You must be interested in learning more about VAT and PAN. PAN is a number given to any individual for the purpose of tax identification. A PAN certificate is issued following PAN registration. The aforementioned PAN number is VAT registered. There is no distinction between VAT and PAN numbers. When registering under PAN, the same number is used when registering for VAT.
However, in order to understand the perspective of PAN vs VAT in Nepal and how businesses can benefit from going into VAT, it is necessary to first understand what VAT is and what PAN is.
What is VAT in Nepal?
VAT is levied on consumption rather than income. In contrast to a progressive income tax, which raises taxes on the wealthy, VAT is levied equally on all purchases. A VAT system is used in more than 160 countries. It is most commonly found in the European Union (EU). Nonetheless, it is not without controversy. Nepal implemented VAT on November 16, 1997. This tax was imposed at the manufacturing level in place of sales tax, hotel tax, contract tax, and entertainment tax. The former sales tax, contract tax, hotel tax, entertainment tax, and service tax have all been replaced by the VAT, which was designed to collect revenue in the same way as the previous 4 taxes.
Because the collection of customs fees and income taxes is heavily reliant on the VAT’s e-activity, which is intended to improve revenue collection, it was designed to collect the same amount of money as the four taxes it replaced. The VAT can be used in a variety of ways. VAT (Value Added Tax) is an indirect tax on the creation of value. Its administration is in the hands of the Nepalese Inland Revenue Department (IRD). VAT is typically levied at a rate of 13% in Nepal, though certain goods and services are VAT-free.
VAT Registration Procedure
Any individual involved in a taxable transaction must file an application for registration with IRO in the prescribed form. However, there are a few thresholds that, if not exceeded, do not necessitate VAT registration.
Person completing a transaction with a turnover of no more than fifty lakh rupees and, in the case of products and services, a turnover of no more than ten lakh rupees within the previous twelve months. Anyone who imports products worth ten thousand rupees or more for business purposes into Nepal once a year must have the transaction registered.
In the event that a small-business owner wishes to have his transaction registered on his own initiative, he may file an application. In these cases, the tax officer conducts an examination and registers the transaction.
Whereas VAT registration is required for the following businesses, even if they are below the threshold: hardware, sanitary, furniture, fixtures, furnishings, automobiles, motor parts, electronics, marbles, education consultancy, health spa, catering service, park place, discothèque, color lab, parking services, restaurant with bar, and dry cleaners with machinery.
Benefits of VAT Registration for Businesses
VAT is a global system. As a result, four major implications of VAT can be seen globally. There are others, but here are some of the main advantages:
An individual would not feel the burden.
A VAT registration number is a number or your business’s identification number that may not appear to be interesting. However, it adds credibility to your company, makes you appear trustworthy, and creates a professional aura for your company. When the value is added after the VAT registration, the tax is to be paid, and the individual is relieved of unnecessary stress.
Request your VAT refunds
The benefit of VAT registration is that the initial payment is refunded. When your company is VAT-registered, you will be able to easily reclaim VAT on all goods and services purchased. However, there should be a balance between charging and receiving VAT payments over the course of the year.
You can easily reclaim any previous VAT payments.
After you’ve registered for VAT, you can reclaim the VAT you paid on goods from the previous four years that you’re still using/using. Your company should have been in operation for a long time and should have VAT invoices and records for that time period to be used for this purpose.
An advantage for the businessman
The tax is based on the idea that each producer or distributor adds value to the materials they buy in some way, and that this added value is taxed at each stage of the manufacturing and distribution chain. It is assumed that VAT is completely passed on to the consumer. Under the VAT system, producers, distributors, and service providers charge VAT on the goods or services they sell or provide. The difference between the VAT charged on purchases and the VAT collected on sales determines how much a registrant must remit or deduct.
A significant source of income for the government
By broadening the tax base, VAT can be developed as a primary, main, and stable source of revenue.
To address the issue of smuggling or understating the taxable value, because sales tax was previously only collected at the point of sale, and value-added below this point was not included. In such cases, the old sales tax system made tax evasion easy; however, evasion is more difficult with VAT.
In accordance with international standards, VAT was implemented.
Reduce Nepal’s reliance/subservience on customs duties as part of Nepal’s commitment to the WTO, BIMSTEC, and SAFTA.
To modernize the tax system through improved accounting practices and increased business transparency.
The tax levied on goods, sales, or purchases at the outset is unclear. This is due to the fact that the amount of tax levied on the goods is unknown at the next stage. The amount of tax would be known at each stage of the sale or purchase of goods under the VAT system.
Just and equitable
The VAT imposes uniform tax rates across the state, preventing unfair advantages from being gained while the tax is in effect.
The VAT system simplifies procedures relating to return filing, tax payment, declaration, and assessment in order to minimize any interface between the tax payer and the tax collector.
Limit Your Discretion
The VAT system proposes limiting the assessing officer’s discretion in order to treat everyone equally. There would be no leeway in imposing penalties for late filing of returns, non-filing of returns, late payment of tax or nonpayment of tax, or tax evasion, for example. Any form of harassment would be prohibited in such a system.
VAT proposes computerization to target tax evaders through the production of Exception Reports. In a large number of cases, no processing or scrutiny of returns would be required, freeing tax-compliant dealers from the harassment that is so common in assessment.
The management information system, which would be implemented as part of the integrated computerization, would increase the efficiency and responsiveness of the tax department.
The government should introduce and market more taxpayer education enhancement programs on a niche as well as a broad scale.
Proper VAT imposition in businesses necessitates good accounting practices. As a result, the government must put in place procedures to audit and cross-check accounting practices in organizations. Strict policies should be strengthened, and communication between customs and the Inland Revenue Department should be enhanced.
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Alpana Bhandari is a founding partner and CEO of Prime Legal Consultants and Research Center. She graduated from American University Washington College of Law. She specializes in corporate/arbitration and family law.