TAX ISSUES ON EDUCATION SECTOR Presented By: Bishnu Prasad Nepal Deputy Director General Inland Revenue DepartmentOutline

Overview of Taxes 2 Revenue Composition Income Tax Tax Deduction at Source (TDS) Education Service Fee Current Scenario ESF Issues Our ExpectationsOverview of Taxes Direct taxes 3 Income tax Property tax Key indirect taxes (In Nepalese context): Value Added tax/ Customs duty/ Excise Duty Health Service Tax Education Service FeeRevenue Composition Composition of Tax Revenue(2010/11) 4

Other Tax (I l di ESF) Composition ofTax Revenue(2010/11) Income Tax Customs Duty 21% (Including ESF) 2% 26% Value Added T Excise 15% ax 36%Income Tax Historical Background: 5 Finance Act, 2016BS T d P fit & R ti T A t 2017 & Trade Profit & Remuneration Tax Act, 2017 & Rule, 2017 BS I T A t 2019BS & R l 2020BS Income Tax Act, 2019BS & Rule, 2020BS Income Tax Act, 2031BS & Rule, 2039BS Income Tax Act, 2058BS & Rule, 2059BSIncome Tax Features of Nepalese Income Tax Act: 6

 Enhance revenue mobilization through effective revenue collection procedure (preambles) Broad Base (Source as well as Residence Principle) Tax Rates (Lower 1% Social security average (Lower 1% Social security, average 15,25/ Progressive 40%srg) Classification of income sources Business, Employment, Investment, Windfall GainIncome Tax Features. 7 Deduction & loss carryover Cap g italain Tax Special Provision for Banking & Insurance International Taxation Taxpayers Right (secrecy, public circular, advance ruling) Administrative Review & Appeal Interest / Penalties & Criminal Offences Income Tax Reporting and Payment: 8 Income Tax Return: within 3 months after completion of Income Year. Installment Tax Return: within end of Poush for every i ( b d d i h it income year (can be amended in chaitra and Ashadh) . Installment tax payment:

Poush, Chaitra, Ashadh 40%70% 100%Comp pg liance and Reporting 9 Registration: (Voluntary/Forced) Billing and Recording of Transaction: Return Filing: (Voluntary/Forced) (Self Assessment ) (by Taxpayers) Tax Payment: Audit and Management Adm. Review/Appeal (Self-payment) Management AssessmentTax Deduction at Source TDS on remuneration of employees 10 TDS on service charges TDS l on rental expense TDS on tender or contract Tax deduct on every payment (on remuneration 12 month installment)

 TDS Return filing and Tax deposit up to 25 days of next month Education Service Fee Background: 11 Financial Act 2058: Introduced concept of Rural Education Service Tax Financial Act 2064: Introduced basic concept as Service Tax Financial Act 2065: Education Service Tax 5% (from 2065 Ashwin) Financial Act 2066: Education Service Fee 1% (f 2065Sh ) (from 2065Shrawan)Education Service Fee Features: 12 Constitute by Financial Act. As indirect tax paid by the service receiver (guardians). Collection on behalf of government . Levied on Education fees (Admission fee and Tuition fee) Rate : 1% of the fee.Revenue contribution of ESF 13 FY 2065/66 ( %) 2066/67 2067/68 2068/69

(EST 5%) No of. 877 1939 2862 3144 Institutions 877 1939 2862 3144 Revenue Collection 16324 183273 203982 223780 (Rs in 000)Legal Provisions Legal base: 14 Financial Act Education Service Fee Directives 2065 Objectives: T h d i d b k d To support the students in remote and backward area.Legal Provisions Tax Base: 15 Education fee (Admission fee and Monthly Tuition Fee) of Educational Institutions operated by Private sector; All institutions operated in Kathmandu valley, p , p Municipalities, District HQs and area specified by IRD. All institutions providing university level education (Higher than Higher Secondary education). 1% ESF levied (through Bank) during Foreign currency

exchange for the payment of Abroad study. Legal Provisions Collecting Method: 16 Should be levied through Invoice (Fee+ 1%ESF) Reporting and Payment: T P i d Ti Tax Period: Trimester Tax Return Filing and Payment within 25days of each i d l i h tax period completion.Legal Provisions Legal provisions against non compliance 17 Rs 1000 per Non filer of return Rs. 1000 per Non filer of return. 15% interest on delay payment. IROs can investigate and take legal actions for non compliance. District Education office should ask ESF clearance before providing any facilities and services. Can be ordered to close business for due p yament for more than 3 Months.Current Scenario Compliance level is increasing 18 No. of taxpayers and tax collection amount is increasing. Increasing Tax awarenessIssues related to ESF Various Schemes

19 Non compliance Behavior Resistance Ud R i Under Reporting Delay paymentOur Expectations Compliance of Tax Law and Rules 20 . Transparency of Economic transactions Expansion of tax base Tax Education through Education.21 Thank You !