What is VAT in Nepal?
VAT (Value Added Tax) is a consumption tax collected by Nepal's Inland Revenue Department (IRD) on the sale of goods and services. Nepal's VAT rate is a flat 13% on the taxable value, introduced by the Value Added Tax Act 2052 BS. It replaced the old sales tax system and is now one of Nepal's primary sources of government revenue.
Who pays VAT in Nepal?
The final consumer always bears the economic cost of VAT — but businesses collect it on behalf of the government.
VAT-registered businesses:
- Charge 13% VAT to customers on taxable sales
- Collect it and hold it temporarily
- Pay the collected VAT to IRD after deducting the VAT they paid on their own purchases (input tax)
Consumers:
- Pay VAT as part of the purchase price
- Usually cannot reclaim it (except in specific refund scenarios)
Who must register for VAT in Nepal?
A business must register for VAT if its annual transaction exceeds:
- Goods: रू 50 lakh (50,00,000) or more
- Services: रू 20 lakh (20,00,000) or more
Businesses below these thresholds may voluntarily register. Some business categories are required to register regardless of turnover (importers, exporters of taxable goods, etc.).
How to calculate 13% VAT in Nepal
Finding VAT amount on a VAT-exclusive price (price before tax)
VAT amount = Price × 0.13
Total price = Price + VAT amount = Price × 1.13
Example: You buy a laptop listed at रू 80,000 (exclusive of VAT)
- VAT = 80,000 × 0.13 = रू 10,400
- Total amount = 80,000 + 10,400 = रू 90,400
Finding the VAT amount included in a VAT-inclusive price (price already with tax)
VAT amount = Total price × (13 ÷ 113) = Total price × 0.11504
Pre-tax price = Total price ÷ 1.13
Example: You paid रू 90,400 and want to know how much was VAT:
- VAT = 90,400 × (13/113) = 90,400 × 0.11504 = रू 10,400
- Pre-tax price = 90,400 ÷ 1.13 = रू 80,000
What is exempt from VAT in Nepal?
Not everything has VAT in Nepal. Important exemptions:
| Category | VAT status |
|---|---|
| Basic food (rice, lentils, vegetables, eggs, meat) | Exempt |
| Agricultural produce | Exempt |
| Books, newspapers, educational materials | Exempt |
| Medical services (hospital, clinic) | Exempt |
| Medicines and healthcare supplies | Exempt |
| Rent for residential purpose | Exempt |
| Financial services (banking interest, insurance) | Exempt |
| Export of goods | Zero-rated (0% — different from exempt) |
| Electronics, clothing, vehicles, restaurants | 13% VAT |
| Professional services (legal, accounting) | 13% VAT |
| Construction services | 13% VAT |
VAT invoice rules in Nepal
A valid VAT invoice (PAN bill) in Nepal must include:
- Seller's name, address, and PAN number
- VAT registration number (same as PAN for most businesses)
- Invoice number and date
- Buyer's name and address
- Description of goods/services
- Quantity and unit price
- Total value before VAT
- VAT amount (13%)
- Grand total
Always ask for a VAT/PAN bill. In Nepal, many shops avoid issuing VAT bills to evade tax. Paying without a VAT bill means the government loses tax revenue. IRD has enforcement operations where consumers who cannot show a VAT bill for purchases above certain amounts may face penalties.
Input tax credit — how businesses reduce their VAT liability
A business that is VAT-registered can deduct the VAT it paid on its own purchases (input tax) from the VAT it collected from customers (output tax).
Example:
- A shop buys goods from a wholesaler for रू 50,000 + VAT = रू 6,500 VAT paid
- The shop sells those goods for रू 80,000 + VAT = रू 10,400 VAT collected
- VAT payable to IRD = 10,400 − 6,500 = रू 3,900
This prevents double-taxation as goods move through the supply chain.