Excise Duty Compliance in Nepal

Excise duty is an indirect tax levied on the production, sale, or consumption of specific goods in Nepal. The government imposes this tax on various products, primarily those considered luxury items, harmful to health, or environmentally impactful. The Excise Act, 2058 (2002) and Excise Duty Rules, 2059 (2003) govern the implementation of excise duty in Nepal.

Products subject to excise duty in Nepal include:

• Alcoholic beverages (beer, wine, spirits)
• Tobacco products (cigarettes, cigars, chewing tobacco)
• Petroleum products (petrol, diesel, kerosene)
• Vehicles (cars, motorcycles, trucks)
• Electronic goods (televisions, refrigerators, air conditioners)
• Cosmetics and perfumes
• Cement
• Plastic products
• Soft drinks and carbonated beverages
• Playing cards
• Paints and varnishes

The list of excisable goods is updated annually through the Finance Act, which may add or remove items based on government policies and economic considerations.

What are the current excise duty rates in Nepal?

Excise duty rates in Nepal vary depending on the product category and are subject to change annually through the Finance Act. The current rates for some common products are:

• Cigarettes: NPR 1,050 to NPR 5,750 per 1,000 sticks, depending on length and filter type
• Beer: NPR 165 per liter
• Whisky, rum, and gin: NPR 1,350 per liter
• Wine: NPR 350 per liter
• Petrol: NPR 10 per liter
• Diesel: NPR 5 per liter
• Motorcycles: 40% to 80% of the cost, insurance, and freight (CIF) value
• Cars: 60% to 300% of the CIF value, depending on engine capacity
• Televisions: 5% to 15% of the CIF value, depending on screen size
• Cement: NPR 130 per metric ton

It’s essential to consult the latest Finance Act or the Inland Revenue Department (IRD) website for the most up-to-date rates, as they may change annually.

Who is responsible for paying excise duty?

The responsibility for paying excise duty in Nepal falls on different parties depending on the nature of the transaction:

1. Manufacturers: Domestic producers of excisable goods are primarily responsible for paying excise duty on their products before they leave the factory premises.
2. Importers: For imported excisable goods, the importer is responsible for paying the excise duty at the customs point before clearing the goods.
3. Service providers: In cases where excise duty is applicable to services (e.g., telecommunications), the service provider is responsible for collecting and remitting the duty.
4. Consumers: While not directly responsible for paying excise duty to the government, consumers ultimately bear the cost as it is typically included in the price of the product.
5. Authorized distributors: In some cases, authorized distributors of excisable goods may be responsible for paying excise duty if they are designated as such by the manufacturer or importer.

The Excise Act, 2058 (2002) outlines the specific responsibilities of each party involved in the production, import, and distribution of excisable goods.

How is excise duty calculated on different products?

Excise duty calculation methods vary depending on the product category and the basis of taxation. The main calculation methods include:

1. Ad valorem basis: The duty is calculated as a percentage of the product’s value. For example, cars are taxed at 60% to 300% of their CIF value.
2. Specific rate basis: A fixed amount is charged per unit of measurement. For instance, beer is taxed at NPR 165 per liter.
3. Combination of ad valorem and specific rate: Some products may be subject to both percentage-based and fixed-rate duties.
4. Weight-based calculation: Certain products, like cement, are taxed based on their weight (e.g., NPR 130 per metric ton).
5. Quantity-based calculation: Products like cigarettes are taxed based on the number of units (e.g., NPR 1,050 to NPR 5,750 per 1,000 sticks).

To calculate the excise duty:

1. Determine the applicable rate or method for the specific product.
2. Apply the rate to the product’s value, quantity, or weight as appropriate.
3. For ad valorem duties, multiply the product’s value by the percentage rate.
4. For specific rate duties, multiply the quantity or weight by the fixed rate.
5. For combined methods, calculate both components and sum them.

It’s crucial to refer to the latest Finance Act and IRD guidelines for accurate calculation methods and rates.

What is the process for excise duty registration?

