Budget Highlights 2014-15

T R Upadhya & Co. Chartered Accountants 2014. 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 2014-15

Highlights

Budget (Rs 618.10 billion)

Capital expenditure (Rs 116.75 billion)

Recurring expenditure (Rs 398.95 billion)

Financing Provision (Rs

105.08 billion)

On Sunday, 13 July 2014, Honorable Finance Minister, Mr Ram Sharan Mahat presented the full budget for the fiscal year 2014 15.

Budget and Source of Financing

Allocation of Budget

Basic Principles and Vision of the Budget

Sustainable and high economic growth through increasing

production and productivity with more roles to the private, cooperatives and public sectors.

Emphasis on commercialization of agriculture.

Investment friendly environment through removal of policy, legal and process related obstacles to increase investments.

Gradual development of inclusive and equitable distribution system.

Achievement of significant growth in revenue mobilization.

Increase in aid effectiveness and gradual reduction in dependency on foreign aid.

Practice of good governance and compliance of fiscal discipline for dynamic economic development.

Economic Challenges

Low economic growth, high inflation, energy crisis & high trade

deficit.

Primitive and non-commercialized agriculture sector.

Increase in recurrent expenditure over period of time.

Low investment in fixed capital formation.

Majority of public enterprises are problematic.

Import based production structure.

Weak infrastructure and limited access to market for local products.

Contraction in labor market.

Lack of physical infrastructure and cost competitiveness.

Institutional capacity and good governance.

Objectives of Budget

To drive the country towards high economic growth and maintain fiscal stability.

To emancipate from vicious circle of poverty.

To build social and physical foundation for long-term.

To achieve broad based high economic growth to graduate Nepal from least developed to the level of developing countries by 2022.

To make the economy dynamic by conducting the economic activities through public, private and cooperative sectors.

To increase the contribution of private sector by creating investment friendly environment.

To focus for sustainable, balanced and employment oriented inclusive development.

To make public service simple and easily accessible.

Budget Priority

Development, expansion and improvement of hydropower and energy sectors.

Increment in productivity, commercialization and marketing of agriculture.

Construction of physical infrastructure.

Easy access and qualitative improvement of education, health, drinking water and sanitation.

Promotion of tourism.

Budget (Rs 618.10

billion)

Tax Revenue (Rs 422.90

billion)

BUDGET DEFICIT (Rs120.81

billion)

Foreign Loan (Rs 49.52 billion)

Domestic borrowing (Rs 52.75 billion)

Savings of this fiscal (Rs 18.53

billion)

Foreign Grant (Rs 73.38 billion))




Highlights

Investment friendly environment for development of private sector.

Import substitution and export promotion.

Improvement in public service delivery and good governance.

Revenue policy and program for FY 2014 - 15

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

Broadening tax base with due consideration of role from private sector, voluntary tax participation, easy tax payment environment, exploring new areas for economic activities and implementation of tax rules.

Attracting domestic and foreign investment through investment

friendly environment.

Converting trade based economy to productive economy with

the help of development industrialization.

Simplification of business through custom modernization.

Controlling misutilization of foreign currency, speeding

investigation of property laundering activities.

Exploring additional sources for non-tax revenue, making rate of non-tax revenue investment effective, making non-tax revenue collection office responsible with transparency and easy revenue collection procedures.

Development of effective revenue information system for information collection related to economic activities and easy exchange of information between the entities.

Structuring, re-structuring, optimum utilization of information technology and capacity improvement of employees for effective implementation of revenue policies.

Following strategies and programs will be adopted

Improvement of Tax System

Bringing economic transaction of informal sector for reduction of gap between the tax amounts paid and taxes to be paid with a view of continuation of tax system improvement year program.

Formation of High Level Tax System Review Commission for study and analysis with a view of time-wise reform of tax.

Effective implementation of strategic plans of IRD and Department of Customs with a view of providing continuation to comprehensive tax system improvement and modernization.

Adjustments of Nepalese custom rate classification system for product classification by World Custom Organization.

Expansion of the Tax Base

Electronic synchronization for sharing business information between IRD and Department of Industry, Department of Commerce and Import Management, Department of Co-operatives, Company Registrar Office, Municipality, VDCs.

