Folks here in Nepal are still having hard time wrapping their heads around the digital signature concept. Some people really think cloud computing operates in the sky and digital signature is that signature picture file you put in the documents requiring sign off. I mean, Grow Up Peoples ! Some of these absurd benighted ideas have made its way to the Electronic Invoicing Directive issued by Inland Revenue Department in Nepal and that is the reason for this frustrating beginning of this blog.
Nothing kills the momentum of a business transaction like paperwork. Leaving your work desk for signing a document, courier it to your client, receive it back after signing and making changes in case of any amendment, that takes a lot of time and administrative hassle. The use of digital signature will help minimize such inefficient administrative work. The same inefficiencies exist in invoicing as well. Print the bill pads, manually type in the contents in the bill in duplicates, maintain the duplicates, scan and courier the original invoices, stamp them, receive it back from client in case the invoice is rejected, lot of time have been consumed. That is some backward manual works with zero invoicing. And because of that, you would expect that the electronic invoicing method works efficiently. Well that is true, but not here in Nepal, it is equally ludicrous and preposterous and senseless compliances.
Minimum Requirement of Law
Regarding Physical Invoice
Income Tax Act, 2058 and Income Tax Rules, 2059
नियम २३(४): स्थायी लेखा नम्बर लिई व्यवसाय गर्ने करदाताले आफ्नो नाम, ठेगाना तथा स्थायी लेखा नम्बर उल्लेख गरी सिलसिलेवार नम्बर सहितको बीजक जारी गर्नु पर्नेछ ।
Rule 23(4): A taxpayer who has received permanent account number and engaged in their business shall issue invoice with serial number mentioning their name, address and permanent account number.
Before the Income Tax (Sixth Amendment) Rules, 2073 (2016) effective from 2073.03.20 (04 July 2016), this provision was however not applicable to individual paying taxes in presumptive transasaction basis.
VAT Act, 2052 and VAT Rules, 2053
दफा १४(१): प्रत्येक दर्ता भएको व्यक्तिले तोकिए बमोजिमको अवस्थामा बाहेक कुनै वस्तु वा सेवा आपूर्ति गर्दा प्रापकलाई बीजक दिनु पर्नेछ ।
दफा १४(२): बीजकको ढाँचा तोकिए बमोजिम हुनेछ ।
दफा १४(३): बीजक लिनु प्रापकको कर्तव्य हुनेछ ।
दफा १४(४): दश हजार रुपैयाँभन्दा बढीको कर लाग्ने वस्तु विभागले तोकेको क्षेत्रबाहिर ढुवानी गर्नेले कर बीजक साथमा राख्नु पर्नेछ ।
दफा १४(५): विभागले सूचना प्रकाशन गरी वा लिखित आदेश दिई तोकेको कुनै व्यक्तिले कुनै तोकेको वस्तुको सोही सूचना वा आदेशमा तोकेको समयावधिका लागि त्यस्तो वस्तुको खुद्रा बिक्री मूल्य सार्वजनिक गर्नुपर्ने गरी तोक्न सक्नेछ । यस्तो सूचना वा आदेश प्राप्त भएपछि खुद्रा बिक्री मूल्य सार्वजनिक नगरी कुनै वस्तुको बिक्री वा हस्तान्तरण गर्न पाउने छैन ।
दफा १४(६): दफा १४(५) बमोजिम तोकिएको व्यक्तिले त्यस्तो वस्तु दर्ता नभएको व्यक्तिलाई बिक्री गर्दा सार्वजनिक भएको मूल्यमा तोकिएको ढाँचामा बीजक दिई उपभोक्ता तहको कर समेत असुल उपर गराउने व्यवस्था गरिनेछ । तर दफा १४(५) बमोजिम नतोकिएको कुनै व्यक्तिले पनि स्वेच्छाले
यस उपदफा बमोजिमको बीजक दिन सक्नेछ ।
Section 14(1): Every registered person is required to issue an invoice to the recipient, in supplying any goods and services except in circumstances prescribed.
