Filing Digital Service Tax Returns in Nepal policy outlines specific requirements for accounting practices and tax return submissions. These provisions ensure accurate reporting of taxable transactions by non-resident service providers. Compliance with these requirements is crucial for avoiding penalties and maintaining a transparent tax system.
Accounting Requirements for Filing Digital Service Tax
Non-resident entities liable for Digital Service Tax must maintain their accounts on an accrual basis. This method ensures that revenue is recorded when services are rendered, regardless of when the payment is received. The accrual accounting approach accurately represents the entity’s financial activity and ensures that taxable transactions are not underreported.
Another critical requirement is the conversion of all transaction values into Nepali currency. Regardless of the original transaction’s currency, non-resident entities must report their revenue in Nepali rupees for tax assessment purposes. This provision standardizes the reporting process and facilitates easier auditing by the tax authorities.
Submission of Tax Returns
Non-resident service providers must submit tax returns to the Large Taxpayer Office through the designated online platform. The returns must detail the total transaction value of digital services provided during the income year and the corresponding tax liability. This information must align with the policy’s requirements.
Tax returns are to be filed within three months of the end of the income year. This timeline ensures that the tax authorities receive timely information, allowing them to monitor compliance effectively. The format for submitting tax returns is prescribed in Schedule 3 of the policy, which outlines all necessary details and calculations.
Penalties for Late Submission
Failure to file tax returns within the stipulated deadline incurs a penalty. The policy imposes a 0.1% fee per year for late submissions. This penalty serves as a deterrent to delays and encourages timely compliance among non-resident entities.
Components of Tax Returns
Tax returns for the Digital Service Tax in Nepal must include detailed information to ensure transparency and compliance. The following components are required when submitting returns:
Transaction Value: The total transaction value of digital services provided during the income year must be reported in Nepali currency. This figure is critical as it forms the basis for calculating the 2% Digital Service Tax liability.
Tax Calculation: The tax liability is calculated by applying the 2% rate to the disclosed transaction value. The return must clearly show this calculation and any applicable late fees or interest.
Sales Details: The policy requires non-resident service providers to include a breakdown of sales. This breakdown must specify:
- Names and addresses of consumers.
- Total transaction values (excluding VAT).
- Types of buyers (consumer or business).
These details ensure that the tax is appropriately attributed to the correct taxable transactions.
Supporting Documentation: All necessary records and data supporting the declared transaction values should be maintained for auditing purposes. While not required to be submitted with the tax return, these records must be available upon request by the tax authorities.
Payment of Tax Liability
After calculating the tax liability, non-resident entities must pay the due amount through the designated online platform within three months following the end of the income year. This timeframe aligns with the deadline for submitting tax returns, streamlining the compliance process.
Consequences of Non-Compliance
The policy enforces strict measures for non-compliance with tax return and payment deadlines:
- Interest Charges: If the tax liability is not paid within the stipulated timeframe, an annual interest of 15% is levied on the overdue amount.
- Audit Risk: Non-compliance increases the likelihood of an audit by the Large Taxpayer Office. Audits may result in additional penalties if discrepancies or underreporting are discovered.
These provisions are designed to ensure adherence to the Digital Service Tax framework and to discourage non-compliance.
Importance of Accurate Reporting
Accurate reporting in tax returns is crucial to maintaining transparency and avoiding penalties. Non-resident service providers must ensure their records are complete and consistent with the information submitted in their returns. This practice simplifies compliance and minimizes the risk of disputes with tax authorities.
Source: Digital Service Tax 2079 (2022)
