Tax Assessments: everything about it

Posted by Parajuli Sushil 4 years Ago 1 Comment 22 Min Read

Tax/Duties Assessments in Nepal

A taxpayer in Nepal has to make sure that the he bears his tax liabilites by computing the taxable income in self assessment princple. Act, Rules and Directives on Income Tax, Value Added Tax, Excise Duty and Customs Act has various provisions relating to how the tax/duty liabilites thereon is computed. 

The department (Inland Revenue Department and Customs Department) reserves the right to determine the tax/duty liability of a person if the taxpayer’s assessment does not confirm to the Act, Rules and Directives. This will be discussed further below.

Income Tax Act 2058

(IRD) Inland Revenue Department (through Concerned Taxpayer Service Office) may amend the tax that have been self assessed on reasonable grounds. Such amended assessment of a particular fiscal year should be made within four years from the due date for filing the return for that fiscal year. However, if the tax has been assessed wrong manner due to fraud, such amended assessment may be made at any time. Additonally, if the tax assessment is amended or the assessed tax is lessened by the Revenue Tribunal or other competent courts, IRD shall not be able to amend such tax assessment to that extent. However if the Revenue Tribunal or other competent courts has issued order to reexamine it, further amendment may be made by IRD. In making amendment to tax assessment, IRD has to give that person a notice in writing clearly setting out the grounds for such amendment and an oppurtunity to submit the proof/evidence for defense on such assessments. 

The process is as follows:

  • Step 1: The concerned tax officer from respective Taxpayer Service Office will issue a notice under Section 83 on the taxpayer to (i) submit any information (ii) submit any documents, or (iii) be present at the place specified for inspection.
  • Step 2: The taxpayer will submit the required information, documents or facilitate for the inspection by being physically present for the inspection.
  • Step 3: The tax officer may issue additional notices under Section 83 of Income Tax Act, 2058 or the submission of additional information, documents or to be present for inspections.
  • Step 4: The nature, timing and scope of the audit will depend on the discretion of the tax officer performing the tax audit and it may be variable.
  • Step 5: Tax officer will issue notice for amended tax assessment (संशोधित कर निर्धारणको सूचना) under Section 101(6) of Income Tax Act, 2058. A note for receipt of the notice will be provided along with the notice while serving the notice. Such notice will provide 15 days time limit for the submission of proof/evidence for defense on such amended assessment. 
  • Step 6: The taxpayer will submit the response letter within the time limit. 
  • Step 7: The tax officer will consider the submission of the reponse letter of the taxpayer and resolve issues if any. 
  • Step 8: The tax officer will provide the amended tax assessment order (संशोधित कर निर्धारणको आदेश) under Section 101 through a notice under Section 102 of the Income Tax Act, 2058. A note for receipt of the notice will be provided along with the notice while serving the notice. Such notice will provide generally 15 days time limit to deposit the taxes, interests, fees, fines and penalties at the concerned taxpayer service office. The basis for the decision made in the assessment will be provided through a seperate decision sheet (निर्णयपर्चा). 

Value Added Tax Act 2052

(IRD) Inland Revenue Department (through Concerned Taxpayer Service Office) may amend the tax that have been self assessed on reasonable grounds. Such amended assessment of a particular tax period should be made within four years from the due date for filing the return for that tax period. However, if the tax has been assessed wrong manner due to fraud, such amended assessment may be made at any time. In making amendment to tax assessment, IRD has to give that person a notice in writing clearly setting out the grounds for such amendment and an oppurtunity to submit the proof/evidence for defense on such assessments. 

The process is as follows:

  • Step 1: The concerned tax officer from respective Taxpayer Service Office will issue a notice under Section 23 of VAT Act, 2052 on the taxpayer to (i) submit any information (ii) submit any documents (iii) be present at the place specified for inspection (iv) take possession, remove, and transfer any documents, books and records (v) search taxpayer’s place of transaction and other places 
  • Step 2: The taxpayer will submit the required information, documents or facilitate for the inspection by being physically present for the inspection.
  • Step 3: The tax officer may issue additional notices under Section 23 of VAT Act, 2052 or the submission of additional information, documents or to be present for inspections.
  • Step 4: The nature, timing and scope of the audit will depend on the discretion of the tax officer performing the tax audit and it may be variable.
  • Step 5: Tax officer will issue notice for amended tax assessment (प्रारम्भिक कर निर्धारण आदेश) under Rule 29(1) of VAT Act, 2052. A note for receipt of the notice will be provided along with the notice while serving the notice. Such notice will provide 15 days time limit for the submission of proof/evidence for defense on such amended assessment. 
  • Step 6: The taxpayer will submit the response letter within the time limit. 
  • Step 7: The tax officer will consider the submission of the reponse letter of the taxpayer and resolve issues if any. 
  • Step 8: The tax officer will provide the amended tax assessment order (संशोधित कर निर्धारणको आदेश) under Section 20(1) and Rule 29(3) through a notice under Section 36 of the VAT Act, 2052. A note for receipt of the notice will be provided along with the notice while serving the notice. Such notice will provide generally 15 days time limit to deposit the taxes, interests, fees, fines and penalties at the concerned taxpayer service office. The basis for the decision made in the assessment will be provided through a seperate decision sheet (निर्णयपर्चा).

