VAT and the Import - Export Business
Adapted from content excerpted from the Inland Revenue Department, Nepal
A VAT (value added tax) of 13% is levied on all goods that can be imported into Nepal. Butif a taxable goods or services are exported, the tax is levied with zero rate. Whenimporting goods the importer is responsible for paying VAT. Whether the importer is theseller or not does not affect this responsibility. In order to take an input tax credit orclaim for a refund, the importer should have paid tax while importing the goods.The items listed under Schedule 1 of the VAT Act are exempt from tax and hence VAT is notlevied while importing those items. The list comprises primarily of goods and servicesrelated to basic necessity, social welfare, education and culture including personalservices.
Is VAT levied on goods which are exempt from import duties ?
Apart from items on which tax has been exempted by the VAT Act, VAT is levied on the importof even those items which are exempt from import duty.
How is the price of the imported goods established in order to assess the VAT?
Excluding VAT, all other costs that have been incurred are included in the taxable amount.These include the cost of the item imported, transportation and insurance cost up to thepoint of customs, commission, customs duty, counter-vailing duty, and other taxes incurred.For example, let us presume that an importer 'A' has imported one quintal of a particularitem from New Delhi in India. Let us also presume that the cost of that item is Rs 2,50,000,the transportation cost to bring that item from Delhi to Birgunj is Rs 5,000 and theinsurance cost is Rs 1,000 and the import duty payable at the Birgunj Customs Office is NRs25,600. In that case the VAT payable at Birgunj will be as given in the box below.
|
Purchase price |
Rs. 2,50,000 |
|
Transportation cost |
Rs. 5,000 |
|
Insurance cost |
Rs. 1,000 |
|
Import duty (assumed at 10%) |
Rs. 25,600 |
|
Value for the purpose of VAT |
Rs. 2,81,600 |
|
VAT |
Rs. 36,608 |
What will happen if the Customs Office does not accept the price of the imported goods?
Generally this does not happen. But if the price declared by the importer is surprisinglylow then the Customs Office can establish the price on the basis of the ongoinginternational market price. If the taxpayer accepts this price and pays the customs duty andimports the good then the VAT will be assessed on the basis of this price.
How will tax be levied if it becomes difficult to establish the price of the importedgoods ?
When it becomes difficult to assess the price of the imported item immediately, then customsduty deposit is taken on the basis of an estimated price and VAT is also charged on the samebasis and the goods are then released. Once the actual price is established the customs dutydeposit is adjusted and customs duty charged accordingly. But the payment against VAT isregarded as final in the first place and the taxpayer can claim for an input tax credit onthe basis of that payment.
What kind of proof has to be maintained in relation to the VAT paid on imported goods ?
The following have to be kept safely as proof of VAT payment during import: importdeclaration form, cash receipt, letter of credit, invoice, transportation cost receipt,certificate of origin, proof of payment, insurance cost receipt, etc.
What has to be taken into consideration in order to deduct the tax incurred while importing goods ?
In order to deduct the input tax paid during the import of items the following conditionshave to be fulfilled:
- Only the person who imported the goods or service is eligible for tax deduction.
- At the time of import the importer should have been registered for the purpose of VAT.
- The tax on goods imported should have been paid; deposit alone will not be sufficient.
- The goods or service has to be imported with the objective of using it in taxabletransaction.
- For input tax credit, the importer must keep documents that validate the import of thoseparticular items.
Can a regular exporter import goods without paying VAT?
Until and unless the Ministry of Finance publishes a notice in the Gazette and declares thata particular exporter can import without paying VAT, no imports can be made without payingVAT.
How does VAT collection take place in the import of services?
VAT is applicable even in the services that are imported. For example, if a registeredNepali employs an Indian architectural firm to design a new building he should include thetax in the remuneration package. The tax amount thus incurred can be deducted from the VATcollected on sales (i.e. output tax).
Does the person who purchases goods confiscated by the Customs Office in an auction haveto pay tax?
The person who purchases items confiscated by the Customs Office in an auction has to paytax on the amount that he pays. If the person sells the item and is a registered person thenhe can deduct the tax amount paid while purchasing the item, from the tax collected on hissales.
On what kind of goods is zero-rate applied?
Zero-rate is applicable in the export of taxable items. For example, if garments are soldwithin Nepal a tax of 13 % is levied. But if the same garment is exported then the VAT islevied at zero percent. This means actually no tax levied on it. This means that VAT doesnot have to be paid in the export of items, but if the items are taxable the seller canclaim tax deduction of all VAT incurred in purchasing the item that was exported or inpurchasing the input that was used in the production of that item or in the services used.
What are the bases for proof that the exporter has exported the goods?
The Inland Revenue Department will not accept that any item has been exported unless anduntil there is satisfactory evidence. There has to be enough evidence to prove that theexported item was either produced or manufactured in Nepal. The following documents will berequired for this:
- Export Declaration Form
- Letter of Credit in the case of export to a third country and Bill of Entry in the case ofexport to India.
- Proof of payment
In the case of export of tax-exempt goods, can the VAT incurred in the purchase of thoseitems be claimed?
Since tax-exempt items do not fall within the purview of tax, no tax is levied in their saleor export and nor can the tax incurred in their purchase be deducted. Or, in other words,tax deduction cannot be claimed on tax incurred during the purchase made for the productionof tax-exempt items.
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