Register Your Business in VAT

             Let me share with you a short story about a young boy named “Kumar Dangi”. It was the year 2021 and Kumar was just facing the real world outside the college. The young boy was energetic and determined to do something with his life in Nepal. The young boy has a mantra “if we are determined we can establish an empire in our county then why should we go to foreign countries for employment” though his parents want him to go to Australia on a study visa and settle there. But Kumar was determined and wanted to do something in Nepal. With determination, he started a business. Business of furniture in Pokhara.

At the start, he faced some kind of difficulties to arrange the fund as he was not born with a silver spoon in his mouth. As his parent does not want him to start the business so it was very hard for Kumar to convince his parent. But he could manage to convince them with the help of the emotional dialogue of “3 idiots” where Farhan says to his father I will be happy papa if I do what I wanted to do instead of what you want me to do. Kumar spelled the same dialogue before his parent and finally, they could arrange around 30% of the fund Kumar needed to start the business. For the balance of 70% of the fund, he was wandering here and there. He was tired of the rejection he was getting from the bank managers. He tried each and every one of the bank branches in his city but could not manage to arrange the fund as wherever he went everyone was demanding collateral for the loan. As I said he wasn’t born with a silver spoon in his mouth so there was no property to offer as collateral. One day he was sitting in a tea stall and thinking about the arrangement of the balance fund with sips of tea. Two men sitting at the following table were talking about a new product paper on a category of loans launched by their organization's head office. It was some kind of “women entrepreneurship loan”.

Kumar was desperate to arrange the balance fund. He did some research work and came to know that it was a kind of loan facility provided to women to encourage entrepreneurship in them or we should say women self-dependent. Where if a woman wants to start her own business the banks offer a subsidy loan facility with no requirement for collateral. He was so determined and with that determination, he registered a proprietorship in his mother’s name and applied for the credit facility. After some formalities bank disbursed an amount of Rs.15,00,000/- and he finally started a furniture business.

Kumar was very happy as he could finally start his own business. His business was increasing day by day but not at the speed at which he wanted and working hard. There was some problem but he was not able to find out the actual cause. The problem was whenever any kind of tender/quotation was demanded by the government departments of Pokhara and nearby local levels for the office furniture, he always use to send quotations but his quotations were never accepted by those government agencies. Due to this, he was selling goods in small quantities. He wanted to supply government agencies.

Kumar has a friend Suman Sindel. He was at the Inland revenue department. One day Kumar and Suman met at Suman’s house and Kumar shared his problem with Suman and his friend laughed at him. Kumar at first felt insulted as he was sharing his problem and his friend was laughing at his problem. Then his friend Suman asked him if his business was registered in VAT or not. Kumar replied no. Kumar further explained his part as I consulted one of the Registered auditors and he told me that I do not need to get VAT registration as the turnover of my business does not exceed five million. Suman explained your RA was partially right. There is a provision in Value Added Tax Rules, 2053 which says,” If the Government of Nepal or constitutional bodies or state or central government or any public entity or corporate entity within a state or local body purchases taxable goods or services, inside Nepal, exceeding twenty thousand rupees at a single time, such goods or services shall only be purchased from a registered person”.  That means the government agencies can not purchase goods or services exceeding twenty thousand rupees from a person who is not registered in VAT. So, that is the reason why those agencies do not consider your quotations. If you want to supply goods to government agencies and increase your business by getting big orders from those agencies you must get your business registered in VAT.

The next, day Kumar did what his friend told him to do. He took his mother with him to the tax office and applied for registration in VAT. He got a VAT registration certificate after some time. After getting the business registered in VAT his quotation for the supply of furniture in government offices was never rejected and started to get big orders. Nowadays Kumar is the owner of other five proprietorship businesses in Pokhara.

In conclusion, the moral of the story is that the provisions of the Value Added Tax Act, 2052, and Value Added Tax Rules, 2053 directly do not require the business to get VAT registration if the turnover of the business does not exceed the threshold limit. But Rule 56 of Value Added Rules, 2053 indirectly compels businesses to get VAT registration by putting a constraint/disadvantage of not getting VAT registration as due to this constraint increment of your non-registered businesses may not be as much as you desire or work hard. So, if you want to increase your business by getting big orders from government agencies, you too shall get your business registered in VAT without considering the threshold limit of five million or two million.

 

 

Thanks

Krishna P Bhusal

Member of ICAI

 

 

Source:- Value Added Tax Act, 2052

              Value Added Tax Rule, 2053, and site of IRD 

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