Tax Reliefs

The following tax reliefs have been announced:

Waiver of all applicable income tax, fees and interest for income year 2012-13 and prior to it to persons who have not obtained PAN till date and professionals such as doctors, artists, engineers, legal practitioners, auditors, businessmen, industrialists, investors, consultancy service providers, commission agents, retired or existing authorities/employees/teachers/professors in public service, or any other person or entity, if such persons have taxable income

prior to 2012-13 but have not submitted any returns. Such persons are required to obtain the PAN number and submit the income tax return for 2010-11, 2011-12 and 2012-13 within 14 January 2015.

Waiver of applicable interest and penalties if the outstanding amount of education tax is deposited with returns till 14 January 2015.

Waiver of income taxes, fees and interest on income to be paid for 2012-13 and prior if any person, with annual business turnover up to Rs 2 million and income up to 0.2 million, but not submitting tax returns for income year 2012-13 and prior to it, submits the return and applicable taxes for the income year 2010- 11, 2011- 12 and 2012-13 within 14 January 2015.

Waiver of penalty, additional charges and interest if a person who is registered in VAT submits VAT returns till income year 2012-13 by 14 January 2015.

Waiver of income taxes, fees and interests for all income related to period prior to 2010/2011 for Co-operatives registered under Co-operatives Act, 2048 if it submits tax returns and all applicable taxes for income year 2010-11, 2011-12, 2012-13 within Jan 14 2015, based on the report of licensed auditors.

Waiver of taxes, fees and interest on income related to prior period before FY 2011-12 for Journalists, Newspaper and Media entities or Publications, if it obtains PAN (for those not obtaining previously) and submits tax returns and applicable income taxes for income year 2011-12 and 2012-13 within 14 January 2015.

Waiver of fine and interest on payment of film development fees outstanding up to 31 Ashad 2071 (15 July 2014) will be exempted if paid up to Poush 2071 (14 January 2014). The film halls paying such fees can renew the license by paying the renewal charge and additional charge of the same amount up to Poush end 2071 (14 January 2015).

Promotion of Private Sector and Reducing Cost of Doing

Business

Access of electronic system to check tax paid amount and tax payable amount in order to reduce the tax implementation cost. E-payments for deposit of tax in Any Branch Banking System (ABBS).

It is proposed to extend the deadline to submit intention of merger and time limit for completion of merger of Bank, Financial Institutions and Insurance Companies to Ashad 2072 and Ashad 2073, respectively.

Additional penalties on duties to be paid in case of inability to export goods using raw materials imported through bank guarantee under the bonded warehouse facilities has been maintained at 10 percent.

Extension of provision of transfer of custom cleared goods to the destination place through sealed container to the main custom frontier in the year 2070/71.

Exemption will be provided to the import of new container and their chassis as well container made from the old transportation equipment for this provision.

Revenue Leakage and Controlling Illegal Imports

Tax analysis and investigation of the non-filers and non- compliant taxpayers to be carried out based on the information collected from the third party. Taxpayer information network to be established.




Highlights

Department of Revenue Investigation to buy the undervalued goods for reducing tax leakage and evasion.

Plans to introduce program to develop Inter-Departmental Co-ordination to control illegal import, revenue leakage and transaction of illegal goods.

Expert panel to review the impact of tax exemption provision

made for different individuals and institutions.

Procedure to implement risk-based review of post audit of goods clearing customs to be introduced.

Revenue Administration Reform

Focus on paperless operation of IRD by optimum utilization of

contemporary information system network, along with comprehensive organizational development of the department.

Implementation of Infrastructure Customs Master Plan to develop physical infrastructure for adopting international standards in Custom Practices.

Development of Automated Custom Procedures keeping in consideration the changes in global business and local requirements, focusing in simplifying the business processes.

Maintenance of electronic database for custom determined goods and making it accessible to the respective authorities to make the custom procedures more transparent, non-disputed and realistic.

A simple and easy Tax Calculator to be developed and introduced to help taxpayers to assess their tax liability correctly.

Trainings to tax administration employees regarding new technologies, international business practices, new tax concepts, research etc. for overall capacity improvement.

Formation and implementation of work plan to ensure recovery of long outstanding taxes due to reasons of taxpayer not being accessible, return not updated, taxes not settled, business amount not determinable or other such reasons.