The process for excise duty registration in Nepal involves several steps:

1. Determine eligibility: Verify if your business produces, imports, or deals with excisable goods or services.
2. Obtain PAN: Ensure your business has a Permanent Account Number (PAN) from the Inland Revenue Department.
3. Prepare documents:
   • Company registration certificate
   • PAN certificate
   • VAT registration certificate (if applicable)
   • Citizenship certificate of proprietor/partners/directors
   • Lease agreement or ownership document of business premises
   • Bank account details
   • List of products subject to excise duty
4. Submit application: File the excise duty registration application at the nearest Inland Revenue Office or through the IRD’s online portal.
5. Pay registration fee: Pay the required registration fee as specified by the IRD.
6. Verification: The IRD may conduct a physical verification of your business premises.
7. Obtain license: Upon approval, receive the excise duty license from the IRD.
8. Display license: Prominently display the excise duty license at your business premises.
9. Renew annually: Ensure timely renewal of the excise duty license before the expiry date.

The exact process may vary slightly depending on the nature of the business and the specific IRD office handling the registration.

How often should excise duty be paid?

The frequency of excise duty payments in Nepal depends on the nature of the business and the type of excisable goods or services:

1. Monthly payments: Most manufacturers and importers of excisable goods are required to pay excise duty monthly. The payment must be made within 25 days from the end of each Nepali month.
2. Per transaction: For certain imported goods, excise duty is payable at the customs point before clearing the goods.
3. Quarterly payments: Some businesses, particularly smaller ones, may be allowed to pay excise duty on a quarterly basis with prior approval from the IRD.
4. Annual payments: In rare cases, businesses may be permitted to pay excise duty annually, but this requires special authorization from the IRD.
5. Advance payments: For some products, such as alcoholic beverages, manufacturers may be required to pay excise duty in advance based on estimated production.
6. On demand: In certain situations, the IRD may demand immediate payment of excise duty.

It’s essential to adhere to the payment schedule specified in your excise duty license and comply with any specific instructions from the IRD. Failure to pay on time may result in penalties and interest charges.

What documents are required for excise duty compliance?

To ensure proper excise duty compliance in Nepal, businesses must maintain and submit various documents:

1. Excise duty license: The official license issued by the IRD authorizing the business to deal with excisable goods.
2. Production records:
   • Daily production logs
   • Raw material consumption records
   • Finished goods inventory records
3. Sales records:
   • Sales invoices
   • Delivery chalans
   • Customer orders
4. Purchase records:
   • Purchase invoices for raw materials and excisable goods
   • Import documents for imported excisable goods
5. Stock records:
   • Inventory ledgers for raw materials and finished goods
   • Stock transfer documents
6. Excise duty returns:
   • Monthly or quarterly excise duty returns (Form No. 1)
   • Annual reconciliation statement (Form No. 2)
7. Payment records:
   • Bank deposit slips or online payment receipts for excise duty payments
   • Vouchers for advance excise duty payments
8. Excise duty stamps:
   • Records of excise duty stamps purchased and used (for products requiring stamps)
9. Export documents:
   • Export declarations
   • Shipping bills
   • Certificates of origin (for duty refund claims)
10. Audit reports:
    • Internal audit reports related to excise duty compliance
    • External audit reports, if applicable
11. Correspondence with IRD:
    • Notices received from the IRD
    • Responses to IRD queries
    • Any special approvals or exemptions granted by the IRD

Businesses must retain these documents for at least six years from the date of the transaction or the last entry in the records, as per the Excise Act, 2058 (2002).

Are there any exemptions from excise duty?

