Why zero rate of value added tax?

Nepal has also accepted the global system of imposing zero rate on exports for the purpose of attracting investment, promoting exports, increasing the earning of convertible foreign currency, improving the exchange rate situation, creating jobs and increasing production. Concerns have been expressed from various angles that if otherwise, investment and export will be discouraged and the country will have to pay a huge price.

In this article with the aim of dispelling confusion regarding the imposition of value added tax on exports, what is value added tax? Why does it have a zero rate? What are the principles and international best practices in this regard? Efforts have been made to find out what kind of provisions Nepal has in this regard.

What is Value Added Tax?

Value Added Tax is a tax based on goods and services. This tax is levied on goods and services both produced within the country and imported from abroad. The basis of this tax is the value added at various levels under the production and distribution process. Value added is the difference between selling price and buying price.

For example, a taxpayer may purchase an item for Rs. 100 by purchasing Rs. 150 if sold at Rs. 50 (150-100). Value added tax at the rate of 13 percent is Rs. It takes 6.50. But in practice, for the purpose of levying value added tax, the amount of tax is not calculated by multiplying the value added by the rate of value added tax. The concept of value added tax is translated into practice through tax deductions and tax refunds. Under this arrangement, the taxpayer pays tax on purchase/input, collects tax on sale and deducts the tax paid on purchase/input from the tax collected and submits the remaining amount as value added tax to the government. If the tax paid is more than the tax collected, the taxpayer can claim back the excess amount from the government.

In the above example, the taxpayer paid purchase price of Rs. 100 in Rs. 13 Pays value added tax, selling price Rs. 150 in Rs. 19.50 tax is collected and after deducting the tax paid on purchase from the tax collected on sale, the remaining amount is Rs. 6.50 (19.50-13) to the Government as Value Added Tax. In this way, the tax liability is the same if the tax payer deducts the tax paid on the purchase from the tax collected on the sale and submits the remaining amount to the government and calculates the value added and multiplies it by the tax rate to calculate the tax liability. But instead of calculating the value added tax by multiplying it by the tax rate, the system where the taxpayer pays tax on purchase/input, collects tax on sale and deducts the tax paid on purchase from the tax collected on sale and pays the remaining amount to the government is simpler and easier to apply. Therefore, more than 180 countries that impose value added tax in the world have adopted this system.

Regardless of the theoretical concept of value added tax, in practice, sellers registered under this tax have to collect value added tax at the rate of 13 percent when selling taxable goods and services. 13% tax must be paid when buying or importing goods and services in the local market for carrying out your taxable business. In order to calculate how much tax to pay to the government in a given month, on the 25th of the following month, one should calculate how much tax has been collected on sales and how much tax has been paid on purchases/imports during that month. After deducting the tax paid on purchase from the tax collected on the sale, the remaining amount should be submitted to the Internal Revenue Office. If the tax paid is more than the tax collected in a month, there is a provision to transfer the excess amount to the next month's tax liability or demand a refund from the government.

destination principle

Value Added Tax is a tax based on the destination principle. Therefore, the goods and services are taxed in the country where they are consumed. Therefore, value added tax is levied on the consumption of both domestic and foreign goods consumed within the country, while this tax is not levied on goods and services exported outside the country.

Value added tax is levied on exports at zero rate to completely free the exported goods and services from the burden of value added tax. In the above example, a tax payer will pay Rs. 150 worth of goods or services exported, tax is payable at zero rate. In that case Rs. 150 multiplied by the zero rate of value added tax, the tax leviable on the sale is zero. This means that the taxpayer does not actually have to charge and pay any tax on withdrawals. On the other hand, since zero-rated goods and services or transactions are within the scope of value added tax, the tax payer can deduct the tax paid on purchase/input from the tax collected on sale. In this example, since the tax collected on the sale is zero, the tax paid by the taxpayer on the purchase is Rs. After subtracting 13, the result is Rs. - 13 is. Which means that the government will not get value added tax from the tax payer that he will get Rs. 13 must be returned.

If the exemption is given without levying zero rate of value added tax on exports, Rs. 150 on export, the taxpayer would not have to pay value added tax, whereas the tax paid on purchase/import would be Rs. 13 They could not even demand a refund from the government. In such a case, even if the goods and services to be exported were not taxed, the tax paid on the purchase/importation (inputs) of those goods and services would be added to the value of those goods and services and the export would not be completely exempted from the burden of value added tax. Therefore, the exported goods and services are zero-rated without giving exemptions to completely free them from the burden of value added tax. Based on this belief, it is an international good practice to charge value added tax on air tickets at a zero rate. Likewise, value added tax is levied at zero rate on goods kept as stores and kept for retail sale, supply or consumption on international flights with destinations outside the country. This is also why the value added tax paid on goods bought by tourists outside the country is refunded.

