and within Nepal

2%

Export income of Manufacturing Industries

15%

Other Export Entities

20%

Co-operative Institution registered under Co-operative Act, 2048 (except dealers in exempted transaction)

20%

Income of Mutual Funds

Exempt

5) Tax Concession and Rebates:

Nepal Tax Concession and Rebates

  • Special Economic Zones (SEZ)

Industries established in Special Economic Zone (SEZ), situated in mountainous districts and hilly districts prescribed by Nepal Government, will get a tax exempt for the first 10 years and will later be subjected to 50% of the applicable tax rate. Whereas, industries in SEZ in other regions will get an exemption for only 5 years initially and later the same as above.

  • Technology

50% tax rebate forincome from Foreign technology and management service fee and royalty of Foreign investor in SEZ will get tax exemption 50% of the applicable tax rate. IT industry established within IT Park, biotech park and technology park as specified in the Gazette’

  • Entities

15% tax rebate for ‘Entities (Manufacturing, Tourism, Hydroelectricity production, distribution and transmission, IT industry established within IT Park, biotech park and technology park as specified in the Gazette) listed in Securities Market’.

  • Mining

The person involved in exploration & extraction of petroleum and natural gases & mining and start operation within Chaitra end 2080, will tax exemption for the first 7 years and 50% of applicable rate on subsequent 3 years.

  • Exports

Income earned by manufacturing industries through export sales and royalty income earned from export of intellectual assets will get 25% tax concession on the applicable rate.

  • Special industry operating in underdeveloped regions will get tax concession 90% of the applicable tax rate, for the first 10 years, and 70% in case of partly developed regions. 
  • Hydropower

Hydropower projects, solar energy projects, waste-to-energy and wind turbines projects, starting the commercial generation of electricity by Chaitra end 2080, will get tax exemption for first 10 years and 50% of the applicable tax rate thereafter for next 5 years.

  • Transport Infrastructure

Income generated from operation of tram or trolley bus will get tax rebate- 20% of applicable tax rate; 40% is for the construction and operation of ropeway, cable car, railway and tunnel; 52% for the construction and operation of the airport, sky bridge, road, bridge and tunnel roads.

  • Tourism and Airlines

Tourism Industry or International Airlines Operators with capital investment of NPR 2 Billion will get tax holiday for the first 5 years from the date of commencement of business and 50% tax exemption for additional 3 years. 

  • PM Relief Fund

If any person contributing any amount to Prime Minister (PM) Relief Fund or National Reconstruction Fund (NRF) established by Government of Nepal during any Income Year, the amount will be allowed as deduction from the taxable income of the person during the Income Year.

  • Public Infrastructure Projects

Construction & Operation of public infrastructure projects, required to be transferred to the government and construction, production and transmission of electricity house, will be allowed a concession of 20% tax of applicable tax rate.

The Income Tax, Education Service Tax, Vehicle Tax and other taxes mentioned under the Finance Act 2076 (2019) will come into the effect for the FY 2019-20 from Shrawan 2076 (i.e. July 17, 2019), whereas, Value Added Tax (VAT), Customs & Excise Duties, Health Service Tax and Infrastructure Tax provisions were scheduled to be effective immediately after announcement.


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