Income Tax Rates 2080-2081 (2023-2024 A.D.)

Introduction

The Finance Act 2080 (2023 A.D.) (“Finance Act”) has been ratified by the Parliament and received Presidential authentication on July 16, 2023.  The Finance Act shall be enforceable for the fiscal year 2080-2081 (2023-2024 A.D.) with effect from July 17, 2023 (Shrawan 1, 2080 B.S.).  A Finance Bill is tabled at the Parliament by the Government of Nepal (“GON”) annually in order to amend various tax legislations.  

With respect to income tax, the Income Tax Act 2058 (2002 A.D.) (“ITA”) forms the framework law.  This Briefing highlights major aspects of ITA as amended by the Finance Act. 
 

Major Highlights

• Digital Service Tax:  The Digital Service Tax at the rate of two percent shall be imposed on the transaction value of digital services provided by a non-resident person (foreign entity) to customers in Nepal.  

The GON has introduced Digital Service Tax with an aim to cover all types of foreign entities, who are engaged in providing services through electronic means, especially social media platforms, e-commerce, etc. within the ambit of tax. Nonetheless, a non-resident person, who has transaction not more than NPR two million in a year, is exempt from this tax.

• Luxury Fee:  The Luxury Fee at the rate of two percent shall be imposed on the service fees charged by hotels and luxury resorts having rated five stars or higher, as well as on the purchase price of imported liquor valued above NPR one million. 

• Foreign Tourism Fee:  The Foreign Tourism Fee at the rate of five percent shall be imposed on the service fees paid by Nepali nationals who travel foreign countries as tourists.

• Further Public Offering:  In the event an entity, which has not included dividend income derived from shares issued at a premium through further public offering for the distribution of bonus shares in its income up to fiscal year 2078-2079 (2021-2022 A.D.), pays the outstanding taxes by December 16, 2023, then the incurred charges and interest shall be waived.

There has been a widespread criticism to this new tax heading from the corporate sector especially from financial institutions as this tax head is contrary to the principles of taxation and being an ex post facto law.

• Merger and Acquisition:  In the event an entity, which has not paid applicable tax on the gain from bargain purchase as a result of merger or acquisition up to fiscal year 2078-2079 (2021-2022 A.D.), pays the outstanding taxes by December 16, 2023, then the incurred charges and interests shall be waived.

The rates of personal and corporate income tax, withholding tax, advance tax, and details of tax exemption and concession are provided in respective tables hereto........

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