The registration of tax and submission of returns have evolved over the years for the better. It is important to note this evolution in the economy system for startups and growth-stage businesses as they need to be informed about the tax procedures and keep track of the changes. From trainings on how to pay taxes, to advising and guidance, the Inland Revenue Department (district tax office for Lalitpur) located in Pulchowk, Lalitpur, offers services to show that the tax procedures aren’t as tedious as perceived by many in Nepal. In this edition of NEXT Venture Corp’s blog, NEXT is in conversation with Lal Bahadur Khatri, Chief Tax Officer–who breaks down the basics of business and tax registration, submitting returns and payment, and offers insights on what is lacking in the system and what can be done to overcome it.
Once small or medium-sized enterprises register their businesses, tax registration follows next. The procedure is not specifically separated for SMEs; all businesses follow the same procedure. The company registration office itself provides the taxpayers with a pan number, allocated to them to make tax registration easier. And after that, it only takes them ten minutes in the tax office to register. Proprietorship businesses have to come to the tax registration office along with their business registration certificate, founders’ and proprietors’ citizenships, pan registration decision and house rent contract in order to register for tax.
After registering, it is important to ensure that a taxpayer knows well about tax obligations and responsibilities. Along with a letter specifying all these rules, taxpayers are informed about a taxpayer education program, organized by the tax office in Pulchowk, which occurs three times each Nepali month. This education program is a 2 hour-session, in which taxpayers are taught the basics of taxation and FAQs regarding the same are answered. The group of professionals who hold these sessions are a dedicated team involved in the service of tax registration. These sessions began only in the month of Mangsir last year, and have since been focused mostly on small and medium-sized enterprises. The reason for this, according to Khatri, is because the larger enterprises usually hire professional auditors, lawyers and so on for the same purpose. For SMEs however, these free sessions have proved to be fruitful, and have also saved transaction costs and third-party spendings. The organizers also take a survey regarding the basic knowledge of taxation of the participants before and after these sessions. Usually, the results prove that the participants leave with a much clearer idea of the important dates, amounts, tax concepts and so on.
In addition to this education program, the tax office makes regular friendly visits to new taxpayers and checks on whether they have completed paperworks, and whether they require any help.
Tax Returns Submission:
The tax system of Nepal has been called one of the most complicated tax filing systems in Asia Pacific. However, steps have been taken by the tax authorities to simplify the process.
Every taxpayer can submit their returns through a convenient system on the internet, which has significantly reduced office visits. VAT/Excise taxes returns are submitted every month whereas the income tax every year.The challenge of verifying the returns still remain, but compared to the years gone by, the verification process has also improved. Computers with internet access and a professional to assist with the computers are readily available in Pulchowk’s office.
Tax payment is primarily done either in the counters in Pulchowk’s office, or through a banking facility. This year onwards, taxes can be paid from any branch of Everest bank. The officials are also planning to introduce an e-payment system.
Taxpayers with transactions less than 20 lakhs are known as small enterprises. These enterprises do not need to keep all books of account, but only need to know about their sales in the year and profits. Their tax returns are a page long and very simple, and their payable taxes are also in fixed rates of Rs 5000, Rs 2500, and Rs 1500 for Metropolitan cities, Municipalities and VDCs, respectively. Similarly, taxpayers (with transactions from 20 to 50 lakhs), or medium-sized enterprises, and taxpayers with transactions upto one crore have fixed tax rates that are simple to comply with.
Tax Officer Khatri suggests that SMEs avoid using auditors and other professionals who charge high fees. Instead, these entrepreneurs can make use of the education programmes and other professional help offered in the tax office itself. Many entrepreneurs regard the tax-filing process as an onerous activity that they would rather avoid. And some even think about not filing altogether. But they must understand that the filing process has now become significantly easier, and that if they fail to do the needful, they can be severely fined.