Taxation Policies and growth through tax Name: Niraj Ghimire CA Final Hatemalo Nepali Students Group Page 1

CONTENTS  Overview  Trade policy (Import & Export)  Industrial Policy and Tax implication  Foreign Investment Policy. Hatemalo Nepali Students Group Page 2

Page 3 Hatemalo Nepali Students Group Introduction Taxation on income has been formally announced on Mid May 1960 Agreement for avoidance of double taxation-10 countries.

Objectives of tax policy in Nepal  To promote investments, industrialization and exports.  To achieve social policy objectives or to support certain industries and exporters.(so numerous exemptions on VAT and custom duties provided) Hatemalo Nepali Students Group Page 4

Income Tax Income tax contributes 20.96% in total revenue collection. Exemption of income tax up to 10 years for industry established in remote area. Provision of loss carry forward of one year upto 7 years for other industry and 12 years for hydro and infrastructure project. Exemption of income tax for first five year and 50% rebate for industries established in SEZ. Hatemalo Nepali Students Group Page 5

Taxation policies on Excise, Custom & VAT EXCISE DUTY 50% excise duty exemption on production of Motorcycle,25% on other vehicles. Exemption on domestic production of Marbles Industries & distributors of liquors, beer and cigarettes are not allowed to give discount to Vat unregistered dealers. CUSTOM DUTY It alone contributes 20% of total tax revenue Rebate of 50% in case of import of sunflower seeds for manufacturing of soybean oil Export are generally free and no licenses required for exporters. Hatemalo Nepali Students Group Page 6

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VALUE ADDED TAX (VAT) has been introduced in FY 2049/50 and it is administered by Inland Revenue Dept. of Nepal. It contributes 35.2% (approx.) of total tax revenue. Machinery and equipment required for hydro projects are exempted from the VAT on project basis. Hatemalo Nepali Students Group Page 8

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Hatemalo Nepali Students Group Page 11 CONTRIBUTION OF VAT ON GDP

FOREIGN INVESTMENT POLICY AND TAX IMPLICATION ON IT Introduced Foreign Investment and Technology Transfer act 1992 Foreign investors are permitted up to 100% equity shareholdings in medium and large scale industries. Foreign investment will be permitted upto 100% except the negative list. Exceptions for foreign investors: Defense,Cigarettes and Bidi, Alcohal Hatemalo Nepali Students Group Page 12

Economic growth through tax Increases possibility of providing consumer goods for all. Wealth generated may eventually ‘trickle down’ to those who are poor by means of income distribution-taxes and benefits etc. Improvement in welfare due to :pensions, provident funds & different benefits. It accounts almost huge amount of revenues. Hatemalo Nepali Students Group Page 13

Development of infrastructures : communication, water, transportation. Hatemalo Nepali Students Group Page 14

Tax policy issues in Nepal  High Reliance on import-based revenues, Low Income tax revenues  Eroded tax bases due to extensive intensives.  Income tax generates the weakest revenue collections.2.9% other LICs-5%  This tax structure cannot generate sustainable strong revenue growth in Nepal. Hatemalo Nepali Students Group Page 15

SUMMING UP Hatemalo Nepali Students Group Page 16

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