Section 14(2): The format of an invoice shall be as prescribed.
Section 14(3): It shall be the duty of the recipient to obtain an invoice.
Section 14(4): Invoice shall be kept by a person delivering taxable goods worth more than Ten Thousand Rupees in places other than that prescribed by the Department.
Section 14(5): The Department may, by publishing a notice or giving an order in writing, so specify that any person specified by such a notice or order has to make public the retail sale value or price of any such goods as specified in that order or notice for such period as specified therein. No sale or transfer of any goods shall be made without making public the retail sale price after the receipt of such a notice or order.
Section 14(6): Provision shall be made to require any person specified pursuant Section 14(5): in selling such goods to any unregistered persons, to issue invoices of the price made public in the specified format and also recover the tax at the consumer level. Provided that, any person not specified pursuant to Section 14(5) may issue invoices as referred to in this Sub-section in a prescribed format.
Regarding Electronic Invoicing
Income Tax Act, 2058 and Income Tax Rules, 2059
दफा ८१(४): विभागले मापदण्ड र प्रक्रिया तोकी कुनै व्यक्तिले विद्युतीय माध्यमबाट बीजक जारी गर्न र दफा ८१(१) बमोजिम राख्नु पर्ने कागजातहरू विद्युतीय माध्यमबाट राख्न स्वीकृति दिन सक्नेछ ।
Section 81(4): the Department may, upon prescribing the standards and procedures, give approval to any person to issue invoices through electronic means and to keep the documents required to be kept under Section 81(1) through electronic means.
VAT Act, 2052 and VAT Rules, 2053
दफा १४क(१): करदाताले विभागको पूर्व स्वीकृति लिई विद्युतीय बीजक जारी गर्न सक्नेछ ।
दफा १४क(२): दफा १४क(१) मा जुनसुकै कुरा लेखिएको भए तापनि विभागले सूचना प्रकाशन गरी त्यस्तो सूचनामा तोकिएका करदातालाई अनिवार्य रूपमा विद्युतीय माध्यमबाट बीजक जारी गरी त्यस्तो विद्युतीय माध्यमलाई विभागको केन्द्रीय बीजक अनुगमन प्रणाली (सिविएमएस) मा आवद्ध गर्न आदेश दिन सक्नेछ ।
दफा १४क(३): विद्युतीय माध्यमबाट बीजक जारी गर्ने सफ्टवेयर वा उपकरणको सुरक्षण तथा विश्वसनीयता सम्बन्धमा विभागले कार्यविधि बनाई लागू गर्नेछ । त्यस्तो कार्यविधि सम्बन्धित उत्पादक, वितरक र प्रयोगकर्ताले पालना गर्नु पर्नेछ ।
Section 14A(1): Taxpayer may issue electronic invoice upon obtaining prior approval of the Department.
Section 14A(2): Notwithstanding anything contained in Section 14A(1), Department may by publishing a notice, order taxpayers specified in the notice to compulsorily issue invoice through electronic medium and affiliate such electronic medium with Central Billing Monitoring System (CBMS) of Department.
Section 14A(3): Department shall prepare and implement procedure regarding security and credibility of the software or device used to issue invoice through electronic medium. Such procedure shall be followed by concerned producers, distributors and users.
दफा १६क(१): प्रचलित कानूनमा जुनसुकै कुरा लेखिएको भए तापनि अन्यथा प्रमाणित भएमा बाहेक कर प्रयोजनको निमित्त विभाग वा अन्तर्गतका कार्यालयमा रहेका कम्प्यूटरबाट प्रशोधित करदाता सम्बन्धी अभिलेख प्रमाणको रूपमा ग्राहृय हुनेछ ।
दफा १६क(२): विभागले सूचना प्रकाशन गरी विद्युतीय माध्यमबाट बीजक जारी गर्ने, लेखा राख्ने, कर विवरण पेश गर्ने तथा भुक्तानी गर्ने सम्बन्धमा आवश्यक व्यवस्था गर्न सक्नेछ ।
Section 16A(1): Notwithstanding anything contained in the prevailing law the record of taxpayer generated from the database recorded in computer of Department or Offices thereunder shall be acceptable as evidence for purposes of tax, except it is otherwise proved.
