Tax & Labour

Tax System & Tax Rates in Nepal
For F.Y. 2058-59 (2001-2002)

Value added Tax (VAT):

1. Value Added Tax is levied by a flat rate of 10 percent. In certain cases the rate may be zero and certain products are exempt from VAT.
2. Value Added Tax is collected at every stage of selling goods and services.
3. Exports of taxable goods are zero-rated.
4. A firm whose annual turnover of goods and services not exempt from VAT is less than Rs.2 million need not to be registered with the VAT office and collect VAT on sales.
5. But those firms which import taxable goods valued more than Rs.10 thousand at a time need to be registered at VAT Office.
6. A firm registered with VAT Office may claim credit on tax paid on inputs.
7. Certain products such as primary food stuffs, agricultural products, industrial machinery are exempt from VAT.

• Income Tax:
  1. For individual, couple or family:
     • Exemption amount from income tax:
       • Individual Rs.65,000.00
       • Couple & Family Rs. 85,000.00

     • On Taxable Income:
       • First Rs. 85,000.00 15 percent
       • On amounts higher than above 25 percent

  2. For registered private & public limited companies, income tax is levied at a flat rate of
     • For Bank & Financial Institutions 30 percent
     • For Others 25 percent
     • Industrial enterprises coming under the preview of Industrial Enterprises Act are levied a maximum corporate tax of 20 percent.
  3. For partnership firms, income tax is levied without granting exemption at a flat rate of 25 percent from their net income.
  4. For temporary resident tax payers there is no exemption.
  5. Income Tax on Export earnings is levied at 70 percent of the prevailing tax rate. But it can not be more than 0.75 percent of the total export turnover.
  6. Three percent special fee is levied on net income of tax payers.

• Tax Rate For Vehicle Owners Operating Their Vehicles On Hire

  Annual Tax Payable (in Rs.)
  S.N	Type of Vehicle	Petrol	Diesel
  1.	Car, Jeep, Van, Micro Bus	Rs. 3,400.00	Rs. 4,700.00
  2.	Truck	Rs. 11,500.00	Rs. 12,700.00
  3.	Bus	Rs, 11,500.00	Rs. 12,700.00
  4.	Mini-Bus	Rs. 7,400.00	Rs. 8,700.00
  5	Mini-Truck	Rs. 7,400.00	Rs. 8,700.00
  6.	Auto Rickshaw, Three Wheeler, Tempo	Rs. 1,600.00	Rs. 3,500.00
  7	Tractor	Rs. 900.00	Rs. 1,600.00
  8.	Power Tiller	Rs. 900.00	Rs. 1,250.00

• Annual Income Tax Rate For Vehicle Owners Operating Their Vehicles On Hire

  S.N	Type of Vehicles	Annual Income Tax Rate
  1.	Mini bus, mini truck, truck and bus	Rs. 1,500.00
  2.	Auto rickshaw, three wheeler, tempo	Rs. 850. 00
  3.	Car, jeep, van, micro bus	Rs. 1,200.00
  4.	Tractor and power Tiller	Rs. 750.00

• The Applicable Rate Of Advance Tax (Income Tax Deduction At Source) From Income In Certain Categories Of Payment Is As Follows:
  1. Remuneration - At a rate proportionate to annual remuneration.
  2. Rent tax for House / Land and other kinds of rental income- 15 percent of the total rent in flat basis.
  3. Payment made for consultancy services and services gained from Doctor, Engineer, Lawyer, Accountant, Auditor & other experts.
     • With income tax registration certificate - 5 percent of the amount paid
     • Without income tax registration certificate - 10 percent of the amount paid
     • For temporary resident tax payer - 15 percent of the amount paid

  4. Meeting allowance - 15 percent of the allowance
  5. For all kind of contracts - 1.5 percent of the amount paid
  6. Commissions, royalty, management fee, technical service fees and others - 15 percent of the amount paid
  7. Interest on taxable loan bonds issued by HMG and the Nepal Rastra Bank & other interest - 6 percent of the amount paid
  8. Lotteries, gifts (Cash / in kind) - 25 percent of the amount paid
  9. Payments made for the operation of rented or leased foreign aircraft - 3 percent of the amount paid
  10. Payment made for premium of re-insurance - 3 percent of the amount paid
  11. Commission amount paid to the insurance - agent and stock broker - 15 percent of the amount paid
  12. Payment made to the foreign company for the transmission of foreign TV company - 15 percent of the amount paid