Economic Situation

GDP is expected to grow by 5.2 percent at basic price during the FY 2014/15 inflation will be 9 percent.

As of first 10 months of the Fiscal Year, foreign exchange reserve amounts to Rs 653 billion. A balance of payment surplus of Rs 115.00 billion has been registered during the same period.

The targeted revenue collection for the current FY is Rs 354.50 billion that is expected to be achieved. On foreign aid, according to the revised estimate, Rs 47.31 billion of grant and Rs 23.69 of loan will be mobilized.

Revised total expenditure of the current Fiscal Year is estimated to be Rs. 449.85 billion against the allocation of Rs 517.24 billion. Of the total expenditure, current expenditure is estimated to be Rs 316.64 billion, capital expenditure Rs 63.87 billion, and

financing Rs 69.34 billion.

Executive Summary

Corporate Tax

No changes in the existing tax rate payable by domestic companies for the fiscal year 2014/15. The existing general tax rates are as follows:

Companies Rate (%)

Banks and financial institutions 30

General Insurance Business 30

Cigarettes, Bidi, Cigar, Chewing Tobacco, Khaini, Liquor, Beer

30

Petroleum companies 30

Special industries 20

Export industries 20

Power generation, transmission, distribution, infrastructure projects etc.

20

Other entities not covered above 25

Income tax will be fully exempted for the first ten years for

the hydropower projects commencing their construction within 23 August 2014 and starting commercial production by mid-April 2024. Thereafter 50 percent income tax exemption for the next five years will be provided.

General Interest rate

This has been maintained at 15%.

Personal Tax

Threshold of personal taxation increased by Rs 50,000 to Rs 250,000 and Rs 300,000 for individuals and couples, respectively.

Tax for salaried employees drawing remuneration in excess of Rs 25 lakhs continued to be taxed at the rate of 40% of the total tax computed under the last slab.

Insurance threshold for deduction against taxable income is continued to be Rs 20,000.

Customs Duty

On recommendation from concerned Government department:

50% exemption will be provided on the custom duty charged on the import of paper used in making newspaper (news print) by the communication media houses.

Deep cycle lead acid battery used in Clean Tempo will be charged @ 1% custom duty.

full custom duty exemption will be provided on the import of cancer cure medicine used for free distribution to the cancer patients.

Custom duty on import of cycle used by general public increased to 5 %(PY 1%)

Person who returns after working at least one year from foreign country shall be given exemption on custom duty on import of one set of 32 television

1% custom duty shall be levied on raw amber imported under custom harmonic code 25 to industries who exports finished jewelry by manufacturing.




Highlights

Excise Duty

The excise duty slightly increased on items harmful to health like cigarettes, beer, alcohol, etc.

Provision of affixing the sticker on the outer part of the package of paan masala and other tobacco products in order to check excise leakages.

Value Added Taxes

No changes in the existing rate of 13 percent for the fiscal year 2014/15.

VAT exemption to Jute industries on the import of materials including spare parts has been maintained.

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 for goods and Rs 1,000,000 for services.

Tax withholding at source

The major changes made in the Income Tax Act, 2058 by the Finance Bill 2071/72 and other rates continued from previous years are as follows:

Deposit of withholding tax (TDS)

Tax withheld during the month shall be deposited into IRO within 25 days of next Nepali month. If withholder does not deposit the tax within the time limit, the withholdee shall have to deposit such withholding tax within 25 days of expiry of time limit.

House rent tax

House rent tax on the rental income is 10 percent.

Tax exemption on interest income

Tax exemption has been increased for annual interest income of Rs 25,000 from an amount of Rs 10,000 in the amount deposited to the micro credit institutions, rural development banks, postal saving bank, and cooperatives in the rural area.

Tax exemption to special industries

Special industry with capital of Rs 1 billion and providing direct employment to more than 500 persons are granted 100% exemption for first five years from the date of operation of business and 50% concession for next 3 years.

For those Entities in operation, if capital is increased to Rs 1 billion, Installed capacity is increased by 25% and provided employment is more than 500 persons than exemption of 100% concession for 5 years and 50% concession for next 3 years is provided on income generated due to increased capacity.

