The government is scrapping the value added tax refund privilege for commercial users of cooking gas and diesel from the next fiscal year beginning mid-July.

In nearly two decades since the value added tax (VAT) was implemented, the government has refunded Rs54 billion from the taxes collected as VAT to such businesses, according to the Finance Ministry’s record.

Currently, factories and hotels receive up to 40 percent of the value added tax amount as tax refund. The Inland Revenue Department will be refunding the VAT to hotels and factories at the end of the fiscal year.

The department said that the government has annulled the VAT refund provision by enforcing the Finance Act 2019-20. Durgadatta Bhandari, director at the department, said the new provision will be implemented from the next fiscal year. “The government has scrapped the provision to reduce the financial burden on state coffers.” At the height of the Maoist insurgency, the government had implemented VAT refund facility to protect domestic enterprises, including the hotel industry which was struggling to operate.

Since the past few years, the government has gradually started scrapping the provision. Last year, the government scrapped VAT refund privilege provided to individual sellers and mobile phone importers acting on the Office of Auditor General report.The 53th Annual Report of the Office of Auditor General said that there has been gross violation of the VAT refund provision, resulting in the government refunding Rs134 million to importers of mobile devices who had paid just Rs84.4 million in VAT.As per the Act, the importers were given 60 percent VAT refund if the imported handsets are sold to VAT-registered firms, and they can get 100 percent refund if the handsets are re-exported.

The Financial Act 2019-20 has also scrapped the VAT refund facilities being provided on purchase of ghee, edible oil wheat flour and sugar. The government started implementing the stern measures in the VAT system after it struggled to meet the tax collection target this fiscal year.

In 2019-20, the government has targeted to collect revenue worth Rs1 trillion from the tax alone. Out of the amount, the government has targeted to collect Rs315 billion in VAT, which is 25.5 percent more than the current fiscal year’s target. Binayak Shah, senior vice-president of Hotel Association of Nepal, said the provision would raise production costs in the hospitality business. “As of now, we have been receiving the VAT refund facility after submitting the audit report to the tax authority,” said Shah.

The government has also extended threshold of the VAT refund facility being offered to diplomats and foreign agencies. In the new rule, the VAT is refunded to foreign agencies only if the purchase amount exceed Rs10,000, which was Rs5,000 previously.