Yes, Nepal’s excise duty regime provides several exemptions for specific products, situations, and entities:

1. Diplomatic exemptions:
   • Goods imported by foreign diplomatic missions and their staff for personal use
   • Products purchased by diplomats from duty-free shops
2. Export-oriented exemptions:
   • Goods manufactured exclusively for export
   • Raw materials used in the production of export goods
3. Religious and cultural exemptions:
   • Certain items used for religious or cultural purposes, as specified by the government
4. Development project exemptions:
   • Goods imported for government-approved development projects
   • Equipment and materials for hydropower projects
5. Humanitarian exemptions:
   • Goods imported for disaster relief and rehabilitation
6. Educational and research exemptions:
   • Scientific equipment imported by educational institutions for research purposes
7. Health-related exemptions:
   • Certain medical equipment and supplies
8. Small-scale production exemptions:
   • Some small-scale producers may be exempt from excise duty, subject to IRD approval
9. Specific product exemptions:
   • Certain agricultural products and basic necessities
   • Some renewable energy equipment (e.g., solar panels)
10. Free trade agreement exemptions:
    • Products covered under bilateral or multilateral free trade agreements
11. Special economic zone exemptions:
    • Goods produced within designated special economic zones for export
12. Temporary import exemptions:
    • Goods imported temporarily for exhibitions or trade fairs

To claim these exemptions, businesses must provide appropriate documentation and obtain necessary approvals from the IRD or relevant government authorities. It’s important to note that exemptions may change annually through the Finance Act, and businesses should consult the latest regulations or seek professional advice to ensure compliance.

What are the penalties for non-compliance with excise duty?

Non-compliance with excise duty regulations in Nepal can result in various penalties, as outlined in the Excise Act, 2058 (2002) and subsequent amendments:

1. Late payment penalties:
   • Interest at 15% per annum on the unpaid amount
   • Additional penalty of 5% of the unpaid amount for each month of delay, up to a maximum of 25%
2. Failure to register:
   • Fine of up to NPR 100,000
   • Possible imprisonment for up to one year
3. Operating without a license:
   • Fine of up to NPR 500,000
   • Possible imprisonment for up to five years
4. Underreporting or false reporting:
   • Fine equal to the amount of duty evaded
   • Additional penalty of up to 100% of the evaded duty
   • Possible imprisonment for up to one year
5. Failure to maintain proper records:
   • Fine of up to NPR 50,000
   • Possible suspension or revocation of excise license
6. Unauthorized removal of goods:
   • Fine equal to the duty applicable on the goods
   • Additional penalty of up to 100% of the applicable duty
   • Possible imprisonment for up to three years
7. Misuse of excise duty stamps:
   • Fine of up to NPR 100,000
   • Possible imprisonment for up to one year
8. Obstruction of excise officers:
   • Fine of up to NPR 50,000
   • Possible imprisonment for up to six months
9. Repeated offenses:
   • Increased fines and penalties for repeat offenders
   • Possible permanent revocation of excise license
10. Failure to file returns:
    • Fine of NPR 1,000 for each month of delay
    • Possible suspension of excise license

The IRD has the authority to impose these penalties and may also compound offenses in certain cases. Businesses found non-compliant may face reputational damage and difficulties in obtaining future licenses or permits.

How long should excise duty records be kept?

In Nepal, businesses dealing with excisable goods or services must retain excise duty records for a specific period to ensure compliance with tax regulations:

1. Retention period:
   • Excise duty records must be kept for at least six years from the date of the transaction or the last entry in the records, as per Section 10A of the Excise Act, 2058 (2002).
2. Types of records to be retained:
   • Production logs
   • Sales and purchase invoices
   • Inventory records
   • Excise duty returns and payment receipts
   • Import and export documents
   • Correspondence with the IRD
   • Audit reports related to excise duty
3. Format of records:
   • Records can be kept in physical or electronic format, provided they are easily accessible and readable.
4. Location of records:
   • Records should be maintained at the principal place of business or a location approved by the IRD.
5. Language of records:
   • Records should be maintained in Nepali or English.
6. Accessibility:
   • Records must be readily available for inspection by excise officers upon request.
7. Backup and security:
   • Businesses should ensure proper backup and security measures for electronic records.
8. Extended retention:
   • In case of ongoing audits or disputes, records may need to be retained beyond the six-year period until the matter is resolved.
9. Destruction of records:
   • After the retention period, records can be destroyed, but it’s advisable to maintain a log of destroyed records.
10. Penalties for non-compliance:
    • Failure to maintain proper records can result in fines of up to NPR 50,000 and possible suspension of the excise license.