Tax exemption to tourism and flight industries

Industry related to tourism industry or international flight operation entity established with capital investment of more than Rs 2 billion exemption of 100% concession for 5 years from commencement of business and 50% concession for next 3 years.

For those entity in operation, if capital is increased to Rs 2 billion and installed capacity is increased by 25%, concession of 100% for 5 years and 50% concession for next 3 years on income generated due to increased capacity.

Tax exemption to hydropower project

In case of Hydropower Project for which construction started

before 2071 Bhadra 07 and electricity is generated by **2080 Chaitra end, 100% exempt up to ten years and 50% rebate on subsequent 5 years.

Note: For the person holding license and has already started generation of electricity, provision as mentioned at the time of obtaining license shall be applicable.

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.

Tax on windfall gain

Windfall tax of 25% will be exempted for the prize up to Rs 500,000 received for contribution in the field of literature, art, culture, sports, journalism, science and technology and general administration

TDS on the insurance premium paid to Resident insurance companies

TDS @1.5% is levied on premium paid to non-resident

insurance companies.

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 aero plane & other contracts @ 5%

TDS on capital gains

Capital Gain Tax on the income from the sales of house and land has been maintained as per previous provisions. Likewise, the capital gain tax on the sale and purchase of shares of entities registered with Securities Board has been maintained at 10 percent in the case of entities and 5 percent in the case of individuals. However, disposal of shares by mutual fund does not attract this provision.

TDS on payment to resident entity dealing in VAT exempt transactions

During payment made to resident entities dealing in VAT exempt transactions TDS of 1.5% of shall be deducted

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, is continued. 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.

Presumptive tax

Presumptive taxation for small taxpayers has been maintained 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 FY 2014/15

Metropolitan, Sub-Metropolitan Rs 5,000

Municipal Areas Rs 2,500

Other than municipal areas Rs 1,500

The major changes made in the Income Tax Act, 2058 by the Finance Act in the previous years and continuity given by Finance Bill 2071 are as follows:




Highlights

Tax Exemption to Industries in SEZ

100 percent tax exemption will be granted to industries established in SEZ of Himalayan and prescribed hilly region for the first 10 years from the date of operation and thereafter 50% rebate will be granted on the applicable tax rates for subsequent years continued. Further, industries established in SEZ of regions other than mentioned above shall be granted 100 percent exemption for the first 10 years from the date of operation and thereafter 50% rebate.

Tax Exemption for Industries in IT Parks

IT industries established in the specified IT Park shall be granted a 50 percent tax rebate on applicable tax rate.

Carry Forward of Losses

Loss from investment or business of any persons during the year in which such incomes were fully exempted is not allowed to be carried forward and set off against such incomes of subsequent years from now onwards. (Section 20 Subsection 8)

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 2014- 15.

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 nonr esidents continued at 25 percent.

- The taxable income is taxed as follows:

# Tax

Rate

(%)

Individual Couple

Rs Rs

a 1 250,000 300,000

b 15 250,000 to 350,000 300,000 to 400,000

c 25 350,001 to 2,500,000 400,001 to 2,500,000

d 25 Above 2,500,001 Above 2,500,001

e 40 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 from taxable income has been continued.

Individual having Income from export

In case of resident person having income from export, tax rate of

15% is applicable for income slab subjected to 25%.

Rebate to Individual Women

A 10 percent tax rebate in income tax from remunerations to the women being resident natural person having no other income except

Income from Employment is continued. This exemption is only provided to individual women who have not opted as couple during income year.

Deletion of exemption provided u/s 88 (4) nga.

The provision u/s 88 (4) nga has been deleted.

Charging of fines and penalties

If tax-exempt entities are unable to submit their financials details within the stipulated time limit, fine of 0.1% per annum on income shall be levied.

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.

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 and Pension Holder

Income tax exemption limit for the blind and handicapped people continues to be 50 percent in addition to the normal exemption limit.

Income tax exemption limit for pension holder continues to be 25 percent in addition to normal exemption limit.

OTHER TAX PROVISIONS

The provisions of other applicable taxes are as follows:

Depreciation

Provision for production industry purchasing energy generating capital asset for its industrial requirement can claim depreciation at the rate of 50% in the first year is maintained.

