Value Added Tax: Registration, Rates, Returns and Refunds

Nepal’s VAT is a conventional invoice-credit tax with a single rate, and for most of its life the interesting questions have had nothing to do with the rate. They have been about who has to be inside the system, whether a business can get money back once it is inside, and what happens when the supplier sits outside Nepal altogether.

The rate

Section 7(1) of the Value Added Tax Act 2052 (1996) states that the rate “shall be in single rate of 13 percent”. That figure has not moved for FY 2083/84 (2026/27), and it is one of the few Nepali tax numbers a reader can quote without checking the year.

The single-rate architecture is another matter. On our reading of the Nepali text of the Finance Bill 2083, it inserted new subsections into section 7 allowing the government to publish rates below the standard rate for specified supplies, and applied a 5 percent rate to ride-sharing transport services. The FY 2083/84 budget also brought electricity supply above a consumption threshold into charge, and the Inland Revenue Department then issued a dedicated directive on collecting VAT on electricity service. If that reading is right, Nepal has moved from a single-rate VAT to a standard-and-reduced-rate VAT without touching the words “single rate” in section 7(1). We flag it rather than assert it, because we could not obtain the authenticated Act.

Who has to register

Two thresholds operate, and the distinction between them is the part most often garbled. Annual taxable turnover of NPR 5 million applies to a business dealing in goods; NPR 3 million applies where services are involved. The goods threshold was set in FY 2015/16 and the lower one in FY 2024/25. The original threshold when VAT arrived in 1997 was NPR 2 million. Two nominal increases in three decades have still left the real value of the entry point far below where it started.

Turnover is not the only route in. Section 10(2) requires registration within 30 days regardless of turnover for defined trades carried on within municipal areas, including hardware, furniture, motor vehicle, electronics and restaurant businesses. Section 10 also requires application before transactions commence, so for a new company VAT registration is a formation step rather than a growth trigger. Section 10A provides temporary registration for exhibitions and fairs, cancellable within seven days of the event.

The tax economist Dr Rup Khadka made two structural criticisms of the threshold design publicly in the run-up to the FY 2083/84 budget. The thresholds are not indexed, so they tighten every year in real terms. And a dual threshold is unusual among the 180-odd VAT jurisdictions, most of which run a single limit. The Federation of Nepalese Chambers of Commerce and Industry proposed raising them to NPR 10 million and NPR 5 million. Neither change was made for FY 2083/84.

Input credit and the returns cycle

Section 17 lets a registered person deduct tax paid on purchases against tax charged on sales, with restrictions where goods are capable of private as well as business use, and with a specific provision allowing credit on capital goods imported under a financial lease. Two credit denials recur in practice: purchases unsupported by a compliant tax invoice, and purchases attributed to exempt supplies listed in Schedule 1 of the Act.

Returns are filed with the tax officer for the relevant period. Interest runs at 10 percent a year where tax is not paid when due, separate from and additional to any penalty. Section 8(3) holds a trap for property owners. Where a building, apartment or shopping complex worth more than NPR 5 million is built for business purposes and the construction is bought from an unregistered person, VAT is assessed and collected from the owner of the structure as though the work had come from a registered contractor.

The reverse charge on foreign services

Section 8(2) is the provision most foreign suppliers and their Nepali customers find late. Where a person in Nepal receives services from an unregistered person outside Nepal, that recipient “shall have to assess and collect tax at the taxable value”. The obligation applies whether or not the recipient is itself VAT-registered.

The consequences run in both directions. A Nepali company buying cloud infrastructure, offshore software development, foreign professional advice or intragroup management services carries a self-assessment obligation on those payments. A foreign supplier selling into Nepal picks up no Nepali liability from the provision. It picks up a customer whose true cost of purchase sits above the invoice, and that shows up in negotiation. This sits alongside, and separate from, the 2 percent digital service tax on non-resident suppliers of electronic services described in cross-border taxation, and separate again from the income tax withholding covered in withholding tax. One payment to a foreign supplier can attract all three.

