Tax is not as complicated as one would think for it to be. In simple words, tax is something you pay to the government for every earning you or your business does.
Taxes are required contributions imposed by a government agency on individuals or corporations, whether municipal, regional, or national. Tax revenues support government functions such as public works and services like roads and schools and programs like Social Security and Medicare.
Most governments rely on taxes as their primary source of revenue. This money is used to fund public services such as schools, emergency services, and social programs and repair and maintain public infrastructure, such as the roads we commute on.
Direct taxes and indirect taxes are the two sorts of these taxes. Both taxes are implemented differently. Some are paid directly, such as the dreaded income tax, corporate tax, and wealth tax, while others are paid indirectly, such as sales tax, service tax, and value-added tax.
Learn everything you need to know about taxes in Nepal through this complete guide on the personal and business tax rates in Nepal.
The Difference Between Direct and Indirect Taxes
There are many differences between direct and Indirect taxes. Some of which are listed below:
| Direct Tax | Indirect Tax |
| It is based on the amount of money earned, and the actions carried out. | It is based on products and services. |
| In direct tax, the tax burden cannot be moved. | The weight of indirect taxes has changed. |
| It is paid directly by the person in question. | It is produced by one person, but they recover it from another, i.e., the person who is the final consumer of the tax. |
| It is paid once the revenue reaches the taxpayer’s hands. | It is paid before the products or services are delivered to the taxpayer. |
| Difficult Tax collection. | Relatively more accessible tax collection. |
Types Of Direct and Indirect Tax
Even within direct and indirect taxes, there are many different types. They are:
Major Types of Direct Taxes
Income Tax: According to the income tax department’s tax brackets, taxes are imposed on and paid by the same person.
Corporate Tax: Companies and corporations are compensated based on their profitability.
Wealth Tax: A tax levied on a person’s property value.
Estate Tax: In the event of an inheritance, the cost is borne by the individual.
Gift Tax: A person who receives a taxable gift must pay tax to the government.
Fringe Benefits Tax: Paid by an employer who provides employees with fringe benefits and collected by the state government.
Major Types of Indirect Taxes
Excise Duty: The manufacturer is responsible for paying the tax, then passed on to retailers and distributors.
Sales Tax: A shopkeeper or retailer pays the tax, which is subsequently passed on to customers through sales tax on goods and services.
Customs Duty: Import tariffs on items from outside the country are paid for in the end by consumers and retailers.
Entertainment Tax: The cinema owners are liable, passing the burden on moviegoers.
Service Tax: Charged on services provided to customers, such as a restaurant’s food bill.
For all of you who are confused about how taxes actually work and how much you need to pay, here is a guide:
Nepal Income Tax Slab Rate 2077-78 (2020-21)
1. Personal Tax
Residents (Natural Person)
i. Employed Individuals
| Income Level (NRP) | Tax Rate (Fiscal Year 20-21) | Taxable Amount |
| Up to 4 Lakhs | 1% | NRP 4,000 |
| 5 Lakhs | 10% | NRP 14,000 |
| 7 Lakhs | 20% | NRP 54,000 |
| Next 13 Lakhs | 30% | NRP 4,44,000 |
| Additional Tax above 20 Lakhs | 36% | NRP 6,24,000 |
ii. Employed Couple (Married Couple)
| Income Level (NRP) | Tax Rate (Fiscal Year 20-21) | Taxable Amount |
| Up to 4 Lakhs 50 thousand | 1% | NRP 4,500 |
| 5 Lakhs 50 thousand | 10% | NRP 14,500 |
| 7 Lakhs 50 thousand | 20% | NRP 54,500 |
| Next 13 Lakhs 50 thousand | 30% | NRP 4,29,500 |
| Additional Tax above 20 Lakhs 50 thousand | 36% | NRP 6,09,500 |
Non-Residents
| Source of Income | Tax (20-21) |
| Normal Transactions | 25% |
| Through shipping, air or telecom services, postage, satellite, and optical fiber project | 5% |
| Shipping, air or telecom services through the territory of Nepal | 2% |
| Repatriation of profit by Foreign Permanent Establishment | 5% |
2. Corporate Income Tax
For Entities – Company/Firm/Industry
| Type of Business | Normal Tax Rate | Rebate | Applicable Tax Rate |
| Normal Business | 25% | – | 25% |
| Special Industry under section 11 for the whole year | 25% | 20% | 20% |
| Constructing and operating ropeway, cable car, railway, tunnel, or sky bridge | 25% | 40% | 15% |
| Constructing and operating roads, bridges, tunnels, railway, and airports | 25% | 50% | 12.5% |
| Having export income from a source in Nepal | 25%*** | 20% | 20% |
| Banks and financial institutions | 30%*** | – | 30% |
| General Insurance | 30%*** | – | 30% |
| Engaged in tobacco, alcohol and related products | 30%*** | – | 30% |
| Telecom and Internet Services | 30%*** | – | 30% |
| Capital market, securities, and related | 30%*** | – | 30% |
3. Vehicle Tax In Nepal FY 2020-21
i. Motorcycle
| CC | Tax Amount |
| Up to 125 cc | NPR 2,800 |
| 126 cc – 160 cc | NPR 4,500 |
| 161 cc – 250 cc | NPR 5,500 |
| 251 cc – 400 cc | NPR 9,000 |
| 401 cc – 650 cc | NPR 20,000 |
| Above 651 cc | NPR 30,000 |
ii. Electric Vehicles
| CC | Tax Amount |
| 350 Watt to 1000 Watt | NPR 1500 |
| 1001 watt to 1500 watt | NPR 2000 |
| 1501 watt and higher | NPR 3000 |
iii. Car, Jeep, Van, and MicroBus
| CC | Tax Amount |
| Up to 1000 cc | NPR 21,000 |
| 1001 cc – 1500 cc | NPR 23,500 |
| 1501 cc – 2000 cc | NPR 25,500 |
| 2001 cc – 2500 cc | NPR 35,500 |
| 2501 cc – 2900 cc | NPR 41,000 |
| Above 2901 cc | NPR 58,500 |
4. Excise Duty
| Goods | Excise Duty |
| Pan masala | NPR 650/kg |
| Flavored areca (supari) with tobacco | NPR 225/kg |
| Edible Fruit and Nuts; Peel of Citrus Fruit or Melons | 5% |
| Tobacco and Manufactured Tobacco Substitutes | NPR 650/kg |
| Hukkah Flavor | NPR 1000/kg |
| Essential Oils and Retinoids; Perfumery, Cosmetic or Toilet Preparations-others | 10% |
| Wire of iron or non-alloy steel | NPR 1650/MT |
5. Value Added Tax (VAT)
- The 13 percent VAT reduction on products and services is unchanged from last year.
- The VAT rate on items exported will stay at 0%. VAT paid by the UN on its products and services in response to Covid-19 will be repaid.
- Individuals who operate without registering for VAT, even after being advised to do so, maybe fined 50% of the tax due.
- Taxes on transportation, tourism, and movie theaters can now be paid quarterly.
Conclusion
So, here it is. The taxes that need to be paid. Sure, we are not taught in schools how to do that, but this is an adventure you need to figure out on your own.