Provision for 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 is maintained. (Annexure 2 section 3 subsection 4)

Custom Service Charge

Custom service fee levied on export of goods per custom declaration form have been maintained at Rs 100 and Rs 500 for import..

Agriculture Reform Fees

Agriculture reform fee has been maintained at 5% of import value 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 including exemption-Ostrich.

Health Service Fees

Health services provided by private institutions attract health service fee of 5 percent on the invoice value of the services provided. The collected amount and details of so should be deposited in IRD within completion of 25 days of the trimester (four monthly) period. Health service providers can register in VAT voluntarily and collect VAT instead of health service fees. On getting registered under VAT Act, 2052, only VAT, for 5 years, should be collected.




Highlights

Vehicle Tax

The vehicle tax rates are as per the details provided in the schedule 3 of Finance Act 2014. An arrangement to exempt the vehicle tax and road construction and maintenance fee on the scooters up to 150 CC designed for disabled persons have been maintained. Likewise, a provision of 50 percent exemption in the road construction and maintenance fee being imposed on electric, solar and battery vehicles has been maintained.

Road Construction and rehabilitation duty

The duty will be collected as follows:

Types of Vehicles Duty

Car, Jeep, Van,

Micro bus, truck, tipper, truck

mixture, mini bus and minitruck

5% of the value inclusive of all

other taxes and duties

Motor cycle per piece:

Up to 125 cc

126 cc to 250 cc

251 cc and above

7000

8000

9000

Not applicable to ambulances, fire brigade, vehicles carrying dead bodies (hearse), 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.

Registration Fees, Service duty

In financial year 2071/72, registration fee and service fee and property lien fee shall be levied according to annexure -4 of Finance Bill 2071.

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 have been maintained.

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.

Casino Royalty

- The royalty payable by casinos is reduced from Rs 40 million to Rs 30 million per annum. Casino can be operated only at one place after obtaining a license.

- Nonetheless, Rs 20 million will be charged instead of Rs 30 million if the game is played through modern machine and

equipment only. Casino with modern machine and equipment can be operated at maximum of 4 places on obtaining a license.

- Royalty amount has to be paid within 2 months from the commencement of fiscal year to Sanskriti, Paryatan Tatha Udyyaan Mantralaya.

- Individual, entity who have formally closed their Casino by giving written application to the concerned department till Ashoj 2070, who are required to pay their royalty annually can pay 25% of the royalty due, penalty and additional penalty on annual royalty by the end of Ashoj 2071, shall get remission of balance royalty, penalty and additional penalty.

- Casinos which are officially closed from Baisakh 2071 on the notice of Sanskriti, Paryatan tatha Nagarik Udyyaan Mantralaya can pay 75% of annual royalty due, penalty and additional penalty on it till Ashoj 2071, shall get remission of balance annual royalty, penalty and additional royalty.

Special provision regarding registration of Education Counseling Service (ECS)

- Person running business of Education Counseling Service (ECS), but, who have not registered themselves under VAT Act, 2052 up to Ashad 2071, can register up to Poush 2071. They shall be given waiver of VAT, penalty on such VAT, additional charges and interest on period prior to the date of registration.

- Waiver shall be given on the amount of penalty, additional charges and interest if taxes are paid by Poush 2071. Such taxes shall relate to entity providing ECS service, who were required to pay taxes, whose taxes are determined by IRD as per amended assessment and have gone into dispute or whose taxes were due to be paid by Ashad 2071.

Special Provision regarding registration of Crusher Business

- Waiver of all taxes including additional charges, interest and penalty prior to registration if crusher businesses gets registered under VAT Act, 2052 by Poush 2071.

- Waiver on the amount of penalty, additional charges and interest if taxes are paid by crusher business already in operation by Poush 2071 and, whose tax are assessed by IRD for the FY 2070/71 under VAT Act, 2052.

- Waiver of penalty, late deposit charge and interest on such license charge of crusher business, which are registered as per above clause pays its excise duty license charge for the FY 2069/70 by Poush, 2071.

VAT Refund provision for Small Hydropower Project

- Small hydropower which are built and operated by community based user group as non-profit organization (Including project implementation by contract), who were to get zero tax rate benefit, but who didnt claim zero VAT benefit, rather they have paid VAT. After getting endorsement from IRD, such tax shall be refunded in prescribed manner.