• Tax Rate For Private Vehicles

  Type of Private Vehicles

  • Car, Jeep, Van and Micro Bus

    S.N		Petrol	Diesel
    1.	Up to 1300 cc	Rs. 6,500.00	Rs. 10,000.00
    2.	1301 cc to 2000 cc	Rs. 8,500.00	Rs. 13750.00
    3	2001 cc to 2900 cc	Rs.10,000.00	Rs. 17,500.00
    4.	2901 cc to 4000 cc	Rs. 12,300.00	Rs. 23,000.00
    5.	4001 cc and above	Rs. 15,000.00	Rs. 28,000.00

  • Auto-Rickshaw, Three Wheeler, Tempo, Tractor, Power Tiller

    S.N		Petrol	Diesel
    1.	Auto -Rickshaw, Three Wheeler and Tempo	Rs. 2,100.00	Rs. 3,000.00
    2.	Tractor	Rs. 1,500.00	Rs. 21,00.00
    3.	Power Tiller	Rs. 1,500.00	Rs. 1,500.00
    4.	Truck / Bus	Rs. 13,800.00	Rs. 15,000.00
    5.	Mini-Truck / Mini-Bus	Rs. 8,500.00	Rs. 9,800.00
    6.	Motorcycle
    	i. Up to 90 cc	Rs. 375.00
    	ii. 91 cc to 150 cc	Rs. 850.00
    	iii. 151 cc to 300 cc	Rs. 1,250.00
    	iv. 301 cc and above	Rs. 1,750.00

• Custom And Excise Duty
  1. Prevailing custom duty rates are 140%, 130%, 80%, 25%, 15%, 10%, 5%, and 0%.
  2. Prevailing export service charge is 0.5% but some industrial items such as vegetable ghee and plastic goods are liable to pay export duty. Export duty rates are 2% to 10%.
  3. Countervailing duty are levied on goods imported to the Kingdom of Nepal from foreign countries as per the tariff rate of excise duty chargeable on goods produced (or if produced) within the Kingdom.
  4. Goods imported from India into the Kingdom of Nepal are granted a rebate in the chargeable ad valorem except specific) rate of customs duty by 20% up to the tariff rate of 40%, and by 10%, on rates above that.
  5. Goods produced in and imported from China are granted a rebate in the chargeable ad valorem (except specific) rate of customs duty by 10%.
  6. A Special fee of three percent is levied on goods of import value at the custom points. But special fee of one percent will be levied on imported goods of up to 5 percent custom duty.

• Industrial Sector:

  The provision of Industrial Enterprise Act says that

  1. Income tax shall not exceed 20 percent for any industry except cigarette, bidi, cigar, chewing tobacco, khaini sand industry producing other goods of similar nature utilizing tobacco as their basic raw material and alcohol or beer producing industries.
  2. Industry using eighty or more than eighty percent of Nepali raw materials and Nepali manpower are granted a rebate of income tax at the rate of 10 percent except cigarette, bidi, cigar, chewing tobacco, khaini and industry producing other goods similar nature utilizing tobacco as their basic raw materials, industries producing alcohol or beer and saw mills and catechu industries.
  3. National priority industries which construct and operate road, bridge, tunnel, rope way, suspension bridges and manufacture and operate trolley bus and train are granted a rebate of 50 percent of income tax for a period of ten years from the date of operation and other industries listed as below shall be granted a rebate of 50 percent of the income tax on their income for a period of seven years from the date of operation.
     • Agro and forest based industries.
     • Engineering industries (producing agriculture and industrial machine)
     • Manufacturing industry which produces the devices that saves fuel and controls pollution.
     • Solid waste processing industry.
     • Hospital and nursing home (outside the Kathmandu Valley).
     • Industries producing ayurvedic, homeopathic and other traditional medicine and industrial producing crutch, seat belt, wheel chair, stretcher and stick and so on to be used in aid of the disabled and orthopedic.
     • Cold storage installed for the storage of fruits and vegetables.

