What is tax?
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Concept of Tax
A tax is a mandatory, non-penal financial contribution imposed by a sovereign government on individuals, businesses, property, or transactions under statutory authority, without any direct, proportional quid pro quo (immediate return service), for financing public expenditures and socio-economic development.
Differentiate between income year and assessment year.
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Income Year vs. Assessment Year
Parameter Income Year (Section 2) Assessment Year Meaning The financial period (1st Shrawan to end of Ashad) in which income is earned. The financial year immediately following the income year in which tax is formally assessed. Activities Earning revenues, maintaining accounting ledgers, and incurring expenses. Filing self-assessment tax returns (by Ashwin end) and tax clearance. State the meaning of “Canon of Economy”.
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Canon of Economy
The Canon of Economy (formulated by Adam Smith) requires that the total administrative cost of collecting taxes should be kept to an absolute minimum relative to the net revenue delivered to the state treasury. Furthermore, it implies that the tax compliance burden and record-keeping costs for taxpayers should be as low as possible.
Define indirect tax with example.
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Indirect Tax
An indirect tax is a tax where the primary statutory tax liability (impact) and the ultimate economic tax burden (incidence) fall on different persons. The taxpayer collects the tax from buyers and remits it to the government, shifting the tax burden along the supply chain.
- Examples in Nepal: Value Added Tax (VAT at 13%), Customs Duty, Excise Duty.
Explain the meaning of “Canon of Certainty”.
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Canon of Certainty
The Canon of Certainty (formulated by Adam Smith) states that the tax which each individual is bound to pay ought to be certain, clear, and not arbitrary. The time of payment, the manner of payment, and the exact amount to be paid must be transparent and clearly known beforehand to both the taxpayer and the tax administration.
What is Permanent Account Number?
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Permanent Account Number (PAN)
A Permanent Account Number (PAN) is a unique nine-digit alphanumeric identifier issued by the Inland Revenue Department (IRD) of Nepal to every registered taxpayer (individuals, firms, corporations, entities). It tracks income tax assessments, VAT returns, TDS reconciliations, and financial transactions across the country.
Thomas is foreign citizenship holder arrived in Nepal on 1st Poush 2078 and stayed in Nepal at the end of Ashad 2079.
Required : His residential status for the income year 2078/79.
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Determination of Residential Status for Thomas (FY 2078/79)
Days Stayed in Nepal:
- Poush 2078: 30 days
- Magh 2078: 29 days
- Falgun 2078: 30 days
- Chaitra 2078: 30 days
- Baishakh 2079: 31 days
- Jestha 2079: 31 days
- Ashad 2079: 31 days
- Total Duration of Stay:
Statutory Provision: Under Section 2(ak) of the Income Tax Act, 2058, an individual who stays in Nepal for 183 days or more during an income year (or consecutive 365-day period) is a resident.
Conclusion: Since Thomas stayed for 212 days (
days), he is a Resident Individual for the income year 2078/79.
MGT 224
Taxation in Nepal
TU BBS · Third Year · Four-year BBS curriculum
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