Maintaining accurate and complete records for the required period is crucial for demonstrating compliance during audits and resolving any disputes with the tax authorities.

Are there any government fees for excise duty compliance?

Yes, there are several government fees associated with excise duty compliance in Nepal:

1. Registration fee:
   • A one-time fee for obtaining the initial excise duty license, which varies based on the type and size of the business.
2. Annual renewal fee:
   • A fee paid annually to renew the excise duty license, typically due before the start of the new fiscal year.
3. Excise duty stamp fees:
   • Fees for purchasing excise duty stamps, which are required for certain products like alcoholic beverages and tobacco.
4. Application fees:
   • Fees for various applications, such as requesting exemptions or special approvals.
5. Amendment fees:
   • Charges for making changes to the excise duty license or registration details.
6. Late filing fees:
   • Penalties for late submission of excise duty returns or payments.
7. Inspection fees:
   • Charges for physical inspections of premises by excise officers, if applicable.
8. Appeal fees:
   • Fees for filing appeals against excise duty assessments or penalties.
9. Certification fees:
   • Charges for obtaining certified copies of excise-related documents from the IRD.
10. Electronic filing fees:
    • Possible charges for using online platforms for excise duty filing and payments.

The exact amounts of these fees can vary and are subject to change. It’s advisable to consult the latest IRD guidelines or seek professional advice for the most up-to-date fee structure.

Which authority oversees excise duty in Nepal?

The primary authority overseeing excise duty in Nepal is the Inland Revenue Department (IRD), which operates under the Ministry of Finance. The IRD is responsible for the administration, collection, and enforcement of various taxes, including excise duty.

Key aspects of the IRD’s role in overseeing excise duty include:

1. Policy implementation:
   • Implementing excise duty policies as outlined in the Excise Act and annual Finance Acts.
2. Registration and licensing:
   • Processing applications for excise duty registration and issuing licenses.
3. Rate setting:
   • Proposing and implementing excise duty rates in coordination with the Ministry of Finance.
4. Collection:
   • Collecting excise duty payments from manufacturers, importers, and other liable parties.
5. Enforcement:
   • Conducting audits and inspections to ensure compliance with excise duty regulations.
6. Dispute resolution:
   • Addressing disputes related to excise duty assessments and penalties.
7. Exemption management:
   • Processing and approving exemption requests for eligible entities or products.
8. Reporting:
   • Compiling and reporting excise duty collection statistics to the government.
9. Coordination:
   • Working with other government agencies, such as customs, to ensure comprehensive excise duty compliance.
10. Public awareness:
    • Providing information and guidance to businesses and the public on excise duty matters.

The IRD operates through various regional and local offices across Nepal, each responsible for overseeing excise duty compliance within its jurisdiction. Additionally, the Department of Customs plays a role in collecting excise duty on imported goods at the point of entry.

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What laws govern excise duty in Nepal?

Excise duty in Nepal is governed by several laws and regulations:

1. Excise Act, 2058 (2002):
   • The primary legislation governing excise duty in Nepal.
   • Outlines the basic framework for excise duty administration, collection, and enforcement.
2. Excise Rules, 2059 (2003):
   • Provides detailed procedures for implementing the Excise Act.
   • Covers aspects such as registration, record-keeping, and filing requirements.
3. Finance Act (annual):
   • Enacted annually as part of the budget process.
   • Updates excise duty rates and introduces new provisions or amendments.
4. Income Tax Act, 2058 (2002):
   • Contains provisions related to the treatment of excise duty for income tax purposes.
5. Value Added Tax Act, 2052 (1996):
   • Addresses the interaction between excise duty and VAT.
6. Customs Act, 2064 (2007):
   • Relevant for excise duty on imported goods.
7. Revenue Leakage (Investigation and Control) Act, 2052 (1995):
   • Provides measures to prevent and control revenue leakage, including excise duty evasion.
8. Industrial Enterprises Act, 2076 (2020):
   • Contains provisions affecting excise duty on industrial products.
9. Export and Import (Control) Act, 2013 (1957):
   • Impacts excise duty on exported and imported goods.
10. Special Economic Zone Act, 2073 (2016):
    • Provides for excise duty exemptions in special economic zones.
11. Directives and Circulars:
    • Issued by the IRD to provide guidance on specific aspects of excise duty compliance.
12. International Agreements:
    • Bilateral and multilateral trade agreements that may affect excise duty on certain products.