Section 16A(2): Department may, by publishing a notice, make necessary provision regarding issuing invoice, audit, filing tax returns and payment through electronic medium.
नियम १८क: विभागले कुनै करदाताले क्यास मेशिन प्रयोग गर्नुपर्ने गरी तोक्न सक्नेछ र त्यसरी तोकिएकोमा त्यस्तो करदाताले कारोबार गर्दा क्याश मेशिनको प्रयोग गरी बीजक जारी गर्नु पर्नेछ ।
तर विधुतीय माध्यमबाट बीजक जारी गर्न स्वीकृती प्राप्त करदाताले सोही बमोजिम बीजक जारी गर्नु पर्नेछ ।
Rule 18A: Department may notify requiring any taxpayer to use cash machine and such taxpayer so notified shall use cash machine to issue invoice for transaction. However, taxpayer who has obtained approval for raising invoice through electronic medium shall raise invoice accordingly.
नियम २१: आपूर्तिकर्ताले कुनै वस्तु वा सेवाको आपूर्ति गर्दा त्यसको प्रतिफल बापत प्रापकबाट परिवत्र्य विदेशी मुद्रा भुक्तानी लिई कर बीजक दिँदा कारोबार भएको दिनको नेपाल राष्ट्र बैङ्कले तोकेको विनिमय दर बमोजिम उक्त विदेशी मुद्रा बराबर हुने नेपाली रुपैयाँको रकम कर
बीजकमा उल्लेख गरी बीजक दिनु पर्नेछ ।
Rule 21: While issuing the tax invoice by a supplier upon receiving payment from the recipient in a convertible foreign currency as consideration of the supply of any goods or services, the supplier shall issue the tax invoice by mentioning therein the amount in Nepalese rupees equivalent to the foreign currency according to the rate of exchange prescribed by the Nepal Rastra Bank on the day of transaction.
दफा २९(१)(छ२): विद्युतीय बीजक जारी गर्न स्वीकृति लिएको वा स्वीकृति नलिएको करदाताले तथ्मेयांक मेट्न वा सच्याउन सकिने सफ्टवेयर प्रयोग गरेको पाइएमा पाँच लाख रुपैयाँ जरीवाना लाग्ने ।
Section 29(1)(Chha2): If a taxpayer issuing electronic invoice upon approval or without approval is found using software for erasing or amending the data, then a fine of Five Lakh Rupees is applicable.
नियम १७(१): दर्ता भएको व्यक्तिले कुनै वस्तु वा सेवा आपूर्ति गर्दा कर अधिकृतले अन्यथा स्वीकृत गरे देखि बाहेक प्रापकलाई अनुसूची–५ र ५क. बमोजिमको ढाँचामा कर बीजक दिनु पर्नेछ । त्यसरी कर बीजक जारी गर्दा कुनै वस्तुको किसिम, साइज, मोडल र ब्राण्ड भएमा सो खुलाउनु पर्नेछ ।
नियम १७(१क): नियम १७(१) मा जुनसुकै कुरा लेखिएको भए तापनि ऐनको दफा १४(६) बमोजिम वस्तु वा सेवाको बिक्री गर्दा अनुसूची–५ख. मा उल्लिखित विवरण बमोजिमको कर बीजक जारी गर्नुपर्नेछ ।
नियम १७(२): उपनियम (१) बमोजिम प्रापकलाई दिइने बीजकको मुख पृष्ठमा देखिने गरी प्रष्टसँग कर बीजक लेखिएको हुनु पर्नेछ । यस्तो कर बीजकको तीन प्रति तयार गरी त्यसको सक्कल प्रति प्रापकलाई दिने, दोस्रो प्रति कार्यालयले माग गरेका बखत पेश गर्ने गरी छुट्टै अभिलेख खडा गरी राख्ने र तेस्रो प्रति दर्ता भएको व्यक्तिले आप्mनो कारोबार प्रयोजनको निमित्त अभिलेख खडा गरी राख्ने व्यवस्था गर्नु पर्नेछ ।
Rule 17(1): Unless otherwise approved by the Tax Officer, the registered person, in supplying any goods or services, shall issue a tax invoice in the format as set forth in Schedule 5 and 5A. Invoice issued accordingly shall disclose type, size, model and brand of any goods, if any.
