The Digital Service Tax policy in Nepal includes provisions for auditing and tax assessment to ensure compliance by non-resident service providers. These measures are designed to verify the accuracy of reported transactions and identify any discrepancies that may arise.
The Large Taxpayer Office conducts the auditing process and has the authority to assess and enforce penalties for non-compliance.
Objectives of Auditing
The primary objective of the auditing process is to ensure that non-resident service providers accurately report their taxable transactions. By conducting audits, the tax authorities aim to:
- Verify the transaction values declared in the tax returns.
- Detect any underreporting or concealment of taxable transactions.
- Maintain fairness and accountability within the tax system.
Audits are initiated based on evidence or information suggesting a service provider may have underreported or concealed taxable income.
Initial Tax Assessment Order
If the Large Taxpayer Office identifies potential discrepancies during an audit, it issues an Initial Tax Assessment Order. This order is based on the evidence or information gathered and outlines the suspected underreporting or discrepancies.
The order is sent to the email address provided during registration or delivered to the authorized representative of the non-resident service provider.
The Initial Tax Assessment Order is a formal notification to the service provider, allowing them to respond to the findings.
Opportunity for Defense
Upon receiving the Initial Tax Assessment Order, the service provider is granted 15 days to submit supporting evidence or documentation to refute the findings. This period allows the service provider to present their case and clarify any discrepancies identified by the tax authorities.
Submitting supporting evidence is critical in ensuring that the tax assessment process is fair and transparent.
Final Tax Assessment Order
After reviewing the evidence and documentation submitted by the non-resident service provider, the Large Taxpayer Office issues a Final Tax Assessment Order. This order takes into account the audit findings, as well as any explanations or supporting materials provided by the service provider.
If the Large Taxpayer Office determines that discrepancies remain, the Final Tax Assessment Order will specify the following:
- The corrected transaction values.
- The updated tax liability.
- Any applicable penalties for underreporting or non-compliance.
This final order is binding and is the basis for enforcing the tax payment and penalties.
Penalty for Concealed Transactions
The Digital Service Tax policy imposes strict penalties to discourage intentional underreporting or concealment of taxable transactions. If the audit reveals that a non-resident service provider has deliberately concealed taxable income, a penalty equal to 50% of the concealed tax amount is levied.
This penalty is in addition to any interest charges for delayed payment, ensuring non-compliant entities face significant financial consequences.
Interest and Additional Penalties
In addition to the 50% penalty for concealed transactions, the policy enforces an annual interest rate of 15% on overdue tax payments. This interest is calculated from the payment’s due date and continues to accrue until the tax liability is fully settled.
These provisions ensure that non-resident service providers are incentivized to meet their tax obligations on time and to report their transactions accurately.
Audit Procedures
The auditing process follows a structured procedure to maintain fairness and accountability:
- Notification: The initial Tax Assessment Order informs the service provider of the audit.
- Evidence Collection: The Large Taxpayer Office gathers and reviews evidence to verify the accuracy of the reported transaction values.
- Defense Opportunity: The service provider has 15 days to submit proof and explanations to refute the findings.
- Final Decision: The Large Taxpayer Office issues the Final Tax Assessment Order based on its findings and the service provider’s submissions.
This process ensures that all parties are given adequate opportunities to present their case and that the tax assessment is conducted transparently.
Importance of Auditing in the Digital Service Tax Framework
The audit and tax assessment provisions are crucial in ensuring the integrity of Nepal’s Digital Service Tax system. By verifying the accuracy of reported transactions, the Large Taxpayer Office can identify and penalize non-compliance, fostering trust in the tax system. These measures also ensure that non-resident service providers contribute their fair share to Nepal’s economy.
Source: Digital Service Tax 2079 (202