These laws and regulations work together to create a comprehensive legal framework for excise duty in Nepal. Businesses must stay updated on changes to these laws, particularly the annual Finance Act, to ensure ongoing compliance.

How can businesses ensure proper excise duty compliance?

Businesses can ensure proper excise duty compliance in Nepal by following these best practices:

1. Stay informed:
   • Regularly review updates to excise duty laws and regulations.
   • Subscribe to IRD notifications and circulars.
2. Maintain accurate records:
   • Keep detailed production, sales, and inventory records.
   • Preserve all relevant documents for at least six years.
3. Implement robust accounting systems:
   • Use accounting software that can track excisable goods and calculate duties accurately.
   • Regularly reconcile excise duty accounts.
4. Train staff:
   • Provide comprehensive training on excise duty regulations to relevant employees.
   • Designate a compliance officer responsible for overseeing excise duty matters.
5. Conduct internal audits:
   • Perform regular internal audits to identify and rectify compliance issues.
   • Consider engaging external auditors for an independent review.
6. File returns on time:
   • Submit excise duty returns and make payments within the prescribed deadlines.
   • Set up reminders for filing and payment due dates.
7. Maintain proper documentation:
   • Keep all required licenses, permits, and certificates up to date.
   • Document all transactions related to excisable goods thoroughly.
8. Seek professional advice:
   • Consult tax professionals or legal experts for complex excise duty matters.
   • Consider hiring a dedicated tax consultant for ongoing compliance support.
9. Implement internal controls:
   • Establish clear procedures for handling excisable goods.
   • Implement checks and balances to prevent errors and fraud.
10. Stay prepared for inspections:
    • Maintain organized records that are easily accessible for IRD inspections.
    • Conduct mock audits to identify potential compliance gaps.
11. Utilize technology:
    • Implement inventory management systems to track excisable goods accurately.
    • Use electronic filing systems for excise duty returns when available.
12. Monitor supply chain:
    • Ensure suppliers and distributors comply with excise duty regulations.
    • Verify the authenticity of excise duty stamps on purchased goods.
13. Engage with authorities:
    • Maintain open communication with the IRD for clarifications and guidance.
    • Attend workshops or seminars organized by tax authorities.
14. Plan for changes:
    • Anticipate potential changes in excise duty rates or regulations.
    • Develop contingency plans for significant regulatory shifts.
15. Review product classifications:
    • Regularly review product classifications to ensure correct duty rates are applied.
    • Seek advance rulings from the IRD for ambiguous cases.

By implementing these practices, businesses can minimize the risk of non-compliance and associated penalties while maintaining a positive relationship with tax authorities.

What is the process for obtaining excise duty refunds?

The process for obtaining excise duty refunds in Nepal involves several steps:

1. Eligibility assessment:
   • Determine if the refund claim is valid (e.g., for exports, overpayments, or exempted goods).
2. Documentation preparation:
   • Gather all relevant documents, including:
     • Original excise duty payment receipts
     • Export documents (for export-related refunds)
     • Proof of overpayment or exemption eligibility
     • Excise duty returns for the relevant period
3. Refund application:
   • Complete the excise duty refund application form (available from the IRD).
   • Attach all supporting documents to the application.
4. Submission:
   • Submit the refund application to the local Inland Revenue Office.
   • Ensure the application is filed within the prescribed time limit (generally within three years from the date of payment).
5. Acknowledgment:
   • Obtain an acknowledgment receipt for the submitted application.
6. Verification:
   • The IRD may conduct a verification process, which may include:
     • Document review
     • Physical inspection of goods (if applicable)
     • Interviews with company representatives
7. Assessment:
   • The IRD will assess the refund claim based on the submitted documents and verification results.
8. Decision notification:
   • The IRD will notify the applicant of their decision to approve, partially approve, or reject the refund claim.
9. Appeal (if necessary):
   • If the refund is rejected or partially approved, the applicant can file an appeal within 30 days of receiving the decision.
10. Refund issuance:
    • If approved, the refund will be issued either as a direct payment or as a credit against future excise duty liabilities.
11. Record keeping:
    • Maintain records of the refund application and outcome for future reference and audits.