- Notwithstanding anything written in VAT Act regarding provision for VAT Refund, refund shall be given if such claim comes by Poush 2071 in prescribed manner as said above.

Windfall Gain Tax

Windfall tax of 25% will be exempted for the prize up to Rs 500,000 for received on behalf of contribution in the field of literature, art, culture, sports, journalism, science and




Highlights

technology and general administration.

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 maintained at 15 percent.

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 continued in this ordinance to make it non-taxable. Payment to employees under mass retirement scheme (except regular retirement payment or payment under employment terms) after such merger (as per Section 47A) will obtain 50% concession on with holding rate of regular retirement payment.

Mutual Fund

- Return made to the natural person by the Mutual fund is subjected to final TDS @ 5%.

Income tax return by tax exempted entities

- Tax exempt entities are required to submit their financials within the stated time limits, otherwise, fine of 0.1 %/annum from income shall be levied.

Arrangement of reward and expenses to informer

The reward shall be proportioned among informers if more than one informers.

Expenses for information retrieval by informer up to Rs 10,000 shall be granted to the informer on the basis of the

authenticity of the information provided on revenue leakage.

Identity of the informer shall be kept secret.

Disposal of shares by Mutual fund does not attract the provision of capital gain tax.

Interest and dividend provided to the Mutual fund is exempted from tax.

VALUE ADDED TAXES

The Finance Ordinance 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 cases relating to re-exports, the provision of refund of deposit paid during import will be made directly from the custom point.

Tax Rate

There are no changes in the existing rate of 13% and 0%.

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 sales of Rs 200,000 in any month for goods and Rs 1,000,000 for service.

Persons dealing with manufacturing of brick, alcohol distributor, wine shop, software, trekking, rafting, ultralight flight, paragliding, tourist transportation, crusher, slate and stone business must register under VAT within 30 days from the date of transaction. Also, persons dealing in hardware, sanitary, furniture & fixture,

furnishing, automobiles, motor parts electronics & marble, color lab educational consultancy, discotheque, health club, catering service, party palace business, parking facility business, boutique, tailoring business along with suiting and shirting, educational institution, health institution and ice-cream related business within Metropolitan City, Sub- metropolitan City or Municipality areas must register under VAT within 30 days from the date of transaction.

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 it has been constructed from the unregistered person.

VAT on Imports

Facilities to manufacturing industries which export 60% of their sales of last 12 months 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.

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

Provision relating to refund of 60% of VAT paid on import of raw material or finished goods for cellular mobile by the local manufacturer and importer is maintained

Advance Ruling

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

Filing of VAT return

VAT return fi l ing has to be done monthly, bi-monthly, trimester and quarterly basis according to the nature of the business.

Refund of VAT to diplomats

Refund of VAT paid by the diplomats on the purchases of goods or services less than Rs 5,000 is not made.

Refund of VAT to tourist

Arrangement is made for refund of VAT paid by foreigners on the purchases exceeding Rs 25,000 made in Nepal at the time of the departure. However, 3 percent of amount refundable shall be collected as service fee.

VAT Refund on Damaged Goods

VAT Refund can be claimed on goods damaged by fire, theft, accident, wear and tear as prescribed.

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.

Major changes in Schedule 1 of VAT Act

Following are major items included in Schedule 1 of VAT Act by Finance Ordinance 2071:

- Coal and Kerosene

- Raw material and other helping material required for the production of Intra Ocular lens used in the




Highlights

treatment of eyes.

- Dip cycle lid acid battery used in Clean Tempo with approval from Environmental, Sciences and Technological ministry.

- Electric energy (Voluntary heading 27.16)

- 50 % VAT refund shall be given as per prescribed policy of IRD on VAT collected by selling locally produced and processed tea.

- 25% VAT refund shall be given as per prescribed policy of IRD on VAT Collected by selling locally made circle, utensils of copper, Bronze.

- 50 % VAT refund shall be given as per prescribed policy of IRD on VAT collected by selling locally produced fiber by local cloth manufacturer.

