Background

This Blog contains a detailed explanation of Turnover Based Taxation method, its use-case, eligibility, pros-cons. and Conclusion

Methods under Income Tax Computation under Income Tax Act 2058 are:

• Presumptive Taxation.
• Turnover Based Taxation.
• Detailed Tax Computation.
• Advance Tax for owning public vehicles.

In this blog we will be discussing about Turnover Based Taxation method in Depth and Details.

Turnover Based Taxation

Introduction

Turnover Based Taxation is an indirect method of taxation. In most of other cases, tax assessment is done through detailed tax computation. However, in the case of Turnover Based Taxation, tax is assessed on the basis of transaction/ turnover a business reaches in an income year. Here, Tax liability is calculated as a predetermined tax percentage of yearly business turnover. It is to be noted that the applicable rate differs from business to business. D02 From Nepal

Eligibility & Conditions

Taxpayer has to understand that not everyone is eligible to be taxed under this method of tax assessment. Only the person fulfilling all the conditions stated below is eligible to be taxed under Turnover Based Taxation.

• The person has to be Resident Natural Person.
• The person shall derive Income only from the Operation of Business having source in Nepal in that Income Year.
• The Transaction/ turnover of the Business for the Income year shall exceed Rs. 30 lakhs but shall not exceed Rs. 1 crore.
• The Taxable Income from the business shall not exceed Rs 10 Lakhs.
• The person may or may not be registered for VAT.

NOTE:- The Text in Pink Color represents additions or amendments made by Finance Ordinance 78.79.

What were the changes made to Turnover based Taxation (Section 4.4ka) by Finance Ordinance 78.79 ?

Changes made are compared in the table below.

Provision in (Section 4.4ka) Before Finance Ordinance 78.79	Provision in (Section 4.4ka) After Finance Ordinance 78.79
The Turnover of the business for the Income year shall exceed Rs 20 lakhs and but shall not exceed Rs 50 Lakhs.	The Turnover of the business for the Income year shall exceed Rs 30 lakhs and but shall not exceed Rs 1 Crore.
The Business must not be VAT registered.	The Business may or may not be VAT registered.
No provision regarding Taxable Income Threshold was included	The Taxable Income from the business shall not exceed Rs 10 lakhs.
The provision of writing an application opting to apply Turnover Based Tax Computation methods to Inland Revenue Department ( IRD) in the specific form developed by IRD was mandatory.	The provision of writing an application opting to apply Turnover Based Tax Computation methods to Inland Revenue Department ( IRD) in the specific form developed by IRD has been removed

Amount of Tax to be Paid.

Schedule 1 Section 1.17 of Income Tax Act 2058 states the amount of Tax to be collected from such taxpayers as below.

SN	Yearly Turnover	Amount
1	Turnover upto Rs. 30 lakhs	Calculated as per Presumptive Taxation Method.
2	If a person sells goods at commission or value addition upto 3% of purchase price including cigeratee, gas.	0.25% of turnover Exceeding Rs. 30 lakhs to Rs 50 Lakhs. 0.3% of Turnover Exceeding Rs 50 lakhs to 1 Crore.
3	If a person deals in goods other than specified as above( SN No. 2)	1% of turnover Exceeding Rs. 30 lakhs to Rs 50 Lakhs. 0.8% of Turnover Exceeding Rs 50 lakhs to 1 Crore.
4	If a person deals in services.	2% of Excess Turnover.

What were the changes made to Turnover Tax Rate (Section 1.17 of Schedule 1) by Finance Ordinance 78.79

Changes made are tabulated as follows.

Turnover	Rate Before Finance Ordinance 78.79	Rate After Finance Ordinance 78.79
If a person sells goods at commission or value addition upto 3% of purchase price including cigeratee, gas.	0.25 % of Turnover Exceeding 20 lakhs	0.25% of turnover Exceeding Rs. 30 lakhs to Rs 50 Lakhs. 0.3% of Turnover Exceeding Rs 50 lakhs to 1 Crore.
If a person deals in goods other than specified as above ie cigeratee, gas.	0.75 % of Turnover Exceeding 20 lakhs	1% of turnover Exceeding Rs. 30 lakhs to Rs 50 Lakhs. 0.8% of Turnover Exceeding Rs 50 lakhs to 1 Crore.

NOTE: Due to Covid19, 90% of tax has been waived for yearly transactions up-to Rs 20 lakhs, 75% of tax has been waived for yearly transactions 20 lakhs to 50 lakhs & 50% of tax has been waived for yearly transactions 50 lakhs to 1Crore.

Benefits.

Benefits of Turnover Based Computation includes:

• No Invoices of Expense and other deductible expense are to be kept for Tax purposes.
• Complex detailed Tax Computation is not required.
• Business Person can give more time for Business Improvement.

Practicality.

In the Taxpayer portal of IRD, there is a section called D02 Return under which Presumptive Tax Return is Filed. Click here to go to D 02 form .Tax Return is submitted as per Section 96 of Income Tax Act 2058.

Issues with This Taxation System

• As Tax is levied on Turnover/Transactions rather than on Income, the basic fundamental concept of taxation on Income is contradicted.
• Even the lose making businesses who have implemented Turnover Based Taxation are forced to pay the Taxes.
• No facility of carrying forward of losses.
• No support from Tax concession in case of catastrophic events for business like fire in the warehouse, theft and other losses.
• Have to pay taxes during recession period of COVID-19.

Conclusion

Despite some issues in Turnover Based Tax Computation, it is an Easy Tax Assessment mechanism for Small Businesses. In the Nation with very low Financial Knowledge, this easy Tax Assessment mechanism has helped taxpayer to pay taxes with ease.

Disclaimer from Author

The information provided in this blog is for informative and academic purposes only. The Author bears no liability for any kinds of loss caused due to the decision taken on the basis of this blog. Information in this blog should not form a substitute to professional advice. Always seek professional advice or Contact us before taking any Financial Decision.