The specific requirements and processing times may vary depending on the nature and amount of the refund claim. It’s advisable to consult with the local Inland Revenue Office or a tax professional for guidance on complex refund cases.

Additional FAQs:

1. How does excise duty affect imports and exports?

Excise duty significantly impacts imports and exports in Nepal:

Imports:

• Excise duty is levied on imported excisable goods at the customs point.
• Importers must pay the duty before clearing the goods.
• The duty is calculated based on the CIF value plus customs duty.
• It increases the cost of imported goods, potentially affecting their competitiveness.

Exports:

• Goods manufactured for export are generally exempt from excise duty.
• Exporters can claim refunds for excise duty paid on inputs used in export products.
• This exemption aims to make Nepali exports more competitive in international markets.

2. Can excise duty rates be negotiated in certain cases?

Generally, excise duty rates in Nepal are not negotiable as they are set by law. However, there are some exceptions:

• Special economic zones may have negotiated rates or exemptions.
• Large-scale investment projects may receive special considerations through government agreements.
• Bilateral or multilateral trade agreements may affect excise duty rates for specific products.

Any negotiations or special considerations must be approved by the government and typically require legislative action.

3. Is online excise duty filing available in Nepal?

Yes, Nepal has introduced online excise duty filing:

• The Inland Revenue Department offers an e-filing system for excise duty returns.
• Businesses can submit monthly or quarterly returns electronically.
• Online payment options are available through designated banks.
• The system aims to simplify compliance and reduce paperwork.

However, not all processes are fully digitized, and some transactions may still require physical documentation or in-person visits to IRD offices.

4. How are excise duty disputes resolved in Nepal?

Excise duty disputes in Nepal are resolved through a multi-tiered process:

1. Administrative review:
   • Taxpayers can request a review of assessments or decisions by the IRD.
   • This involves submitting a written application to the assessing officer or their superior.
2. Appeal to the Revenue Tribunal:
   • If unsatisfied with the administrative review, taxpayers can appeal to the Revenue Tribunal within 35 days of the decision.
   • The Tribunal is an independent body that hears tax-related appeals.
3. Supreme Court:
   • Decisions of the Revenue Tribunal can be appealed to the Supreme Court on questions of law.
4. Alternative Dispute Resolution:
   • In some cases, mediation or arbitration may be available for resolving disputes.
5. Advance Rulings:
   • Businesses can request advance rulings from the IRD to prevent potential disputes on complex issues.

The dispute resolution process aims to provide taxpayers with fair and impartial avenues for addressing excise duty disagreements.

5. What is the relationship between excise duty and VAT?

Excise duty and Value Added Tax (VAT) in Nepal are interrelated:

• Both are indirect taxes levied on goods and services.
• Excise duty is typically applied first, and VAT is then calculated on the price including excise duty.
• This can lead to a “tax-on-tax” effect, increasing the final price to consumers.
• Some products are subject to both excise duty and VAT, while others may be exempt from one or both.
• Businesses must account for both taxes separately in their records and returns.
• Input VAT credits are not available for excise duty paid.

Understanding the interaction between these taxes is crucial for accurate pricing and tax compliance.

6. How often do excise duty rates change in Nepal?

Excise duty rates in Nepal are subject to change:

• Rates are typically reviewed and potentially adjusted annually through the Finance Act.
• Changes are usually announced during the budget presentation for the upcoming fiscal year.
• Mid-year changes are rare but possible in extraordinary circumstances.
• Some products may see more frequent rate adjustments than others.
• Businesses must stay informed about rate changes to ensure compliance and accurate pricing.

The frequency of changes underscores the importance of regularly monitoring updates to excise duty regulations and rates.

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