The article discusses the contradictory principles behind the Nepali government’s decision to impose a Value Added Tax (VAT) on international air tickets, which goes against the fundamental principles of VAT as a destination-based tax and Nepal’s international commitments.
– The Nepali government has imposed a VAT on international air tickets, despite widespread opposition.
– This contradicts the basic principles of taxation, as VAT is a consumption or destination-based tax that should not be applied to exports.
– The Economic Act mandates VAT collection from outbound travelers but exempts inbound ones, suggesting that such air services are neither supplied nor imported into Nepal.
– Even if considered exports, the VAT Act provides for a zero percent VAT rate on exports.
– The International Civil Aviation Organization (ICAO), a UN-specialized agency, specifies that VAT and sales tax should not be levied on air services.
– ICAO distinguishes between “charges” and “taxes” on aviation services, asserting that charges cover the costs of providing civil aviation services and should not discriminate between domestic and international services, while taxes should not apply to civil aviation services.
– ICAO’s 1993 resolution urged member states, including Nepal, to reduce and eventually eliminate all forms of taxes on international air transport.
– Nepal exempts VAT on fuel, lubricants, and other technical supplies used by international air services, as per ICAO’s tax policy.
– Nepali hotels supplying aviation catering to international air services are also exempt from VAT, and duty-free shops at international airports do not charge VAT.
– Imposing VAT on foreign travelers while exempting international airlines from VAT on supplies contradicts VAT’s fundamental principles.
– The government claims that since foreign airlines generate income from Nepal but do not pay income tax here, VAT was deemed a scientific method for tax collection amid pressures to increase revenue.
– However, the Income Tax Act requires foreign air service operators to pay a five percent advance income tax on their total turnover in Nepal before repatriating earnings to their home countries.
– The government has stated that the VAT on air tickets and other unnecessary taxes will be withdrawn.
Source: english.onlinekhabar.com
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
