New tax rule to fine customers who do not receive VAT bill while buying goodsThe government said the new move is aimed at reducing the risk of value added tax fraud.
The government has introduced a new rule that makes it mandatory for customers to receive the value added tax bill after purchasing goods. If they don’t, they will be liable to pay a fine of Rs1,000 per transaction. The government said the new move is aimed at reducing the risk of value added tax (VAT) fraud. However, there is no clarity on the enforcement of the new rule.
Similarly, through the Finance Act 2019-20, the government has doubled the fine amount to Rs10,000 per transaction for sellers if they do not issue the VAT bill to customers.
Uttar Kumar Khatri, spokesperson of the Ministry of Finance, told the Post that the Inland Revenue Department will develop a mechanism to monitor the VAT billing system.
But as of now, the department has no idea how to develop the mechanism to ensure buyers receive the VAT bills. One official at the department said he was surprised by the new rule.
Nepal introduced value added tax on November 16, 1997. The recently amended VAT Act talks about effective implementation of the billing system through enforcement of a number of measures.
It has maintained that each VAT invoice will require the name and address of both the seller and purchaser, the seller’s permanent account number and invoice number, the date of the transaction and a description of the sale including the number of items purchased, the unit cost of each item and any discounts given.
“Making it mandatory for customers to receive the value added tax bill is a kind of surprise to us [the department] as we are still struggling to implement effective billing system for the sellers,” said a senior official at the department, who did not wished to be named. “After enforcing the rule for sellers and seeing positive results, the government may have adopted this system to make buyers liable to the tax system as well.”
In Nepal, buyers hardly ask for the VAT bill which gives sellers leeway to abuse the tax.
Sources from the tax department said that the government’s new move is aimed at tracking retailers [who are also customers of big suppliers] that do not take VAT invoice while purchasing goods from big suppliers.
VAT expert Rup Bahadur Khadka said the government move to frame the purchaser in the billing system was positive.
“Although it will be a tough task for the tax authority to enforce the new mechanism, it will educate customers on the tax system and force them to ask for the bill each time they purchase goods,” said Khadka, a former member of Permanent Revenue Advisory Board and the past Chairman of High Level Tax System Review Commission.
He said that the government came up with the penalty system after its coupon system – a reward mechanism that used to provide cash back to customers—failed to yield a positive result. The coupon system was introduced over 15 years ago.
The tax offices used to collect coupons based on which the purchasers were paid back certain amount as a reward.
The government makes around one-third of the tax revenue from VAT. In the next fiscal year 2019-20, the government has targeted to collect revenue of Rs1 trillion from the tax. Out of the amount, the government has targeted to collect Rs315 billion in VAT, which is 25.5 percent more than the target of the current fiscal year.