  4. If an industry diversifies itself through reinvestment in the same or any other industry or expands its installed capacity by 25 percent or more, modernizes its technology or develops ancillary industries, it is entitled to a deduction of 40 percent on the amount spent for acquiring new additional fixed assets from its taxable income. Such amount may be deducted on a lump sum or on an installment basis from the tax to be paid within a period of three years.
  5. If an industry installs technology, which controls pollution and minimizes the environment effects it is granted a rebate of 50 percent of its investment from taxable income. Such deduction is allowed on a lump sum or on an installment basis within a period of three years.
  6. Pre-operation cost of an industry for skill development training is allowed to be capitalized.
  7. A foreign investor is levied income tax of a rate of 15 percent only, on the income earned from technical as well as management service fees and royalty.
  8. No income tax is imposed to a foreign investor on the interest income earned from foreign loan.
  9. Industry providing employment to six hundred or more than six hundred Nepali citizens round the year, get additional facilities of income tax rebate at the rate of ten percent of their tax for that year.
  10. No royalty is imposed if any industry generates electricity for its own use (captive power generation).

Source: FNCCI Directory of Members

Double Taxation Avoidance Agreement (DTAA)

A Double Taxation Avoidance Agreement (DTTA) is an agreement between two countries seeking to avoid double taxation by defining the taxing rights of each country with regards to cross-border flows of income and providing for tax credits or exemptions to eliminate double taxation. The objectives of a Nepalese DTAA are as follows:

• To obtain a more effective relief from double taxation compared to relief gained under unilateral measures.
• To create a favourable climate for the inflow of foreign investment into Nepal.

Concluded DTAAs

• India
• Mauritius
• Norway
• Srilanka
• Thailand

DTAAs under Negotiation

• Austria
• Bangladesh
• Pakistan
• South Korea

Source: HMG's Department of Taxation

Labour
Labour Force

Nepal has an easily trainable and keen work force. Unskilled labour is cheap and abundant. Semiskilled and skilled labour are available in sufficient numbers. The government has established technical institutions to develop skills at the technical level in civil and electrical engineering, electronics, air conditioning/refrigeration, general mechanics and auto mechanics. Training programmes are also geared to industrial and vocational training in wood working, metal working, leather working, general fitters, tailoring and so on. The programmes on entrepreneurial and management development and the colleges of higher learning provide educated persons to be groomed for managerial positions on both public and private sector industries.

Industrial Relations

Nepal has a history of maintaining good industrial relations during the past few decades when industrial activity gradually expanded in the country. Labour unrest, lockouts and strikes do not occur as frequently as they do in other developing countries. The Labour Act lays down guidelines and procedures for the settlement of disputes between employers and employees. These guidelines and procedures provide a favourable environment for the harmonious development of industrial relations.

Legal Framework

The Labour Act, 1992 lays down the legal framework and the basis for the rules, regulations and guidance on the proper management of any establishment employing 10 persons or more. It deals with matters relating to employment and security of employment, working hours and minimum wages, welfare of employees, employer employee relations and the settlement of labour disputes. Labour Regulation, 1993 complements the Labour Act with further clarification in issues such as security of profession and service, remuneration and welfare provision, health, cleanliness and safety, etc. The Bonus Act of 1974, as amended subsequently, provides a legal basis for the payment of bonus to the workers and employees of factories and commercial establishments.

Wages and Salaries

The wages payable to workers in Nepal are comparatively very low. The low cost of living enables workers to offer their services at relatively low wage rates. The minimum wage rates set by the government are generally lower than the going wage rates for workers. Salaries of middle management executives, technical grade officers, engineers and other professionals are generally lower than in other developing countries. Permanent employees of a factory should contribute 10 percent of the monthly salary to a provident fund and the management should make a matching contribution. Gratuities are payable to workers who have worked for over 3 years.

Working Hours and Holidays

Normal working hours are fixed at 48 hours per week, 8 hours a day. Continuous working hours should not exceed 5 hours. There should be a break of half an hour. Overtime work is remunerated at one and a half times the normal wage. In addition to 13 public holidays, permanent workers are entitled to one day's home leave for every 20 days, 15 days medical leave with half pay and one month special leave without pay every year. Female employees are entitled to 52 days maternity leave with full pay. Such maternity leave shall be granted only twice during the entire period of service. The compulsory retiring age for workers is 55. However, in the case of a skilled worker whose service is indispensable, the retirement age could be extended up to 60 years.