Multi VAT suggested

Private sector has recommended three different rates for value added tax (VAT) — instead of present single rate — to make it applicable from the next fiscal year.
A joint study taskforce — constituted under coordination of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) with the representative of Nepal Chamber of Commerce (NCC), Confederation of Nepalese Industries (CNI) and Nepal Foreign Trade Association (NFTA) — today presented its recommendations to the finance minister Dr Ram Sharan Mahat to implement three different rates of VAT from the next fiscal year.
The taskforce has come up with recommendations of segregating the current VAT rate of 13 per cent into three multiple rates — one, four and 13 per cent — for different products and services.
"The three different rates have been suggested to adjust with India, keeping in mind that porous border and increasing trade concentration with the southern neighbour," said Pradeep Man Vaidya, chairman of Income Tax and VAT Committee at FNCCI, who has led the taskforce. The taskforce has also suggested widening tax regime reducing the list of items under VAT exemption.
According to the taskforce report, the items under one per cent of VAT include primary agro and herbal products, agricultural machineries and pesticide, pharmaceutical products and their raw materials, jewelleries, electrical goods and power generation machineries. It has also suggested to charge one per cent VAT on non-profit education, training and research, air and road transportation, courier service and professional services, in the service sector.
Under the four per cent of VAT, the taskforce has suggested to incorporate the processed items including agro and forestry products, vanaspati ghee, butter, ice cream, cheese, processed meat, fish and fruits, sweets, textiles and other yarns except woollen, IT related products, mobile phones and other electrical goods.
Likewise, the government should levy four per cent VAT on healthcare provided by private sector, printing and publication of educational materials, packaging materials and mineral products, suggested the report.
The report has suggested to levy 13 per cent VAT except on basic agro produces, daily consumable basic goods, live plant and animals, government and non-profit healthcare, non-profit education, goods of art and cultural values, sculpture work and public-passenger transportation.
Speaking on the occasion, FNCCI first vice-president Diwakar Golchha said that the induction of multiple VAT rates could increase the revenue by controlling contraband and unauthorised trade. "It will also discourage under invoicing and increase the number of taxpayers," he claimed.
Nepal introduced VAT in November 1997 replacing four different taxes including the Sales Tax, Contract Tax, Hotel Tax and Entertainment Tax. At present, VAT is the largest contributor to the government's coffer amounting for more than 30 per cent of the total revenue. The collection of VAT is on a steady rise since its inception a decade ago with its collection standing at Rs 18.90 billion in the fiscal year 2004-05, Rs 21.93 billion in 2005-06 and Rs 26.55 billion in 2006-07.
The rate of VAT was fixed at 10 per cent when it was first introduced and the amended VAT Act-2005 raised the rate to 13 per cent with effective from the fiscal year 2005-06. Currently VAT is levied at a single rate of 13 per cent and certain goods and services are exempted from VAT. The tax is collected at every point of selling of goods and services.

Rates recommended
Under one per cent — primary agro and herbal products, agricultural machineries and pesticide, pharmaceutical products and their raw materials, jewelleries, electrical goods and power generation machineries, non-profit education, training and research, air and road transportation, courier service and professional services.
Under four per cent — agro and forestry products, vanaspati ghee, butter, ice cream, cheese, processed meat, fish and fruits, sweets, textiles and other yarns except woollen, IT related products, mobile phones and other electrical goods, healthcare provided by private sector, printing and publication of educational materials, packaging materials and mineral products.
Under 13 per cent — except on basic agro produces, daily consumable basic goods, live plant and animals, government and non-profit healthcare, non-profit education, goods of art and cultural values, sculpture work and public-passenger transportation.