Excise Act 2058

(IRD) Inland Revenue Department (through Concerned Taxpayer Service Office) may amend the tax that have been self assessed on reasonable grounds. No time limitation for such amended assessment of a particular tax period is provided under Excise Act unlike Income Tax Act and VAT Act. In making amendment to tax assessment, IRD has to give that person a notice in writing clearly setting out the grounds for such amendment and an oppurtunity to submit the proof/evidence for defense on such assessments. 

The process is as follows:

  • Step 1: The concerned tax officer from respective Taxpayer Service Office will issue a notice under Section 10Gha(4) of Excise Act, 2058 on the taxpayer to (i) submit any information (ii) submit any documents (iii) be present at the place specified for inspection (iv) take possession, remove, and transfer any documents, books and records (v) search taxpayer’s place of transaction and other places 
  • Step 2: The taxpayer will submit the required information, documents or facilitate for the inspection by being physically present for the inspection.
  • Step 3: The tax officer may issue additional notices under Section 10Gha(4) of Excise Act, 2058 or the submission of additional information, documents or to be present for inspections.
  • Step 4: The nature, timing and scope of the audit will depend on the discretion of the tax officer performing the tax audit and it may be variable.
  • Step 5: Tax officer will issue notice for amended tax assessment (अन्त: शुल्क निर्धारण आदेशको सूचना)under Section 10Gha(2) of Excise Act, 2058. A note for receipt of the notice will be provided along with the notice while serving the notice. Such notice will provide 15 days time limit for the submission of proof/evidence for defense on such amended assessment. 
  • Step 6: The taxpayer will submit the response letter within the time limit. 
  • Step 7: The tax officer will consider the submission of the reponse letter of the taxpayer and resolve issues if any. 
  • Step 8: The tax officer will provide the amended tax assessment order (अन्त: शुल्क निर्धारण आदेश) under Section 10Gha through a notice under Rule 6Ka(2) of the Excise Act, 2058. A note for receipt of the notice will be provided along with the notice while serving the notice. Such notice will provide generally 15 days time limit to deposit the taxes, interests, fees, fines and penalties at the concerned taxpayer service office. The basis for the decision made in the assessment will be provided through a seperate decision sheet (निर्णयपर्चा).

Customs Act 2064

Customs Duties doesn’t work in self assessment system. It is assessed by the custom offices at the custom point. The concerned Customs Officer may review the declaration forms of the goods cleared by the Customs Office no later than 4 years after the date of clearance of such goods and if it appears that the duty recoverable has been omitted from being recovered, the duty so omitted shall be recovered from the owner of such goods as if it were a governmental due, under Section 70 of the Customs Act, 2064. 

Taxpayer's Remedy against Assessment Order

Taxpayer after receiving the assessment order, if satisfied withe the assessment being made will be required to deposit the taxes, interests, fines and penalties as per the assessment oder and apply to the concerned Taxpayer Service Office for removal of the tax order made on the taxpayer (लगतकट्टा). Where the taxpayer is not satisfied with the assessment order the remedy will be as follows: 

Application for Administrative Review against the Amended Assessment Order

Taxpayer who is dissatisfied with any decision which may be subjected to the amended assessment may apply to the IRD against that decision within 30 days from the date of receipt of the notice about the decision under Section 115(1) of the Income Tax Act, 2058. The time limt may be extended for a period not more than 30 days under Section 115(3) if the application for the extension is applied within 7 days from the expiry of the expiry of initial 30 days. 

Taxpayer who is dissatisfied with any decision which may be subjected to the amended assessment may apply to the IRD against that decision within 30 days from the date of receipt of the notice about the decision under Section 31Ka(1) of the VAT Act, 2052. The time limt may be extended for a period not more than 30 days under Section 31Ka(2) if the application for the extension is applied within 7 days from the expiry of the expiry of initial 30 days. 

Taxpayer who is dissatisfied with any decision which may be subjected to the amended assessment may apply to the IRD against that decision within 30 days from the date of receipt of the notice about the decision under Section 19(1) of the Excise Act, 2058. The time limt may be extended for a period not more than 30 days under Section 19(2) if the application for the extension is applied within 7 days from the expiry of the expiry of initial 30 days. 

Extension, Application and Deposits

The application for extension of the time limit for administrative review should contain the followings: 
1. Rs. 10 stamp ticket
2. Copy of Amended Assessment Order
3. Copy of note for receipt of the Amended Assessment Order
4. Application for extension
5. Contact Details 

The application for administrative review should contain the followings: 
1. Rs. 10 stamp ticket
2. Copy of decision sheet
3. Copy of note for receipt of the Amended Assessment Order
4. Copy of Amended Assessment Order
5. Letter from IRD for extension for filing application (if applicable)
6. Deposit vouchers for disputed and undisputed amounts (2 Copies)
7. Power of attorney (अख्तियारनामा/वारेसनामा)
8. Application for administrative review (2 Copies)
9. Contact Details
10. Softcopy of application to be submitted at appealird@ird.gov.np

