PAN and VAT are not two levels of the same thing. PAN is an identity number almost everyone earning income needs. VAT is a tax collection obligation you take on once your business crosses a threshold — and the services threshold changed, so a figure many people still quote is out of date.
PAN: Effectively Universal
Under Section 78 of the Income Tax Act, a PAN is required by every person carrying on a business, every employer of taxable employees, every withholding agent, and every person required to file a return — within 30 days of becoming liable.
VAT: When Registration Becomes Compulsory
| Trigger | Threshold |
|---|---|
| Turnover of goods, carriage service, or rental of carriage vehicles — last 12 months | Above Rs 50,00,000 |
| Turnover of services, or mixed goods and services — last 12 months | Above Rs 30,00,000 |
| Taking a business loan | Above Rs 10,00,000 |
| Importing goods at one time | Above Rs 10,000 |
| Registration must be completed within 30 days of crossing any of these | |
Businesses That Must Register Regardless of Turnover
In metropolitan, sub-metropolitan and municipality areas prescribed by IRD, certain business types must register whatever their turnover. The list reported includes:
Trade and materials
Hardware, sanitary, furniture, fixtures and furnishing, marble, electronics, automobiles and motor parts.
Services
Educational consultancy, health club, massage therapy, beauty parlour, machine dry cleaners, colour lab, parking service.
Hospitality
Catering, party palace, restaurant with bar, disco, ice cream factory, boutique.
Always registered
Importers (before customs clearance) and manufacturers.
One exclusion worth knowing: a person dealing only in Schedule 1 exempt items cannot register for VAT.
🤝 Not sure whether you have crossed the VAT threshold?
Tell us your turnover, what you sell and whether you import. Digital Solution will help you work out whether registration is now compulsory and what registering actually changes for your pricing.
What Happens If You Should Have Registered and Did Not
The VAT Act sets this out directly:
- Failing to register when required — the tax payable for each tax period you should have been registered, plus Rs 10,000.
- Acting as registered when you are not — a fine of up to twice the tax, or imprisonment up to six months, or both.
Note how the first penalty compounds: it is not a single fine but the tax for every period, recovered retrospectively. A business that quietly crossed the threshold two years ago is looking at two years of VAT it never collected from its customers — payable out of its own margin.
Should You Register Voluntarily?
| Registering helps if… | It hurts if… |
|---|---|
| Your customers are VAT-registered businesses who reclaim the VAT you charge | Your customers are ordinary consumers who cannot reclaim it — your price effectively rises 13% |
| You have significant input VAT on purchases to reclaim | Your costs are mostly labour, with little input VAT |
| You provide services and want the 1.5% TDS rate instead of 15% | You cannot handle monthly filing discipline |
| You are bidding for contracts that require it | — |
Frequently Asked Questions
What is the VAT registration threshold in Nepal?
Above Rs 50 lakh turnover for goods and carriage services, and above Rs 30 lakh for services or mixed supply, measured over the last 12 months.
Isn’t the services threshold Rs 20 lakh?
Not since 2081 — it was raised to Rs 30 lakh. Pages still showing Rs 20 lakh are out of date.
Do I need a PAN?
If you carry on business, employ taxable staff, withhold tax or must file a return — yes, within 30 days of becoming liable. It is free.
Can I get a PAN online?
Yes, through the IRD taxpayer portal or the Nagarik App.
Does importing trigger VAT registration?
Importing goods worth more than Rs 10,000 at one time is a listed trigger — a low bar that catches small businesses.
What if I never registered but should have?
The tax for each period you should have been registered becomes payable, plus Rs 10,000. It accumulates, so regularise early.
Should I register voluntarily?
It helps if your customers are businesses or you have input VAT to reclaim, and it lowers TDS on service fees from 15% to 1.5%. It hurts if you sell to consumers.
Which businesses must register regardless of turnover?
A prescribed list including hardware, electronics, educational consultancy, party palace, beauty parlour and others in specified urban areas, plus importers and manufacturers. Confirm your category with your IRO.
Sources
- Income Tax Act 2058, Section 78 — PAN requirement.
- Value Added Tax Act 2052 — registration provisions and Section 29 penalties, via consolidated published text.
- Published professional tax summaries for the registration thresholds, including the 2081 increase of the services threshold to Rs 30 lakh.
Related Reading
Disclaimer: Digital Solution Nepal is an independent educational and digital-service assistance website — not a tax authority, not a chartered accountancy firm and not a law firm. Tax rates and thresholds change with every Finance Act, and individual circumstances differ. Nothing here is tax advice — the Inland Revenue Department, the current Finance Act and a registered tax practitioner are final. Verify before filing or paying.
Rabin Paudel
Rabin Paudel is the Founder of Digital Solution, a Content Creator, and an AI Trainer. He shares practical and easy-to-understand content on Artificial Intelligence, Digital Literacy, Online Services, FinTech, and Technology. His mission is to make technology simple, accessible, and useful for everyone.
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