VAT Late Filing, Interest, Additional Fees and Penalties in Nepal

Late VAT Return

IRD's current VAT procedures state that failure to file the VAT return within the prescribed period can attract: 0.05% of tax payable per day

or

NPR 1,000 per tax period whichever is higher.

The precise Section 29 treatment should be reviewed according to the taxpayer and return period.

Example — Late VAT Return

VAT payable: NPR 500,000

Return delayed: 20 days

0.05% × NPR 500,000 × 20

= NPR 5,000

Compare: Minimum tax-period amount:

NPR 1,000

Indicative late-return consequence: NPR 5,000 before considering late-payment additional fee and interest.

Late Payment Additional Fee

Section 19 imposes an additional fee where VAT is not paid within the statutory payment period.

The current Act framework provides: 10% per annum additional fee

on overdue VAT.

This is separate from Section 26 interest.

VAT Interest

Section 26 provides: 15% per annum interest on VAT amounts not paid within the statutory period.

Interest continues even where the taxpayer files:

• Administrative Review; or

• Revenue Tribunal appeal,

subject to the Act.

Therefore:

Tax dispute does not automatically stop VAT interest.

Interest on Interest?

Section 19 currently provides that no interest is charged on:

• interest;

• additional fee; or

• fine.

The interest applies to the underlying tax amount according to the Act.

Force Majeure Relief

Section 19 allows a taxpayer to apply to the Director General for waiver of the additional fee where timely payment was prevented by extraordinary circumstances beyond the taxpayer's control.

This is discretionary.

It should not be represented as an automatic waiver merely because:

• cash flow was poor;

• customer had not paid;

• accountant was absent.

The circumstance must meet the statutory test.

Offences Under Section 29

Section 29 creates separate penalties for different VAT violations.

Examples include violations relating to:

• registration;

• invoicing;

• accounting records;

• VAT returns;

• obstruction of tax administration;

• other VAT Act/Rules requirements.

More serious offences can involve conduct such as:

• false accounts/invoices;

• fraud;

• tax evasion;

• pretending to be VAT registered when not registered.

The legal consequence depends on the exact subsection and current amended text.

False Invoice / Tax Evasion

Section 29 contains stronger penalty/prosecution provisions for intentional conduct such as:

• preparing false invoices/accounts;

• fraud;

• tax evasion;

• unlawful representation as VAT-registered person.

These should not be treated as ordinary late-filing cases.

The taxpayer can face:

• substantial monetary penalty;

• imprisonment;

• or both,

depending on the offence and current law.

Failure to Issue VAT Invoice

A VAT-registered supplier is required to issue invoices in accordance with Section 14 and Rule 17.

IRD continues to issue public notices reminding taxpayers of this legal obligation.

Failure can create:

• tax assessment;

• Section 29 penalty;

• customer Input VAT problems.

Electronic Billing Manipulation

Electronic billing should preserve the original transaction audit trail.

Software or business practices allowing:

• deletion;

• suppression;

• manipulation;

• backdating

of VAT invoices can create serious tax exposure.

This is especially high-risk where IRD uses electronic billing/CBMS data.

Undeclared Branch / Warehouse

Current VAT law also contains penalties for carrying on transactions through a branch/warehouse that should have been registered but was not properly registered.

Recent VAT amendments have specifically strengthened branch/warehouse compliance penalties.

Therefore every business expansion should trigger:

VAT master-data review

before transactions begin.

Late Return + Late Payment Example

VAT payable: NPR 1,000,000

Tax/return filed late.

Potential consequences can include:

Principal VAT

NPR 1,000,000

Late-return penalty

Section 29 calculation

Additional fee

Section 19

Interest

Section 26 at 15%

The three consequences can operate separately.

Do not calculate only one “15% penalty”.

Tax Assessment Can Add More Consequences

Suppose taxpayer filed VAT but understated sales.

IRD later assesses: Additional VAT:

NPR 500,000

The assessment can also include:

• additional fee;

• interest;

• applicable penalty.

Current assessment procedures specifically contemplate assessment orders including additional fee under Section 19 and interest under Section 26.

Fees, Interest and Penalties Are Treated as Tax

Section 27 provides that fees, interest and fines imposed under the VAT Act are treated as: tax payable under the VAT Act.

This matters for:

• recovery;

• tax clearance;

• enforcement.

Compliance Is Cheaper Than Correction

VAT errors often become expensive because: principal VAT

10% additional fee

15% interest

penalty can accumulate simultaneously.

A monthly VAT close should therefore occur before the filing deadline.

Monthly VAT Compliance Checklist

• Close sales

• Close purchases

• Reconcile Output VAT

• Reconcile Input VAT

• Remove blocked Input VAT

• Verify Credit/Debit Notes

• Reconcile imports

• Reconcile bank/cash

• File Schedule 10

• Pay VAT

• Save acknowledgement

• Save payment voucher

• Clear IRD mismatches promptly

• Never delete invoices

• Preserve electronic billing data

Common Errors

Calling 15% interest the only VAT penalty

Ignoring the separate 10% additional fee

Not filing a nil return

Assuming appeal stops interest

Deleting incorrect invoices

Failing to register branches/warehouses

Using fake/unsupported Input VAT invoices

Further guidance and practical checks

VAT penalties are provision-specific. Before calculating exposure, identify whether the problem concerns filing, payment, invoicing, registration, records, Input VAT or deliberate tax evasion.