Computation of Deposits for Disputed Amounts under Section 115(6): 
1. Tax (कर): 25%
2. Interest (ब्याज): 25%
3. Fines (थप दस्तुर/शुल्क): 25%
4. Penalty (जरिवाना): 25%

How will the advance taxes paid for the particular tax period be treated in assessment orders?
In most scenario, taxes are paid in advance and any unutilized taxes are carried forward towards future income years as credit transfers. Since, tax assessments pertain to fiscal years 3/4 years back, the unutilized credits are likely to have been already carried forward in the future years and utilized. However, despite this, the assessment for the particular fiscal year will be made by adjusting the advance taxes pertaining to that fiscal year, despite the fact that they may have been settled in future income years. 
Example: Let’s say a taxpayers X1/X2 fiscal year is subject to assessment.
As per self assessment: Tax Payable: 100,000 | Taxes Paid: 150,000 | Carried Forward: 50,000
(the amount carried forward may or may not have been utilized in future income years)
As per amended assessment: Tax Payable: 190,000| Taxes Paid: 150,000 | Disputed Tax Amount: 40,000

Decision from Administrative Review

IRD may take action as follows on an application filed for administrative review: 
a. To fully or partially accept or reject the matters mentioned in the application, and
b. To provide a written notice about the decision taken on the application to the concerned person.

Taxpayer's Remedy against Administrative Review Order

Taxpayer after receiving the decision from administrative review, if satisfied with the decision being made, will be required to deposit the taxes, interests, fines and penalties as per the decision of administrative review and apply to the concerned Taxpayer Service Office for removal of the tax order made on the taxpayer (लगतकट्टा). Where the taxpayer is not satisfied with the administrative review decision, the remedy will be as follows: 

Appeal to Revenue Tribunal against the decision of Administrative Review

In case the IRD does not furnish to the applicant a notice about its decision on the application within 60 days from the date of application, the taxpayer may file an appeal to the Revenue Tribunal under Section 115(8) Income Tax Act, 2058. Where the taxpayer is not satisfied with the decision from the administrative review, under Section 115 of the Income Tax Act, 2058, taxpayer may file an appeal to the Revenue Tribunal under the Revenue Tribunal Act, 2031. 

In case the IRD does not furnish to the applicant a notice about its decision on the application within 60 days from the date of application, the taxpayer may file an appeal to the Revenue Tribunal under Section 31Ka(5) VAT Act, 2052. Where the taxpayer is not satisfied with the decision from the administrative review, under Section 31Ka of the VAT Act, 2052, taxpayer may file an appeal to the Revenue Tribunal under the Revenue Tribunal Act, 2031. 

In case the IRD does not furnish to the applicant a notice about its decision on the application within 60 days from the date of application, the taxpayer may file an appeal to the Revenue Tribunal under Section 19(4) Excise Act, 2058. Where the taxpayer is not satisfied with the decision from the administrative review, under Section 19 of the Excise Act, 2058, taxpayer may file an appeal to the Revenue Tribunal under the Revenue Tribunal Act, 2031. 

Customs Act, 2064 doesn’t have the remedy for administrative review with the Department of Customs. So, the assessee dissatisfied with the decision under Customs Act, 2064 has to be taken to the Revenue Tribunal directly. Having said this, the disatisfaction regarding the valuation of the goods may be taken to Valuation Review Committee and disatisfaction regarding the classification of the goods maybe taken to the Director General of Department of Customs, before reaching to the Revenue Tribunal. 

Extension, Application and Deposits

The appeal to the revenue tribunal should contain the followings: 
1. Copy of decision sheet from Tax Office
2. Copy of Amended Assessment Order
3. Copy of application filed for administrative review 
4. Decision of administrative review (if applicable)
5. Deposit vouchers for disputed and undisputed amounts (Including deposits made during administrative review)
6. Advocate Form (ओकालतनामा)
7. Power of attorney (अख्तियारनामा/वारेसनामा)
8. Appeal to Revenue Tribunal 
9. Contact Details
10. Softcopy of appeal to be submitted at prescribed email address
11. Registration Fees: 300/Appeal and 10/Advocate Form

Computation of Deposits for Disputed Amounts under Section 9 of Revenue Tribunal Act, 2031: 
1. Tax (कर): 50% reduced by deposits made for administrative review for (100% for Excise and Customs)
2. Interest (ब्याज): 50% reduced by deposits made for administrative review (100% for Excise and Customs)
3. Fines (थप दस्तुर/शुल्क): 50% reduced by deposits made for administrative review (100% for Excise and Customs)
4. Penalty (जरिवाना): 100% reduced by deposits made for administrative review

Pleading, Hearing

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Decision from Revenue Tribunal

Only if the Supreme Court grants leave to make appeal to it considering that the decision of the revenue tribunal will be reversed fully or partly because of a direct (clear) legal error on any of the following questions, an appeal shall lie in the Supreme Court against a judgment or final order of the tribunal: (a) Question of jurisdiction, (b) Question of having not examined the evidence that should have been examined or having examined the evidence that should not have been examined, (c) Question of violation of the procedural law that must be followed, (d) Question of serious legal error.