Many taxpayers in Nepal make two costly mistakes: thinking an assessment or decision is final and believing they can talk their way out of it. In reality, once the tax office initiates a tax action—whether for income tax, VAT, or excise duty—it triggers a formal legal process. Attempting to resolve it through informal negotiation or verbal explanations won't protect your rights and often makes things worse.
It's also important to note that some tax regimes, such as the Digital Service Tax ("DST"), operate under separate compliance mechanisms and are not subject to this dispute process discussed in this article. You can learn more about Nepal's DST regime here.
Nepal's tax dispute framework is primarily governed by the Income Tax Act, 2058 (2002) ("Income Tax Act"), the Value Added Tax Act, 2052 (1996) ("VAT Act"), the Excise Duty Act, 2058 (2002) ("Excise Duty Act"), and the Revenue Tribunal Act, 2031 (1974) ("Revenue Tribunal Act"). While each law governs a distinct category of taxation, they follow a substantially uniform dispute resolution process—unless expressly provided otherwise.
Stage 1: Responding to IRD Assessment Notices in Nepal
The tax dispute process in Nepal commences when the tax office, following a tax audit or desk review, issues a notice requesting clarification or explanation from the taxpayer. This may manifest as a letter indicating an impending tax assessment unless valid counter-arguments are provided.
Action Required for Taxpayers:
Careful Review: Meticulously review the notice and its underlying basis.
Document Assembly: Gather all relevant tax filings, comprehensive financial records, and supporting documentation.
Detailed Response: Submit a thorough written response, legally and factually explaining why the assessment should not proceed.
This initial reply is foundational for any subsequent challenge and must be prepared with utmost legal and accounting precision.
Stage 2: Administrative Review of Tax Decisions
Scope of Administrative Review in Nepal:
Administrative review is not exclusively limited to tax assessments. It extends to a wide array of departmental decisions under the Income Tax Act, VAT Act, and Excise Duty Act. The types of decisions commonly subject to administrative review include (but are not limited to):
| Subject Matter | Typical Examples |
| Assessment and Compliance | Estimated assessments, rejection of revised returns, refusal to extend deadlines |
| Withholding and Collection | Orders to deduct or remit tax, third-party garnishment notices |
| Filing and Reporting | Directions to file returns, rejection of rectification applications |
| Liability and Waiver | Determinations of interest, penalties, surcharges, or denial of waiver requests |
Such matters are challengeable under the administrative review framework provided they impose or affect the taxpayer's legal obligations.
Key Timelines for Administrative Review:
Filing Deadline: The application must be filed within 30 days of receiving the assessment or decision, or inaction.
Extension Request:If the initial deadline is missed, a one-time extension of up to 30 days may be requested by filing a separate application within 7 days of the lapse, citing valid reasons.
Response to Extension: The Inland Revenue Department ("IRD") is obligated to issue a written response to the extension request. Should it fail to respond, the taxpayer must formally note this when escalating the matter. Importantly, the IRD's refusal to grant an extension may itself be subject to review.
Deposit Requirement for Administrative Review:
To ensure procedural compliance, the following deposit is mandatory:
100% of the undisputed amount, and
25% of the disputed tax amount. In case of excise the language includes both the tax amount and the fines for the purpose of calculating 25% amount.
Deemed Rejection and Notification Duty:
Deemed Rejection: If the IRD fails to respond to the administrative review application within60 days, the application is statutorily deemed rejected. The taxpayer may then escalate the matter to the Revenue Tribunal.
Notification Duty: If an appeal is filed to the Revenue Tribunal, the taxpayer is mandated to notify the IRD within15 days, enclosing a copy of the appeal petition.
Stage 3: Appealing to the Revenue Tribunal of Nepal
The Revenue Tribunal, constituted under the Revenue Tribunal Act, 2031 (1974), serves as the principal forum for tax dispute adjudication in Nepal.
Appeal Conditions for Revenue Tribunal:
Timeline: An appeal must be filed within 35 days of receiving the departmental review decision, or from the date it is deemed rejected.
Deposit Requirement for Revenue Tribunal Appeal:
The following deposits are required for an appeal to the Revenue Tribunal:
50% of the assessed tax amount(if any); and
100% of any fines or penalties.
If a taxpayer previously deposited 25% for administrative review, that amount is credited toward the 50% deposit required for Tribunal appeal.
Procedure at the Revenue Tribunal:
Petition Filing: File a structured appeal petition, clearly articulating legal and factual grounds.
Documentary Evidence: Attach certified copies of all prior correspondence and evidence of required deposits.
Hearings and Argumentation: Prepare for full hearings and thorough examination of records.
The Tribunal possesses the authority to confirm, vary, or set aside the IRD's decision. It is empowered to summon witnesses, examine evidence, and issue legally binding decisions.
Stage 4: Supreme Court Appeal for Tax Cases in Nepal
A limited right of appeal exists to the Supreme Court of Nepal for tax cases, strictly restricted to matters involving substantial questions of law.
Conditions for Supreme Court Appeal:
Timeline: A petition for leave to appeal must be filed within 35 days from the date of the Revenue Tribunal's order.
Procedure for Supreme Court Appeal:
The Court must be satisfied that the case raises a significant legal issue—factual disagreements are not entertained at this level.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
