For Income Tax Assessment
Income Taxes are paid under the self assessment system in Nepal. However, the Revenue Department of Nepal (IRD) has the right to reassess the taxes submitted under the self assessment system.
Section 101 of the Income Tax Act, 2058 of Nepal – IRD under reasonable grounds has the right to reassess the taxes submitted under self-assessment system.
In accordance with Section 101(3) of the Income Tax Act, the Inland Revenue Department (IRD) is obligated to complete the assessment of tax submitted under the self-assessment system for a specific income year within four years from the due date for the submission of the income return for that income year.
However, there are certain exceptions to this general rule:
- Under Section 101(4) of the Act, if a person’s tax has been assessed erroneously due to fraudulent activities, IRD reserves the right to amend such tax assessment at any time. Such amendments must be executed no later than one year from the receipt of information indicating that details have been provided or tax has been fraudulently assessed.
- Under Section 101(5) of the Act, if the tax assessment is amended or the assessed tax is reduced by the Revenue Tribunal or other competent courts, IRD is precluded from amending the tax assessment to that extent. It is important to note that if an order has been issued for reexamination, it shall not be considered a barrier to the amendment process.
An interesting case of बुढासुब्बा हाउजिङ्ग कम्पनी प्रा.लि. विरुद्ध आन्तरिक राजस्व विभाग Case Number 075-RB-0609 involves dispute between Budhasubwa Housing and Revenue Department regarding the assessment of revised tax. The appellant argues that the decision to assess the revised tax, made 4 years, 1 month, and 12 days after receiving the tax payment certificate, should be invalidated due to the limitation period specified in Section 101(3) of the Income Tax Act, 2058.
The appellant contends that the tax assessment should be completed within four years from the date of filing the income tax return for the particular income year. The court observes that the date mentioned in Section 101(3)(a) refers to the date the income statement must be submitted, which is within three months after the end of the income year. The court emphasizes that the law specifies the date of submission of the income statement that is 3 months from the end of the income year and the assessment must be completed within 4 year period from that due date, and in this case, it falls within the prescribed four-year period.
The court refers to a previous case to support its interpretation, stating that the last day of the three-month period for submission of the income statement is crucial in determining the four-year period for the revised tax assessment. Reference: राजकृष्ण श्रेष्ठ विरुद्ध आन्तरिक राजस्व विभाग Case Reference: 070-WO-0621
For Value Added Tax Assessment
Section 18 of the Value Added Tax Act, 2052 requires that every taxpayer shall submit the return within 25 days of the end of the VAT period.
Under Section 20 of the Value Added Tax Act, 2052, the tax officer is empowered to assess tax in various circumstances, including non-submission or late submission of tax returns, submission of incomplete or erroneous returns, submission of fraudulent returns, understated or incorrect tax amounts, under-invoicing, transactions involving group companies making under-invoicing, transactions by unregistered persons, sales without issuing invoices, and failure to pay tax as per specified sections.
As per Section 20(4), the tax assessment must be conducted within four years from the date of tax return submission. If assessment cannot be completed within this period, the submitted return is considered valid by default. However, there are certain exceptions to this general rule:
- Under Section 20(4a) of the Act, if a person’s tax has been assessed erroneously due to fraudulent activities, IRD reserves the right to amend such tax assessment at any time.
- Under Section 20(4b) of the Act, if the tax assessment is amended or the assessed tax is reduced by the Revenue Tribunal or other competent courts, IRD is precluded from amending the tax assessment to that extent. It is important to note that if an order has been issued for reexamination, it shall not be considered a barrier to the amendment process.
In the same decision as above, बुढासुब्बा हाउजिङ्ग कम्पनी प्रा.लि. विरुद्ध आन्तरिक राजस्व विभाग Case Number 075-RB-0609, the also examined the legal provisions within the Value Added Tax Act, 2052, specifically focusing on Section 20(4). The court notes that this provision stipulates that the taxpayer must submit the tax return, or the tax officer must complete the tax assessment within four years from the date of submission, unlike Income Tax Act, 2058 which takes the due date for the submission into consideration.
The court emphasizes that the legislative intent behind both the Income Tax Act and the Value Added Tax Act should be understood and interpreted in reference to the separate laws and that the due date for amended assessment for income tax purposes begins from the due date for filing the income tax return whereas for VAT purposes it begins from the date of actual submission of the VAT returns. Similar interpretations has also been provided in the decision of आन्तरिक राजस्व कार्यालय, ललितपुरको विरुद्ध एशिया प्यासिफिक कम्यूनिकेशन्स एसोसियट्स नेपाल Case Number 074-RB-0005.