Consumers, suppliers to share VAT burden

Kathmandu, June 3rd 2019

The government has introduced a new provision which makes it mandatory for consumers who purchase goods and services from contractors and consulting firms to deposit half of the value-added tax amount in the state coffers themselves.

As per the existing provision, if a consumer purchases goods or services worth Rs 10,000 from a contractor or consultancy firm, s/he must deposit half of the VAT amount — Rs 650 — at the tax office on his/her own and pay the contractor the remaining amount.

Yagya Prasad Dhungel, information officer at the Inland Revenue Department, said the existing VAT guideline had been amended to this effect in a bid to end the trend among firms to hold on to the collected VAT amount.

The government has introduced such a provision also because contractors and consultancy service providers were increasingly found to be collecting VAT from service seekers, but were reluctant to deposit the collected amount in the state coffers.

“Till now sellers had been collecting VAT from buyers and depositing the collected amount in the tax office themselves. However, with the new policy, both buyers and sellers will have to deposit 50 per cent of the VAT amount,” said Dhungel.

He added that the new provision would make both suppliers and consumers responsible towards VAT payment to the government.

Another official at IRD said the new provision also intended to discourage all those contractors and consultancy service providers who received payments from the government that also included the VAT amount after completing the project, but did not deposit the collected VAT amount in the state coffers on time.

It may be noted that though the government aims to increase VAT collection from the market through this provision, the new rule will still be ineffective if suppliers and consumers collude to try and avoid paying value-added tax.

The private sector, meanwhile, is not upbeat about the provision. “We are yet to analyse the implication of such a provision. However, any tax-related policies introduced without enough groundwork will prove to be a setback ultimately,” said an industrialist seeking anonymity.

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