Type of tax in Nepal and taxation rights
Nepal is a federal country with three different levels of governments. The taxation right of union government, provincial government and local government is prescribed by Constitution of Nepal. The union government has promulgated Inter-governmental Financial Management Act, 2074 to address the taxation right conferred by Constitution of Nepal to different levels of Governments.
The federal structure and taxation right has increased tax compliance cost for the businesses, including chances of double taxation. For e.g income Tax is levied on all business, investment and employment income, however, local level has the authority to levy agriculture tax, house rent tax and business tax. Local authorities may also require businesses to register locally, in addition to registration with other regulatory bodies.
If local level and province government does not act in prudent manner, businesses may resort the chance of tax evasion due to higher unnecessary tax burden is high.
The taxation right of Government of Nepal, provincial and local government as per Constitution of Nepal and Inter-governmental Financial Management Act, 2074 are summarised below:
| Particulars | Government of Nepal | Provincial Government | Local Government |
| Tax Revenue | Customs duty, Excise Duty,
Value Added Tax, Corporate Income Tax, Personal Income Tax, Tax on Remuneration |
Land and Building Registration Tax,
Vehicle Tax, Entertainment Tax, Advertisement Tax, Tax on Agriculture Income |
Property tax,
House Rent Tax, Land and Building Registration Tax, Vehicle Tax, Land Tax, Entertainment Tax, Advertisement Tax, Business Tax |
| Non Tax Revenue | Passport fee, Visa Fee,
Tourism Fee, Service Fee, Lottery/betting or casino, Fines and penalties, |
Service Fee,
Tourism Fee, Fines and Penalties |
Service Fee,
Tourism Fee, Fines and Penalties |
| Other Taxes | Other taxes and non taxes to be levied under union laws | Other taxes and non taxes under the rights of provinces as per constitution levied as per province law | Other taxes and non taxes under the rights of local level as per constitution levied as per local level’s law |
The Structure
Union Ministry of Finance/ Provincial Government/Local Government
The MOF is the central authority of Government of Nepal charged with the responsibilities for maintaining both micro and macroeconomic stability in the country. MOF is responsible for budget formulation and bringing amendments in the Tax Laws in Nepal.
The taxing power vested to provinces is exercised by Provincial government and that to local government by local government.
Finance Secretary and Revenue Secretary
Finance Secretary is administrative head of Ministry of Finance & is responsible for overall function of MOF.
Treasury Offices & District Treasury Offices
District Treasury Offices are responsible for collection of tax in the district where there is no physical presence of Inland Revenue Offices and Tax Payer’s Service Offices.
Inland Revenue Department
The Inland Revenue Department (IRD) is currently responsible for the enforcement of Tax Laws and administration of the following taxes: Income Tax, Value Added Tax, Excise Duty, Vehicle Tax and certain fee and duties like Entertainment fee (Film Development Fee), Special fee, etc. Likewise, the Department is also responsible for monitoring the non-tax revenue such as dividends, royalties etc. of the Government.
IRD is centrally located in Lazimpat, Kathmandu.
Establishment of Large Taxpayers’ Office, Tax Offices and Taxpayers’ Service Centres
Nepal Government (GON) has the sole authority to establish “Large Taxpayers’ Office”, “Middle level Taxpayers’ Office”, “Inland Revenue Offices” and “Taxpayers’ Service Offices” in any part of the country and to fix their jurisdiction through publication of notification in Nepal Gazette. These tax offices are treated as executing hands of IRD for the jurisdiction provided to them.
There are 49 field offices throughout Nepal including 1 Large Taxpayers Office, 22 Inland Revenue Offices and 26 Taxpayer Service Offices. Before naming the department as Inland Revenue Department, it was known under Department of Taxation that was established in 1960. IRD and its district offices are totally running on functional line. Major functions include Taxpayer’s Service, Audit and Collection.