Penalty

Following changes has been made in the provision to adjust additional fee and penalty resulting due to late deposit of VAT:

- In case of nonpayment of interest and any other amount which is to be submitted as per VAT act 2052 within the specified time period, interest is imposed on the remaining amount to be paid from the date of expiry of time period. Such interest is also to be considered for the application submitted for the purpose of administrative review as per section 31(ka) and appeal to revenue tribunal as per section 32.

- If Tax plate is not put in a proper place or the place specified as per this act, penalty is Rs 2,000 each time.

- Penalty of Rs 20,000 at a time is imposed if updated records of business are not kept as per section 16 and obstruction on review of such records.

- Penalty of Rs 5,00,000 if taxpayer having permission or not to use computer billing software uses software to edit or delete the data.

Public circular

To bring uniformity in the application of the act and to provide direction to the officers of the department, the tax department may issue written public notice explaining the matters relating to the act. The department shall penalize in accordance with the public circular issued until and unless the related public circular has been cancelled.

Prizes and inspection expenses

If the number of persons entitled to prizes are more than one, then amount of prize is to be distributed proportionately.

In case of leakage of tax, the person providing the information about the leakage of tax should be awarded with a cash prize of Rs 10,000 as prescribed on the basis of the truthfulness of the information.

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 Ordinance 2070.

The following provisions have been continued in regard to levying the customs duty. Provisions being changed in current Ordinance are also mentioned:

Goods being imported from India of Indian origin can be imported on concession of 5 percent (PY 7%) on custom duty up to 30 percent. But 3 percent (PY 5%) 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 3 percent of custom duty (where 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.

Customs on Accompanied and Unaccompanied personal effects (Niji Gunta Jhiti) has been continued to 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 Applicable rate

Duty exempted 15%

5% 20%

10% 25%

15% 30%

20% 35%

30% 50%

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).

50% rebate on import of tin containers (80.07) to be used for the packing products of dairy industry.

Concessions on customs tariff on the import of tanker (87.04) for dairy industries have been maintained at 80 percent

50% concession on the custom duty on vehicles to be operated by battery and electricity.

50% exemptions in the import duties and 100% on agriculture reform fee have been provided to the import of soybean to be used by domestic oil industries as their raw materials and 50% exemptions in the import duties and 68% on agriculture reform fee have been provided to the import of soybean to be used by domestic oil industries as their raw materials

5% custom duty shall be levied on the import of LP Gas.

Additional Items as specified in Schedule-1

Harmonic Code Item Current Rate

2106.90.70 Surti-rahit sugandhit supri Rs 50 per kg

2523.10.00 Cement Clinker Rs 2400 per MT

8481.80.10 Valve of gas regulator 20% of value

Changes in Various custom rates are as follows:

Harmonic code

Items Previous rate (Rs)

Current rate (Rs)

2208.20.90 Whisky and other liquors with less than

80% density

800/ltr 1000/ltr

2208.30.90 Rum and other spirits with less than

80% density

800/ltr 1000/ltr

2208.40.90 Gin with less than 80% density

800/ltr 1000/ltr

2402.10.00 Cigar, cigarette (tobacco products)

3000/ 1000pcs

3500/ 1000pcs

1 percent Custom Duty levied on




Highlights

- Import of generator of 10kw or more capacity.

- On import of aircrafts, helicopter, its gearb o x , 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 equipment imported by pharmaceutical industry for research besides those which are charged 0%.

- 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 and Interlock machine under HSN 84.52.

- Import of generating parts by VAT registered industries manufacturing generators

- Import of pashmina thread as mentioned in part 51.08 (Kashmiri Yarn)

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.

Licensed importer or seller of liquor, beer and cigarette shall disclose the retail rate through public notice at the beginning of

the fiscal year and any time during the year if the rate is changed.

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 excise duty slightly increased on items harmful to health like cigarettes, beer, alcohol, etc.

Excise duty on electric vehicle has been exempted.

Contact for Further Consultation

Shashi Satyal Managing Partner +977 9851027150 [email protected] Sanjeev Mishra Partner +977 9851039880 [email protected]

T R Upadhya & Co. Chartered Accountants 61 Anamika Galli Baluwatar, Kathmandu Nepal Phone: +977 1 4410927 Fax: +977 1 4413307 www.trunco.com.np

Budget Highlights 2014-15

Documents

Transcript of Budget Highlights 2014-15