Exempt, zero-rated and outside the tax

Ordinary speech treats three categories as interchangeable. They are not. Supplies listed in Schedule 1 of the Act are exempt: no VAT is charged, and input tax attributable to them is not recoverable, so the tax sticks in the supply chain. Exports are zero-rated: no VAT is charged, and input tax stays fully recoverable, which is what generates the refund position discussed below. A person below the registration threshold and outside section 10(2) is outside the system altogether, charging nothing, recovering nothing and issuing no tax invoice. That makes them a more expensive supplier to a registered buyer than the headline price suggests.

For a business with a mixed activity profile, the exempt category is the one that costs money quietly. It requires an apportionment of input tax built into the accounting from the start of the year. An apportionment reconstructed during an audit tends to be resolved against the taxpayer.

Refunds

Excess credit arises whenever input tax exceeds output tax, which for an exporter is the normal state of affairs, because exports are zero-rated while inputs are taxed.

Section 24(4) gives an exporter whose exports are 40 percent or more of total sales in a month the right to claim the excess deductible amount back in a lump sum for that month, rather than carrying it forward. Section 24(5) sets the deadlines: refunds under the ordinary carry-forward route within 30 days, and refunds under the exporter route within 60 days, with interest payable if the Department is late. Section 25 deals with refunds to diplomatic personnel and certain projects on a reciprocal basis, subject to a minimum purchase value.

That is what the statute says. How long refunds actually take we cannot say. We found no published measurement, official or independent, of Nepali VAT refund processing times against the section 24(5) deadlines. Refund delay is the most repeated complaint about Nepali VAT and the one with the thinnest evidence base. A reader who needs a working assumption for a cash-flow model should get it from the auditors of comparable exporters rather than from any general source, this one included.

What is unsettled

The threshold question is live, with an obvious fiscal cost on one side and a compliance-burden argument on the other. It did not move in FY 2083/84, and it will be back. The reduced-rate mechanism, if it is what we read it to be, is a larger change than it looks: a VAT with more than one positive rate needs classification rules, and Nepal has published none. And when we checked on 26 August 2026, the Department’s own consolidated VAT Act text was current only to the Finance Act 2082, leaving a full fiscal year of amendments visible only in the Finance Act itself.

Sources

1. Value Added Tax Act, 2052 (1996), English translation as amended to 2011

   Government of Nepal (translation published via the Nepal Law Commission) · 1996, as amended; in force · Tier 1 — Primary legal instrument

   Supports: Section 7(1) single rate of 13 percent; section 8(2) reverse charge; section 8(3) construction of structures over NPR 5 million; sections 10 and 10A registration; section 17 input tax deduction; section 19(2) 10 percent interest; section 24(4) and 24(5) refunds and deadlines.

   Accessed 26 August 2026

2. मूल्य अभिवृद्धि कर ऐन, २०५२ (आर्थिक ऐन, २०८२ ले गरेको संशोधन सहित) — VAT Act 2052 as amended by the Finance Act 2082

   Inland Revenue Department, Ministry of Finance · Posted 18 Poush 2082 (January 2026) · Tier 1 — Primary legal instrument

   Supports: That the Department's own consolidated VAT Act text was current only to the Finance Act 2082 as at 26 August 2026.

   Accessed 26 August 2026

3. Nepal's VAT registration threshold called outdated after nearly 3 decades

   Clickmandu (English) · 26 May 2026 · Tier 6 — Professional or news source

   Supports: Thresholds of NPR 5 million for goods traders set in FY 2015/16 and NPR 3 million for goods-and-services businesses set in FY 2024/25; the original NPR 2 million threshold from 1997; the FNCCI proposal to raise them to NPR 10 million and NPR 5 million.

   Accessed 26 August 2026

4. विद्युत सेवामा मूल्य अभिवृद्धि कर असुल गर्ने निर्देशिका, २०८३ (Directive on collection of VAT on electricity service, 2083)

   Inland Revenue Department, Ministry of Finance · 2083 (2026) · Tier 2 — Official publication

   Supports: That the Department issued a dedicated directive on collecting VAT on electricity supply following the FY 2083/84 budget.

   Accessed 26 August 2026

5. Tax changes in the budget for fiscal year 2083/84

   Investopaper · 30 May 2026 · Tier 6 — Professional or news source

   Supports: Budget announcements of VAT on electricity consumption above a stated unit threshold and 5 percent VAT on ride-hailing services.

   Accessed 26 August 2026