Income tax second largest contributor to government coffer

Income tax has become the second largest contributor to the government coffer after Value Added Tax (VAT).
By the first 10th month of current fiscal year, income tax has contributed Rs 31.97 billion -- almost 20 per cent of the total revenue -- to the total revenue mobilisation that stood at Rs 158.98 billion.
Generally, VAT, customs and excise are the major contributors to the government coffer but the trend has changed since last one year as the income tax has prominently been contributing to a total revenue mobilisation.
The mandatory permanent account number (PAN) has also contributed to increase in income tax revenue. Though, it was in practice for some time, Nepal officially started distributing PAN from August 24, 2009 by awarding President, vice-president and Prime Minister it.
According to the regulation, all individuals with an yearly income of over Rs 160,000 and couples with an annual income of over Rs 200,000 have to get PAN. Similarly, house owners renting out to government agencies and other organisations as well as car owners renting out their vehicles should also have PAN that is mandatory for professionals like engineers, chartered accountants, journalists, lawyers and even actors as well as people buying shares worth over Rs 1 million.
There are above 400,000 institutions and people holding the PAN currently.
PAN is allotted only once in the lifetime of a taxpayer and it never changes. It is necessary for computer data processing of taxpayer's information.
After income tax, customs is the third largest contributor to the government coffer as it has contributed 18 per cent to Rs 29.11 billion, whereas VAT is the largest contributor -- as usual -- as it has contributed 32 per cent to Rs 50.48 billion in the total revenue mobilisation.
Non Tax revenue -- the fourth largest contributor -- has 14 per cent contribution to Rs 21.52 billion by Baishakh (mid-May) to the government coffer.
The government has been able to mobilise a total of Rs Rs 158.98 billion by the end of 10th month of the current fiscal year. "It is 14.7 per cent increment compared to the same period of last fiscal year," informed finance secretary Krishnahari Baskota the Revenue Evaluation Committee meeting today. "In the same period last fiscal year, the government had mobilised Rs 138.56 billion revenue," he added.
Deputy prime minister and finance minister Bharat Mohan Adhikari, on the occasion, hailed the progress in revenue mobilisation. He, however, told the officials to work toward meeting revenue target that seems to fail this fiscal year. The budget for the current fiscal year has targetted Rs 216 billion revenue.
Revenue mobilisation has been exceeding its target since last couple of years as the finance ministry had appointed a separate secretary to look after it. But the current government seems not serious on revenue mobilisation as it has not yet appointed revenue secretary after incumbent revenue secretary Baskota has been promoted to the finance secretary.
The first revenue secretary Rameshwor Prasad Khanal had started e-PAN, e-filing of returns and e-filing of withholding tax to boost the revenue mobilisation that has shown results now.




Income Tax
KATHMANDU: Income tax is imposed on persons, natural or artificial, that is entity like a partnership, trust, company, and foreign permanent establishment or government body. Income Tax was imposed in Nepal by the first parliamentary government in 1959. Income Tax Act 1962 was enacted in 1962 replacing business, Profit and Remuneration Tax Act of 1959. The Income Tax Act, 1962 was replaced by Income Tax Act 1974, that has been amended for eight times and existed for 28 years. The Income Tax Act 1974 and all the income tax related provisions made under other special enactment have been repealed and the existing Income Tax Act 2058 became effective since April 1, 2002.

Tax structure
The taxable income is charged for unmarried;
Up to Rs 160,000 - one per cent
From Rs 160,000 - upto Rs 260,000- @ 15 per cent plus Rs 1,600
Above Rs 260,000 - @ 25 per cent plus Rs 16,600.

* For a couple:
Up to Rs 200,000 - one per cent
From Rs 200,000 - upto Rs 300,000- @ 15 per cent plus Rs 2,000
Above Rs 300,000 - @ 25 per cent plus Rs 17,000

- The business person who have registered own Proprietary firm should not pay above one per cent tax.

- Any individual or couple having pension income can enjoy 25 per cent of the normal exemption limit as an additional basic exemption.

- Any individual working in prescribed remote area is entitled to deduct prescribed amount as remote area allowance from taxable income.

- Any individual is entitled to deduct the following amount from taxable amount, if one is having investment insurance policy: "Rs 20,000 amount or the actual premium paid, whichever is less."

- For the purposes of the Act, net gains from the disposal of non-business chargeable assets will be taxed at the rate of 10 per cent.

- The presumptive tax for individuals conducting small businesses (who have a turnover of Rs 2 million or an income of Rs 200, 000) in the Metropolitan or Sub-Metropolitans, Municipalities and anywhere else in Nepal amounts to Rs 5,000 Rs 2,500 and Rs1,500 respectively.

- The taxable income of a non-resident individual is taxed at the rate of 25 per cent.

- The taxable income of an entity will be taxed at the rate of 25 per cent unless prescribed otherwise.

- The taxable income of a bank, or financial institution, or general insurance business, or an entity conducting petroleum work under Petroleum Act, 2040 for an income-year is taxed at the rate of 30 per cent.

- Gain from Lump sum retirement payment made by an approved retirement fund or the government is taxed at the rate of five per cent as a final withholding tax.Gain is calculated by deducting 50 per cent of the payment or Rs 500,000 whichever is higher from the total lump sum payment.

- The taxable income derived by an individual from special industry or export business will be taxed at the rate of 20 per cent.

- The taxable Income derived by an entity engaged in an industrial enterprise or export business or derived from operating any road, bridge, tunnel, ropeway, or flying bridge. Construction business or any trolley bus or tram manufacturing business is taxed at the rate of 20 per cent.

- The taxable income of an entity engaged in power generation, transmission, or distribution is taxed at the rate of 20 per cent.

- The taxable income of an estate of a deceased resident individual or trust of an incapacitated resident individual will be taxed at the normal tax rate as though the estate or trust was a resident individual.

- The repatriated income of a foreign permanent establishment of a non-resident person situated in Nepal will be taxed at the rate of 10 per cent.

- The taxable income of a non-resident person deriving income from providing shipping, air transport or telecommunication services in Nepal will be taxed at the rate of five per cent.

- The taxable income of an entity wholly engaged in the projects conducted by any entity so as to build public infrastructure, own operate and transfer it to the HMG/N in power generation, transmission, or distribution for an income-year shall be taxed at the rate of 20 per cent.