The government has introduced a facility for employees working in the United Nations and diplomatic missions to receive a discount on interest and fees paid on taxes for the last 3 years.
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Through the new economic bill, the government has also brought Nepali or foreign employees working in the United Nations (UN) office in Nepal or its affiliated organizations or any international organization with diplomatic recognition or foreign diplomatic missions under the tax ambit. The government has made this provision through an amendment to the economic bill.
The new provision is for temporary, locally appointed and consultant employees working in the mentioned foreign organizations. The Vienna Convention has provided tax exemption for permanent (diplomatic recognized) employees working in such organizations. Employees who are exempted according to this convention do not have to pay tax. All types of employees who do not have diplomatic status according to the Vienna Convention will now have to pay tax as per the provisions of the Income Tax Act.
The Vienna Convention is a global law formulated by the International Law Commission under the United Nations. It was adopted at a meeting held in Vienna in 1961, hence the name ‘Vienna Convention’. This convention was made to clarify the rights and responsibilities of ambassadors and diplomatic staff, especially after World War II, as diplomatic relations between countries grew rapidly. According to this convention, ambassadors and other diplomatic staff are exempt from tax. For example, in Nepal, foreign ambassadors and permanent staff working in missions receive tax exemptions, while Nepali ambassadors and staff abroad do not have to pay tax.
The new arrangement made by the Economic Bill in Nepal is not for permanent and diplomatic staff, but only for temporary and consultants appointed according to local arrangements, according to the Department of Internal Revenue. ‘Section 47 of the Finance Bill 2083 (2006) contains provisions regarding income tax, interest and fee exemption for Nepalis or residents/individuals working in the United Nations, international organizations or diplomatic missions,’ said Ramesh Aryal, Acting Director General of the Internal Revenue Department. ‘Permanent employees working in the United Nations, international organizations or diplomatic missions are generally exempted from income tax as per the Vienna Convention. However, since local staff appointed locally in such bodies do not receive diplomatic facilities, they are not exempted from income tax.’
However, local employees working in such organizations in Nepal who do not receive income tax exemption have been claiming to receive diplomatic facilities but have not paid taxes in the past, Aryal informed. He said that since such bodies are not obliged to deduct taxes and file income tax as per Nepal’s tax laws, those employees have not been able to deduct taxes. Aryal said that this arrangement has been made to encourage such employees to declare their income and file taxes on their own to solve this problem.
Now, the government has introduced a facility for such employees working in the United Nations and diplomatic missions to get a discount on interest and fees paid for the last 3 years. According to which, Nepalis working in international organizations or foreign diplomatic missions or foreigners (resident individuals) living and working in Nepal will have to pay an additional 1 percent on the income tax of the last 3 years. The government has given a deadline of 2083 Mangsir for this.
According to the Income Tax Act, in cases where income is taxable but has not been paid yet, the person will have to get a Permanent Account Number (PAN) card and pay the tax on the income from the fiscal year 2079/80 to 2082/83 and the additional amount of 1 percent and the income statement by the end of 2083 Mangsir. It is mentioned in the Finance Bill that such payments will be exempted from interest and fees. "Such a person will not be required to submit any prior income statement and any taxes, fees, or interest thereon," the Finance Bill states.
