Income Tax Rates 2075-76 (2018-19)

June 29, 2018

Introduction

On May 29, 2018 (Jestha 15, 2075 B.S.), the Government of Nepal ("GON") published an Order ("Order") under the Periodic Tax Collection Act 2012 (1955) ("Act") in the Nepal Gazette which imposes various forms of taxes, tariffs, duties, fees and other revenue mechanisms. Under the Act, the GON is empowered to collect taxes, tariffs, duties etc. through an Order for a specific period. The Order makes amendments to various tax related laws. The Order states that unless otherwise enacted by the Parliament through legislation, certain provisions of the Order shall be valid until the end of the next fiscal year, i.e., July 16, 2019 (Ashadh 31, 2076 B.S.). Pursuant to Section 4(c) of the Act, an Order issued under the Act shall not be effective after 6 months of its publication in the Nepal Gazette. The Order was published in the Nepal Gazette on May 29, 2018 (Jestha 14, 2075 B.S.) and 6 months from the date of publication would be November 30, 2018 (Mansir 14, 2075). In light of the authority granted by the Act to the GON, it is questionable whether the GON can issue the Order for more than 6 months.

On the same day, the GON tabled the Finance Bill 2075 (2018) ("Finance Bill") at the Parliament for the fiscal year 2075-76 (2018-19). A Finance Bill is introduced by the GON annually at the Parliament to collect various types of taxes, tariffs, duties, etc. Once the Finance Bill is passed by the Parliament and ratified by the President, the Finance Bill shall form as the Finance Act 2075 which shall be enforceable for the fiscal year 2075-76 (2018-19). Upon its enactment, the Finance Act 2075 shall supersede the Order.

Certain provisions of the Order concerning customs, tariff, excise duties etc. have become effective immediately from the date of publication whereas other provisions including those governing income tax shall become effective from the beginning of fiscal year 2075-76 (2018-19), i.e., July 17, 2018 (Shrawan 1, 2075 B.S.).

With respect to income tax, the Income Tax Act 2058 (2002) ("ITA") forms the framework law. This Client Briefing highlights major aspects of income tax law with reference to the ITA as amended by the Order.

Major Highlights
  • Changes in Tax Slab for Personal Income Tax: The Order introduced new income tax slabs of 1, 10, 20, 30 and additional 20 percent instead of 1, 15, 25 and additional 15 percent which were applicable for a long period. The new tax slabs are more favorable for people who earn less than NPR 650,000. However, people who earn more than NPR 650,000 and up to NPR 2 Million are exposed to higher tax liability of 30 percent instead of 25 percent. Similarly, people who earn more than NPR 2 Million are exposed to a slight higher tax liability of 36 percent.
  • Higher Slab for Certain Companies: Telecommunications operators, Internet service providers, companies engaged in money transfer, capital market, securities, commodities future market, securities and commodities brokerage are exposed to higher corporate tax slab of 30 percent instead of 25 percent.
  • Lowered the Threshold of Capital Gain Tax: The Order lowered the threshold of Capital Gain Tax to NPR 1 Million on the disposal of interest of real estate. Previously, the threshold of Capital Gain Tax was NPR 3 Million.
  • Discontinuation of Education Service Fee and Health Service Tax: Unlike previous Finance Act, the Order discontinued the practice of collecting education service fee for schools and health service tax for hospitals.
  • Increase on the Excise Duty on Tobacco Products: The Order increased excise duty on tobacco products between 20 to 30 percent.
  • Exemption from Withholding of House Rent Tax: The Order exempts the withholding of house rent tax by the GON. By a prior notification dated April 23, 2018 (Baisakh 10, 2075) published in the Nepal Gazette, the GON allocated the collection of the withholding of house rent tax to the local government under the Constitution of Nepal and Inter-Governmental Fiscal Management Act 2074 (2017).
     

The following tables explain in further detail the various types of income taxes, withholdings, advance taxes, and tax exemptions and tax concessions.....


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