System of Nepal

According to the principle of value added tax and international good practice, value added tax is levied at zero rate on the export of taxable goods and services in Nepal. It is included in Schedule-II of the Value Added Tax Act. In accordance with the principles of value added tax and international best practices, initially a simple and clear system of levying value added tax on exports at zero rate was formulated. According to this, (1) goods exported outside the dominion of Nepal, (2) services supplied outside the dominion of Nepal, and (3) goods and services supplied to receive convertible foreign currency payment were arranged to be levied at zero rate of value added tax.

However, during the implementation of value added tax, by amending the provision of applying value added tax at a zero rate on exports, it was arranged that the following services supplied to persons outside Nepal will be charged zero rate: Services supplied to a person outside Nepal who is not a valid representative, (b) Supply of goods or services made by a registered person residing in Nepal to a person residing outside Nepal.

Let's see how value added tax is levied on exported goods and services as per the above arrangement. Let's assume that 'Kakhag Pvt Ltd', operating in Nepal with full foreign investment, is a subsidiary of the main company 'ABC Pvt Ltd' established in Canada. Kakhag Pvt Ltd is registered under Value Added Tax in Nepal. It produces software and regularly sells it to its parent company. Let's say that in the financial year 2079/80 Rs. After producing software worth 5 crores, he sold it to his main company, ABC Pvt Ltd. And, in the purchase of inputs required to produce the software, Rs. 20 lakhs value added tax has been paid.

According to the provisions of Value Added Tax, this tax is levied at zero rate on actual exports made by Kakhag Pvt. Export Rs. 5 crores tax at zero rate will result in zero so the company does not actually have to pay any tax on the export. But the value added tax paid by the company on various inputs required to produce the software is Rs. 20 lakhs can be claimed back.

In order to claim tax refund, the company has to submit proof of export of software and payment of value added tax on its inputs. To confirm export of software Rs. 5 crore worth of software should be submitted to Canada with export declaration, LC/bill of entry and proof of payment. Similarly, the company will pay value added tax on its inputs of Rs. 20 lakhs paid tax invoice should be submitted and the tax return should be filled and submitted to the Internal Revenue Office for tax refund.

If the company makes a request for tax refund through a value added tax statement including documents confirming that it has exported and paid value added tax on inputs, the Internal Revenue Administration must process it according to law and refund the tax within 30 days of the request. If the tax is not refunded within that period, the government has to pay interest at the rate of 15 percent per annum on the outstanding amount.

conclusion

Since value added tax is a tax based on the destination principle, there is an arrangement to charge the goods and services exported outside the country from the burden of this tax at a zero rate. There is a clear provision that taxpayers can claim tax refund from the Internal Revenue Office with proof of export of goods and services and payment of value added tax on their inputs. This is also the essence of value added tax.

If it is proven that the taxable goods and services have actually been exported and the value added tax has been paid on the inputs of the export, the Internal Revenue Administration must refund the tax within 30 days of the taxpayer requesting the tax refund. If the taxpayer under-invoiced the goods and services to be exported for the purpose of paying less income tax or over-invoiced for the purpose of sending more convertible foreign currency abroad or has messed up the accounts for any other purpose, then the tax administration should investigate such transactions in detail and take action according to the law. is However, it cannot be said that when the taxpayer sells his main company or on other pretexts, the export will not be zero-rated and the tax will not be refunded.

The larger objective behind levying value added tax at zero rate on exports should not be forgotten. After levying value added tax on exports at zero rate, our exports are completely freed from the burden of this tax and become more competitive in the international market, in which case exports are promoted. From that, the earning of foreign exchange will increase, the investment situation will improve, employment and production will increase in the country and finally, the country will develop due to economic growth.

Therefore, every effort should be made to promote export. In landlocked Nepal, there is no doubt that goods and services of lighter weight and higher value can be exported by air than heavier goods. In this context, the information technology sector is becoming a particularly attractive sector. There is a possibility that information technology related products can be prepared and exported to any corner of the world including North America, Europe by sitting everywhere in Nepal's villages, towns, plains, mountains and mountains. This sector can become a great source of employment especially for thousands of youth. No attempt should be made to obstruct exports by creating

taxes or any other administrative hassles. It should not even be imagined that value added tax will have an adverse effect on exports. One of the main objectives of levying this tax is to promote exports. Therefore, tax on exports is taxed at zero rate and tax on inputs is refunded. Tax refund is the basic feature of value added tax. If the tax refund system is not properly implemented, the value added tax is only in name. In practice this tax is a sales tax and the economy is deprived of the benefits of value added tax.

Therefore, there should be a clear legal provision that zero rate of value added tax on exports, full refund of all taxes on inputs of exports be simple and easy and the tax administrator should follow that provision literally. This was clarified in various training, interaction and discussion programs organized since the implementation of VAT in Nepal. In the training program for tax administrators in various countries, I have said that I have committed a major sin if I did not have a great sin. & NBSP;

has also accepted the customs of all the countries to decide the price to complete the weight of price-added tax. No legal provision to create illustrations not to be a zero rate in the export. Price addictive to the inputs of the inputs and services of service should be redeemed immediately, disagreement simple, comfortable and transparent.