Value Added Tax in Nepal: Effectiveness of Implementation

Abstract

This era is the era of globalization and open market economy. It is difficult to find any country in the world which is not influenced by world phenomena. Tax reform is emerging issue in each and every country of the world. Value Added Tax which has been so much popular in recent years is a major part of tax reform in the world. Nepal is also on the way of tax reform for aiming to increase revenue for economic development, broaden the tax base, narrow the tax rate, reduce dependency on foreign aid and to reduce resource gap. The main objective of study is to analyze the history of VAT in Nepal, to study the current practice and to find out the contribution of VAT in GDP, total revenue, total tax revenue and indirect tax revenue. I followed the descriptive research methodology which is based on secondary data analysis and analytical description of result. The ratio of VAT on GDP is around 4.5%, on Total Revenue 30.87%, on Total Tax Revenue 36.90%, on Total Indirect Tax Revenue 49.68% and on Total Direct Tax Revenue 126.74%. VAT from internal collection and import is 36% and 64% respectively. Major source of internal collection of VAT is other services and Production which covers 32% and 30% respectively. The Debit return filer are decreasing and Zero return filer are increasing. The ratio of the Credit return filer are somehow stable. The VAT refund amount is increasing but the ratio of refund compared to VAT collection is decreasing. The implementation of VAT in Nepal is the major part of tax reform. It should be made successful at any circumstances. For this there should be a close cooperation between the private sector and government in the VAT implementation process. The various issues concerning to v VAT should be resolved through broad discussions and consultations with the private sector. The private sector should always be persuaded to actively participate in the VAT implementation process. Any contradictory situation and direct confrontation should carefully be avoided. There should be a well communication and exchange of ideas between the two sides and tax authority should do continuous effort in order to develop the taxpayer’s positive attitude towards VAT system.