Rule 17(1A): Notwithstanding anything contained in Sub-rule (1), when goods or services are sold under Section 14(6) of the Act, tax invoices shall be issued as per the details referred to in Schedule 5B.
Rule 17(2): Tax invoice shall be written clearly and conspicuously on the front page of the invoice to be issued to the recipient under Rule 17(1). Such tax invoices shall be prepared in three copies, and the original copy shall be given to the recipient, the second copy to be separately recorded so that it can be produced as and when asked for by the Office and the third copy be recorded by the registered person for the purpose of their transaction.
नियम २५: खरिद तथा बिक्री खाता प्रमाणित सम्बन्धी व्यवस्थाः ऐनको दफा १६(३) बमोजिम कर अधिकृतले खरिद तथा बिक्री खाता प्रमाणित गर्दा देहाय बमोजिम प्रमाणित गर्नु पर्नेछ: (क) करदाताले खरिद तथा बिक्री खाता प्रमाणित गर्नको लागि कार्यालयमा निवेदन दिएमा, (ख) कर परीक्षण वा जाँचको अवधिमा , (ग) निरीक्षणको समयमा । तर विधुतीय माध्यमबाट बीजक जारी गर्न अनुमति लिएको करदाताको विधुतीय प्रणालीबाट नै स्वतः बिक्री खाता तयार हुने भएमा बिक्री खाता प्रमाणित गराउनुपर्ने छैन ।
Rule 25: While certifying the purchase and sales books pursuant to Section 16(3) the Act, Tax Officer shall certify as follows: (a) If the taxpayer files an application to the Office for certification of the purchase and sales books, (b) During the period of tax inspection or audit, (c) At the time of inspection. However, taxpayer who has obtained approval to issue invoice from electronic medium shall not be required to certify their sales book if the sales book is prepared automatically by the electronic medium of the taxpayer.
Electronic Billing Directive, 2074
Electronic Billing Directive is pretty lengthy. You can find the full text here: Electronic Billing Directive. Here we will discuss only the issues that are revelant or highlight the red flags if any.
What is the scope of Electronic Billing Directive? How has the term “Electronic Billing” been defined?
खण्ड २(क): “सफ्टवेयर” भन्नाले विधुतीय माध्यम प्रयोग गरी बिजक जारी गर्ने वा तत्सम्बन्धि लेखा राख्ने प्रयोजनका लागि प्रयोग गरिएको विधुतीय उपकरणमा जडित सफ्टवेयर संस्करण (Software Version) सम्झनुपर्छ ।
खण्ड २(ख): “बिद्यतुीय उपकरण” भन्नाले विधुतीय माध्यमबाट विजक जारी गर्ने वा तत्सम्बन्धि लेखा राख्ने प्रयोजनका लागि प्रयोग गरिने उपकरण सम्झनु पर्दछ। यसले सफ्टवेयर जडित बिलिंग मेसिन, क्यास रजिस्टर, पोइन्ट अफ सेल, क्यालकुलेटर वा यस्तै किसिमका सफ्टवेयर जडित अन्य उपकरण समेतलाई जनाउँदछ ।
खण्ड २(ड): “विधुतीय बिजक” भन्नाले विधुतीय उपकरणको प्रयोग गरी सफ्टवेयर मार्फत जारी हुने विजकलाई जनाउँदछ ।
Frequently Asked Questions on Electronic Billing
Q1: Can I use any billing software for issuing electronic billing?
