For small businesses that operate with limited resources, the Nepal government has prescribed a simplified standard taxation, namely: i) Presumptive taxation and ii) Turnover-based taxation
i) Presumptive Taxation:
Whether you are a small retail shop retailing any consumer goods, a grocery store, or providing services such as haircut or bike workshops, if your business has turnover up to Rs 30 lakhs (three million rupees), your business will be eligible to presumptive taxation for small business.
Other conditions for presumptive taxation include:
- A taxpayer is a Resident Natural Person with income from business only.
- The annual profit from business (taxable business income) shouldn’t exceed Rs. 3 lakhs (Rs 300,000) and business turnover shouldn’t exceed Rs 3 million
- Has not claimed a medical tax credit under section 51 and an advance tax credit under section 93.
Table 1: You will have to pay flat amount of taxes depending on where your business is located.
|
Location |
Annual Tax (In Rs) |
|
Metropolitan City; Sub-Metropolitan City |
7,500 |
|
Municipality |
4,000 |
|
Rural Municipality |
2,500 |
ii) Turnover based taxation
If your turnover exceeds three million, you will have to pay a certain rate of tax under this method depending on the nature of the business and turnover size in addition to annual presumptive tax. This tax method however doesn’t apply to professional service providers such as doctors, engineers, auditors, players, actors, or consultants.
Conditions for turnover-based taxation include:
- A taxpayer is a Resident Natural Person with income from business only.
- Annual turnover exceeds Rs. three million, but shouldn’t exceed Rs 10 million while taxable business income shouldn’t exceed Rs one million
- Doesn’t apply to professional service providers such as doctors, engineers, auditors, lawyers, players, actors, or consultants.
Now, how to calculate your tax obligation under turnover-based taxation:
- Presumptive taxation for small businesses shall be applied for the first turnover of up to 30 lakhs. The annual tax is mentioned in Table 1 above.
- If your turnover exceeds 30 lakhs, you will have to pay the following rates in addition to the annual presumptive tax.
|
Nature of business |
For turnover of Rs 3 million to 5 million |
For turnover of Rs 3 million to 10 million |
| Gas, cigarette business doing transactions with a 3% margin or commission |
0.25% |
0.30% |
| Other persons except those involved in the business as above (a) |
1% |
0.8% |
| Engaged in service business except for the doctor, engineer, auditor, player, actor, or consultant. |
2% |
2% |