A1: No only the IRD approved softwares can be used for electronic billing. The list of approved softwares can be found here: IRD Approved Billing Softwares
Q2: Can even foreign softwares and open source softwares be listed as approved billing softwares?
A2: Yes. The software developer or maintainer should apply to IRD to obtain such approval. If such foreign softwares do not have authorized distributors in Nepal then the user themselves can apply for the approval of such softwares.
Q3: Can I use different billing softwares in different branches of same entity?
A3: No this is not under Part 4 of the Electronic Billing Directive.
Q4: Can I create backdated invoice from electronic billing softwares?
A4: Yes, backdated invoices can be created but there will be a creation timestamp in any invoice. Additionally, the backdated invoice cannot be dated earlier than the previous invoice. The minimum requirement is that the invoice should be serial numbered and created in chronological order. This is also how the developers are expected to create the billing software.
Q5: IRD requires the source code of the software to be submitted to IRD for approval? Does not this go against Trade Secret/undisclosed information chapter of Trade Related Aspect Of Intellectual Property-TRIPS Agreement? Does this violate Doctrine Of Relevancy or Doctrine of Legitimate Expectation?
A5: Supreme Court has decided on this matter that it is not in violation of TRIPS agreement and doesn’t go against the Doctrine Of Relevancy or Doctrine of Legitimate Expectation. See the full case here: Rajiv Jung Shah v/s Inland Revenue Department
Q6: Why does Electronic Billing Directive, 2074 consider primitive device like “cash register” as electronic billing equipment?
A6: Cash Register is not a primitive device. Its a pretty smart device to be honest at least the mechanics behind it. In a cash register machine, a seller enters the item and price details and the amount received from customer and the machine automatically allots the money into slots and also separates the tender amount to be provided to the customer. Some cash machines are more than that. They even have the capacity to act like a POS machine. It can provide the invoice along with using the software along with it. Where such software capable of invoicing is installed in the machine, such software need to be approved by IRD before issuing valid electronic invoice. Such machines have memory fitted inside it, called fiscal memory that maintains the duplicate rolls or data log of all the transactions made for the purpose of tax authorities. So they are also sometimes called fiscal printers.
Q7: Other Information
A7: The invoice number must begin from serial No 1 for each fiscal year (circular dated 2055/3/32) and the serial number cannot be hand written (circular dated 2055/7/10). Different branch or departments within same roof can use their own
serial at a time (circular dated 2054/7/29). The person shall not issue invoices when goods are transferred between divisions within the same legal entity. The Directives Regulating Internal Transport of Commercial Goods, 2065 regulates transportation of goods from one unit to another having different location within Nepal.
Types of Invoicing Solutions in Nepal
Not Using Electronic Billing
Manual & Physical Invoice (i.e. Wet Ink Contents)
A company is not using electronic invoicing. Rather the company is using pre-printed bill pads and uses carbon to create concurrent duplicates of the invoice and staffs creates invoices manually. What are the minimum requirement the company has to fulfill to issue invoice?
- Company A gets the invoice printed in format specified by Income Tax and VAT Act. Such invoices are not required to be pre-attested by tax authorities.
- Company A is not required to pre-print the serial number of the invoice in the invoice pad itself. This is not required by Income Tax Act or VAT Act. However, pre-printing the serial number is generally the practice as it helps in the avoiding human errors in the numbering.
- Company A has to physically create the invoice and using carbon create the invoices in duplicate/triplicate copies. The original invoice is issued to the recepient of the goods/service.
Automatic & Physical Invoice (i.e. Dot Matrix Contents / Thermal Printing Contents)
A company is not using electronic invoicing. Rather the company is using pre-printed bill pads and uses carbon to create concurrent duplicates of the invoice and staffs uses dot matrix printer to dot print the contents of the invoice (like using a cheque writing machine). What are the minimum requirement the company has to fulfill to issue invoice?
- Company A gets the invoice printed in format specified by Income Tax and VAT Act. Such invoices are not required to be pre-attested by tax authorities. However, since the company is using dot matrix printer to print invoices in duplicates, the invoices should be Carbonless copy paper (CCP) so that the dot matrix printer can print all copies at once.
- Company A can use the softwares like Excel / printer settings to arrange the print settings. This should not be viewed as using software for printing the invoice because excel is a software that allows to perform mathematical functions on the data and print them. Utilizing excel’s untweaked utilities to print automatically is just the same as utilizing excel software to get any other mathematical operations made. Also this is a no brainer, utilizing cheque writer to create cheques is not equivalent to doing electronic transacitons. This should never be a confusion or an issue.
- Company A is not required to pre-print the serial number of the invoice in the invoice pad itself. This is not required by Income Tax Act or VAT Act. However, pre-printing the serial number is generally the practice as it helps in the avoiding human errors in the numbering.
- This method is very effective to companies who are intending to increase administrative efficiency. A good dot matrix printer costing around 30k NPR and excel / google spreadhseets can resolve the need to go into the electronic invoicing realm altogether.
- Let’s say Company A has huge office space. Some sales are made from warehouse, some sales are made from accounts office, some sales are made from the shop. Although within the same location, the coordication issue is getting very severe. Folks from warehouse, accounts and display shop are having hard time running around with invoice pads. This method could solve the problem altogether. Place multiple dot matrix printers at each billing unit and create communicate the latest invoice number (though manual cmmunicaiton or through shared invoicing template) among the billing units and raise physical invoices.
Efficiency 101
Using Electronic Billing
Think carefully before entering into electronic invoicing decision, in Nepal, because of the following reasons:
- The invoicing software prevalent in Nepal could easily cost you around Rs. 20,000 even at the starter packages.
- The invoicing software prevalent in Nepal are not very efficient or user friendly and there is not much exceptional customer services.
- If you want to change the billing software, it is going to be a rather lengthy process as there is no standard procedure to change the software.
- IRD has not clearly provided any clear provision for exiting the electronic billing requirement. So exiting from electronic billing to manual invoicing could create a lots of problems.
- There is not much awareness on the recipient of the invoices regarding electronic invoices so the buyers will definitely in most cases require you to wet sign the invoice and produce company stamp in the invoice. They also may require the hardcopy invoice to process your payment, which is another deal breaker. I mean, why go through such a long process of electronic invoicing, if at the end, you will ultimately have to deliver the hardcopy invoices to the recipient.
- The fines for non-compliance of electronic invoicing guideline is very high.
- There is no public available API provided by IRD for linking with the IRD Central Billing Monitoring System. One has to manually go and request API with IRD. This has led to lack of interest among the developers to experiment with open source billing software.
- Even approved electronic software have not adopted digital signature modules. IRD also hasn’t worked on any such digital verification of the invoices. This has led to the recipients not being confident if the invoice being raised to them actually the valid / authentic invoice.
Is there any open source IRD approved invoicing software for use of general public free of cost?
There are many open source erp and invoicing tools like:
1. ApacheOfBiz,
2. YetiForce,
3. Zenbership,
4. Dolibarr,
5. BoxBilling,
6. InvoiceNinja,
7. Prestashop etc.
My personal favourite is InvoiceNinja which is so much in sync with the domain, emails, functionality and all. See its full funtionality here: Free Open-Source Invoicing, Expenses & Time-Tracking | Invoice Ninja
But sadly there aren’t any open source IRD approved invoicing softwares. I have been tweaking InvoiceNinja to compliance of IRD, and approval. Keep following my post, I will soon post about the completion and approval of this pet project.